Capitol Investment Corp. VS-4/AtrueAmendment No. 2 to the Merger Agreement0001722438Non-accelerated Filer2021Q1truetruefalse0.00010.00011,000,0001,000,000————30,465,56529,846,9850.00010.0001400,000,000400,000,0004,034,4354,653,0154,034,4354,653,0150.00010.000150,000,00050,000,0008,625,0008,625,0008,625,0008,625,0000.00010.00011,000,0001,000,000————29,846,98529,846,9850.00010.0001400,000,000400,000,0004,653,015—4,653,015—0.00010.000150,000,00050,000,0008,625,0008,625,0008,625,0008,625,00034,500,0005,833,3331.5010.0026,79492,804The Sponsors have agreed that they will be liable jointly and severally to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, there can be no assurance that they will be able to satisfy those obligations should they arise.(1) the market value of its Class A common stock held by non-affiliates exceeds $250 million as of the end of that fiscal year’s second fiscal quarter, or (2) the Company’s annual revenues exceeded $100 million during such completed fiscal year and the market value of its Class A common stock held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter.Once the Warrants become exercisable, the Company may call the Warrants for redemption: ● in whole and not in part; ● at a price of $0.01 per Warrant; ● upon not less than 30 days’ prior written notice of redemption to each Warrant holder; and ● if, and only if, the last reported sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like and for certain issuances of Class A common stock and equity-linked securities as described above) for any 20 trading days within a 30-trading day period ending three business days before the Company sends to the notice of redemption to the Warrant holders.Once the Warrants become exercisable, the Company may redeem the outstanding Warrants: ● in whole and not in part; ● at $0.10 per Warrant upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their Warrants prior to redemption and receive a number of shares based on the redemption date and the “fair market value” of Class A common stock except as otherwise described below; ● if, and only if, the last reported sale price of Class A common stock equals or exceeds $10.00 per share (as adjusted per stock splits, stock dividends, reorganizations, reclassifications, recapitalizations and the like and for certain issuances of Class A common stock and equity-linked securities as described above) on the trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders; and ● if, and only if, the last reported sale price of Class A common stock is less than $18.00 per share (as adjusted for stock for stock splits, stock dividends, reorganizations, recapitalizations and the like and for certain issuances of Class A common stock and equity-linked securities), the Founders’ Warrants are also concurrently called for redemption on the same terms as the outstanding Warrants, as described 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As filed with the U.S. Securities and Exchange Commission on June 15, 2021
Registration No: 333-254470 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Capitol Investment Corp. V
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
6770
(Primary Standard Industrial Classification Code Number)
84-1956909
(I.R.S. Employer Identification Number)
1300 17th Street North, Suite 820
Arlington, Virginia 22209
Telephone: (202) 654-7060
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Mark D. Ein, Chief Executive Officer
Capitol Investment Corp. V
1300 17th Street North, Suite 820
Arlington, Virginia 22209
Telephone: (202) 654-7060
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Rachel W. Sheridan, Esq.
Jason M. Licht, Esq.
Christopher J. Clark, Esq.
Latham & Watkins LLP
555 Eleventh Street NW, Suite 1000
Washington, District of Columbia 20004
(202) 637-2200
Stephen Salmon
Davis Polk & Wardwell LLP
1600 El Camino Real
Menlo Park, California 94025
(650) 752-2000
Eric Watson
Doma Holdings, Inc.
101 Mission Street, Suite 740
San Francisco, California 94105
(650) 419-3827
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective and all other conditions to the transactions contemplated by the Merger Agreement described in the included proxy statement/prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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 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. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i)
(Cross-Border Issuer Tender Offer)
Exchange Act Rule 14d-1(d)
(Cross-Border Third-Party Tender Offer)
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount to be Registered(1)
Proposed Maximum Offering Price Per Share(2)
Proposed Maximum Aggregate Offering Price(2)
Amount of Registration Fee
Common stock, par value $0.0001 per share(3)
302,114,813 $ 10.13  $ 3,060,423,056  $ 333,892 
Total 302,114,813 $ 10.13  $ 3,060,423,056 
$              333,892(4)
(1)Based on the maximum number of shares of common stock, par value $0.0001 per share (“New Doma Common Stock”), of the registrant, Capitol Investment Corp. V (to be renamed Doma Holdings, Inc., “New Doma”), estimated to be issued, or issuable, by New Doma in connection with the business combination described herein (the “Business Combination”). Such maximum number of shares of New Doma Common Stock is based on the sum of: (a) 283,268,205 shares of New Doma Common Stock, which is the sum of (i) 66,215,083 shares of New Doma Common Stock to be issued to the holders of shares of common stock, par value $0.0001 per share (“Doma Common Stock”), of Doma Holdings, Inc. (“Doma”), (ii) 212,703,420 shares of New Doma Common Stock to be issued to the holders of shares of preferred stock, par value $0.0001 per share (collectively, “Doma Preferred Stock”), of Doma, and (iii) 4,349,702 shares of New Doma Common Stock to be issued to holders of warrants to acquire Doma capital stock outstanding as of June 4, 2021, which warrants will be exercised prior to closing of the Business Combination or will convert into the right to receive New Doma Common Stock upon consummation of the Business Combination; (b) up to 691,608 shares of New Doma Common Stock reserved for issuance upon the settlement of Doma warrants outstanding as of June 4, 2021, which warrants will automatically convert into warrants to purchase shares of New Doma Common Stock upon consummation of the Business Combination; and (c) up to 18,155,000 shares of New Doma Common Stock that may be issued after consummation of the Business Combination pursuant to the earnout provisions of the Merger Agreement described herein (in each case, calculated based on an estimated exchange ratio of approximately 6.0140 shares of New Doma Common Stock for each share of Doma capital stock).
(2)Estimated solely for the purpose of calculating the registration fee, based on the average of the high and low prices of Capitol Investment Corp. V’s Class A common stock, par value $0.0001 per share, on the New York Stock Exchange on March 12, 2021. This calculation is in accordance with Rule 457(f)(1) of the Securities Act of 1933, as amended (the “Securities Act”).
(3)Pursuant to Rule 416(a) of the Securities Act, there is also being registered an indeterminable number of additional securities as may be issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.
(4)Previously paid.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.




The information in this preliminary proxy statement/prospectus is not complete and may be changed. These securities may not be issued until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This preliminary proxy statement/prospectus is not an offer to sell these securities and does not constitute the solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY - SUBJECT TO COMPLETION, DATED JUNE 15, 2021
PROXY STATEMENT OF
Capitol Investment Corp. V
PROSPECTUS FOR
301,423,205 SHARES OF COMMON STOCK AND
691,608 SHARES OF COMMON STOCK UNDERLYING WARRANTS OF
CAPITOL INVESTMENT CORP. V (WHICH WILL BE RENAMED DOMA HOLDINGS, INC.)
On March 2, 2021, the board of directors of Capitol Investment Corp. V, a Delaware corporation (“Capitol,” “we,” “us” or “our”), unanimously approved an agreement and plan of merger, dated March 2, 2021, by and among Capitol, Capitol V Merger Sub, Inc., a wholly owned subsidiary of Capitol (“Merger Sub”), and Doma Holdings, Inc., which was formally known as States Title Holding, Inc. (“Doma”) (as amended, as it may be further amended and/or restated from time to time, the “Merger Agreement”). If the Merger Agreement is adopted by Capitol’s stockholders and the transactions under the Merger Agreement are consummated, Merger Sub will merge with and into Doma, with Doma surviving the merger as a wholly owned subsidiary of Capitol (the “Business Combination”). In addition, in connection with the consummation of the Business Combination, Capitol will be renamed “Doma Holdings, Inc.” and is referred to herein as “New Doma” as of the time following such change of name.
Under the Merger Agreement, Capitol has agreed to acquire all of the outstanding equity interests of Doma (A) at a Per Share Merger Consideration Value equal to $2.917 billion, divided by the aggregate number of shares of Doma Common Stock, Doma Preferred Stock, vested options to acquire Doma Common Stock (on a net exercise basis) and warrants to acquire Doma Capital Stock (on a net exercise basis), plus (B) the contingent right to receive certain earnout shares (“Earnout Shares”).
Subject to the cash elections described below, at the Effective Time, each outstanding share of Doma Common Stock (and each share of Doma Preferred Stock, which will automatically convert into shares of Doma Common Stock immediately prior to the Effective Time) will be converted into the right to receive (A) shares of common stock of New Doma (“New Doma Common Stock”) equal to the ratio determined by dividing the Per Share Merger Consideration Value by $10.00 (the product being the “exchange ratio”) and (B) the contingent right to receive certain Earnout Shares.
Certain Doma Stockholders and option holders will have the right to elect to receive a portion of their consideration in the form of cash in lieu of shares of New Doma Common Stock or options to acquire New Doma Common Stock, as the case may be, subject to proration if the aggregate cash consideration to satisfy all cash elections exceeds or is less than the Secondary Available Cash Consideration (as defined in the Merger Agreement). If the eligible Doma Stockholders and option holders elect to receive an aggregate amount of cash that is greater than the Secondary Available Cash Consideration, the amount of cash to be paid to each Doma Stockholder or option holder that elected to receive cash will be adjusted downward on a pro rata basis and each such Doma Stockholder or option holder will receive a proportionate number of additional shares of New Doma Common Stock, or options to acquire New Doma Common Stock, as the case may be, so that such stockholder or option holder receives their respective appropriate total aggregate merger consideration.
At the Effective Time of the Business Combination, each outstanding option to purchase shares of Doma Common Stock (a “Doma Option”) that is outstanding and unexercised and that is not converted into cash pursuant



to a cash election as described above, whether or not then vested or exercisable, will be assumed by New Doma and will be converted into (A) an option to acquire New Doma Common Stock with the same terms and conditions as applied to the Doma Option immediately prior to the Effective Time provided that the number of shares underlying such New Doma option will be determined by multiplying the number of shares of Doma Common Stock subject to such option immediately prior to the Effective Time, by the exchange ratio, which product shall be rounded down to the nearest whole number of shares, and the per share exercise price of such New Doma option will be determined by dividing the per share exercise price immediately prior to the Effective Time by the exchange ratio, which quotient shall be rounded down to the nearest whole cent and (B) the contingent right to receive certain earnout shares (the “Option Earnout Shares”); provided that unvested Doma Options shall be entitled to the Option Earnout Shares only to the extent that the corresponding converted option is not forfeited prior to the issuance of the applicable Option Earnout Shares; provided, further that certain holders of Doma Options will have the option to elect to receive the amount of cash consideration received by Doma Stockholders described above (subject to the limitations as described in the Merger Agreement).
At the Effective Time, each outstanding share of restricted Doma Common Stock will be converted into (i) an award with respect to a number of restricted shares of New Doma Common Stock, which shall continue to have, and shall be subject to, the same terms and conditions as applied to the award of such restricted share of Doma Common Stock immediately prior to the Effective Time (but taking into account any changes thereto provided for in the Doma 2019 Equity Incentive Plan) equal to the number of Doma Restricted Shares subject to such award immediately prior to the Effective Time multiplied by the exchange ratio and (ii) the contingent right to receive a certain portion of Earnout Shares (the “Restricted Stock Earnout Shares”); provided that holders of restricted Doma Common Stock shall be entitled to the Restricted Stock Earnout Shares only to the extent that the corresponding shares of restricted Doma Common Stock are not forfeited prior to the issuance of the applicable Restricted Stock Earnout Shares.
At the Effective Time, Doma Warrants to purchase approximately 0.7 million shares of Doma Capital Stock are expected to be converted into the right to receive a number of shares of New Doma Common Stock determined by multiplying the number of shares of Doma Common Stock subject to such Doma Warrants immediately prior to the effective time, by the exchange ratio, plus the right to receive a certain portion of Earnout Shares. At the Effective Time, Doma Warrants to purchase approximately 0.1 million shares of Doma Capital Stock are expected to be converted into warrants exercisable for shares of New Doma Common Stock on the same terms and conditions as applied to the existing Doma Warrants, plus the right to receive a certain portion of Earnout Shares.
The total maximum number of shares of New Doma Common Stock expected to be issued to the Doma stockholders at the closing of the Business Combination (the “Closing”) is approximately 276.3 million, assuming no redemptions (which number of shares would be a maximum of approximately 283.3 million shares if no Doma Stockholders elect to receive a portion of the merger consideration in cash). Holders of shares of Doma Capital Stock are expected to hold, in the aggregate, approximately 80% of the issued and outstanding shares of New Doma Common Stock immediately following the Closing, depending on, among other things, the amount of redemptions of Capitol’s public shares in connection with the Business Combination, as described herein, the aggregate amount of cash elections made by Doma’s Stockholders, and the amount of the Secondary Available Cash Consideration.
Capitol’s units, Class A Common Stock and public warrants are publicly traded on the New York Stock Exchange (the “NYSE”) under the symbols “CAP.U,” “CAP” and “CAP WS,” respectively. Capitol intends to apply to list the New Doma Common Stock and public warrants on the NYSE under the symbols “DOMA” and “DOMA.WS,” respectively, upon the Closing. New Doma will not have units traded following Closing.
Capitol will hold a special meeting in lieu of the 2021 annual meeting of stockholders (the “Special Meeting”) to consider matters relating to the Business Combination. Capitol cannot complete the Business Combination unless Capitol’s stockholders consent to the approval of the Merger Agreement and the transactions contemplated thereby. Capitol is sending you this proxy statement/prospectus to ask you to vote in favor of these and the other matters described in this proxy statement/prospectus.
Unless adjourned, the Special Meeting of the stockholders of Capitol will be held at          a.m., New York City time, on                      , 2021, in virtual format.



This proxy statement/prospectus provides you with detailed information about the Business Combination. It also contains or references information about Capitol and New Doma and certain related matters. You are encouraged to read this proxy statement/prospectus carefully. In particular, you should read the “Risk Factors” section beginning on page 21 for a discussion of the risks you should consider in evaluating the Business Combination and how it will affect you.
If you have any questions or need assistance voting your common stock, please contact Morrow Sodali LLC, our proxy solicitation agent, by calling (800) 662-5200, or banks and brokers can call collect at (203) 658-9400, or by emailing CAP.info@investor.morrowsodali.com. This notice of special meeting is, and the proxy statement/prospectus relating to the Business Combination will be, available at https://www.cstproxy.com/capinvestmentcorpv/sm2021.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Business Combination or the other transactions contemplated thereby, as described in this proxy statement/prospectus, or passed upon the adequacy or accuracy of the disclosure in this proxy statement/prospectus. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated               , 2021, and is first being mailed to stockholders of Capitol Investment Corp. V on or about               , 2021.



Capitol Investment Corp. V
1300 17th Street North, Suite 820
Arlington, Virginia 22209
NOTICE OF SPECIAL MEETING IN LIEU OF
THE 2021 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON                  , 2021
TO THE STOCKHOLDERS OF CAPITOL INVESTMENT CORP. V:
NOTICE IS HEREBY GIVEN that a special meeting in lieu of the 2021 annual meeting of stockholders (the “Special Meeting”) of Capitol Investment Corp. V, a Delaware corporation (“Capitol,” “we,” “us” or “our”), will be held at          a.m., New York City time, on                     , 2021, in virtual format. You are cordially invited to attend the Special Meeting, which will be held for the following purposes:
a.Proposal No. 1: The Business Combination Proposal—to consider and vote upon a proposal to approve the agreement and plan of merger, dated as of March 2, 2021 (as amended, and as may be further amended and/or restated from time to time, the “Merger Agreement”), by and among Capitol, Capitol V Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Capitol (“Merger Sub”), Doma Holdings, Inc., a Delaware corporation (“Doma”), and the transactions contemplated thereby, pursuant to which Merger Sub will merge with and into Doma, with Doma surviving the merger as a wholly owned subsidiary of Capitol (the “Business Combination” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”; and such proposal, the “Business Combination Proposal”).
b.Proposal No. 2: The Charter Proposal—to consider and vote upon a proposal to approve, assuming the Business Combination Proposal is approved and adopted, the proposed amended and restated certificate of incorporation of Capitol (the “Proposed Certificate of Incorporation”), which will replace Capitol’s amended and restated certificate of incorporation, dated December 1, 2020 (the “Current Certificate of Incorporation”), and will be in effect upon the closing of the Business Combination (we refer to such proposal as the “Charter Proposal”).
c.Proposal No. 3: The Advisory Charter Proposals—to consider and vote upon separate proposals to approve, on a non-binding advisory basis, the following material differences between the Proposed Certificate of Incorporation and the Current Certificate of Incorporation, which are being presented in accordance with the requirements of the U.S. Securities and Exchange Commission as three separate sub-proposals (we refer to such proposals as the “Advisory Charter Proposals”):
i.Advisory Charter Proposal A—the name of New Doma will be “Doma Holdings, Inc.” as opposed to “Capitol Investment Corp. V”;
ii.Advisory Charter Proposal B—New Doma will be authorized to issue 2,100,000,000 shares of capital stock, consisting of (i) 2,000,000,000 shares of common stock, par value $0.0001 per share (“New Doma Common Stock”), and (ii) 100,000,000 shares of preferred stock, par value $0.0001 per share, as opposed to Capitol being authorized to issue 451,000,000 shares of capital stock, consisting of  (a) 450,000,000 shares of common stock, including 400,000,000 shares of Class A common stock, par value $0.0001 per share, and 50,000,000 shares of Class B common stock, par value $0.0001 per share (Capitol’s Class A Common Stock and Class B Common Stock, collectively, “Capitol Common Stock”), and (b) 1,000,000 shares of preferred stock, par value $0.0001 per share; and
iii.Advisory Charter Proposal C—the Proposed Certificate of Incorporation will remove various provisions applicable only to special purpose acquisition companies that the Current Certificate of Incorporation contains (such as the obligation to dissolve and liquidate if a business combination is not consummated in a certain period of time).
d.Proposal No. 4: Issuance of New Doma Common Stock—to consider and vote upon a proposal to approve, assuming the Business Combination Proposal and the Charter Proposal are approved and adopted, for the



purposes of complying with the applicable listing rules of The New York Stock Exchange, the issuance of (x) shares of New Doma Common Stock pursuant to the terms of the Merger Agreement and (y) shares of New Doma Common Stock to certain institutional investors in connection with a concurrent private placement, plus any additional shares pursuant to subscription agreements we may enter into prior to closing of the Business Combination (we refer to such proposal as the “Stock Issuance Proposal”).
e.Proposal No. 5: New Doma Equity Incentive Plan—to consider and vote upon a proposal to approve, assuming the Business Combination Proposal, the Charter Proposal and the Stock Issuance Proposal are approved and adopted, the New Doma Equity Incentive Plan (the “Incentive Plan”), which is an incentive compensation plan for certain employees and other individuals of New Doma and its subsidiaries (we refer to such proposal as the “Incentive Plan Proposal”).
f.Proposal No. 6: New Doma Employee Stock Purchase Plan—to consider and vote upon a proposal to approve, assuming the Business Combination Proposal, the Charter Proposal and the Stock Issuance Proposal are approved and adopted, the New Doma Employee Stock Purchase Plan (the “ESPP”), which is a stock purchase plan for certain employees and other individuals of New Doma and its subsidiaries (we refer to such proposal as the “ESPP Proposal”).
g.Proposal No. 7: Director Election Proposal—to consider and vote upon a proposal to elect ten directors, effective as of and contingent upon the Effective Time of the Business Combination, as directors to serve staggered terms on our board of directors under the Proposed Certificate of Incorporation until the 2022, 2023 and 2024 annual meetings of stockholders, respectively, and until their respective successors are duly elected and qualified or until their earlier resignation, removal or death (we refer to such proposal as the “Director Election Proposal”).
h.Proposal No. 8: Adjournment Proposal—to consider and vote upon a proposal to approve the adjournment of the Special Meeting by the chairman thereof to a later date, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, there are not sufficient votes to approve the Business Combination Proposal, the Charter Proposal, the Stock Issuance Proposal, the Incentive Plan Proposal, the ESPP Proposal and/or the Director Election Proposal (we refer to such proposal as the “Adjournment Proposal”).
These items of business are described in the attached proxy statement/prospectus, which also includes, as Annex A-1, a copy of the Merger Agreement, as Annex A-2, a copy of Amendment No. 1 of the Merger Agreement, as Annex B, a copy of the Proposed Certificate of Incorporation, as Annex C, a copy of the Incentive Plan, and as Annex D, a copy of the ESPP. We encourage you to read the attached proxy statement/prospectus in its entirety, including the annexes and accompanying financial statements, before voting. IN PARTICULAR, WE URGE YOU TO READ CAREFULLY THE SECTION “RISK FACTORS.”
Only holders of record of Capitol Common Stock at the close of business on June 8, 2021 are entitled to notice of the Special Meeting and to vote and have their votes counted at the Special Meeting and any adjournments of the Special Meeting.
After careful consideration, the Capitol Board of Directors has determined that the Business Combination Proposal, the Charter Proposal, the Advisory Charter Proposals, the Stock Issuance Proposal, the Incentive Plan Proposal, the ESPP Proposal, the Director Election Proposal and the Adjournment Proposal are fair to and in the best interests of Capitol and its stockholders and unanimously recommends that you vote or give instruction to vote “FOR” each of these proposals, if presented. When you consider the Capitol Board of Directors’ recommendation, you should keep in mind that Capitol’s directors and officers may have interests in the Business Combination that conflict with your interests as a stockholder. See the section “The Business Combination Proposal—Interests of Capitol’s Sponsors, Directors and Officers in the Business Combination.”
Consummation of the Transactions is conditioned on approval of each of the Business Combination Proposal, the Charter Proposal, the Stock Issuance Proposal, the Incentive Plan Proposal, the ESPP Proposal and the Director Election Proposal. If any of the proposals is not approved and the Special Meeting is not adjourned, the other proposals will not be presented to stockholders for a vote. The Adjournment Proposal is not conditioned on the approval of any other proposal.



All Capitol Stockholders are cordially invited to attend the Special Meeting in person (which would include presence at a virtual meeting). To ensure your representation at the Special Meeting, however, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible. If you are a stockholder of record of Capitol Common Stock, you may also cast your vote in person (which would include presence at a virtual meeting) at the Special Meeting. If your Capitol Common Stock is held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the Special Meeting and vote in person (which would include presence at the virtual Special Meeting), obtain a proxy from your broker or bank.
A complete list of Capitol Stockholders of record entitled to vote at the Special Meeting will be available for         days before the Special Meeting at the executive offices of Capitol for inspection by stockholders during ordinary business hours for any purpose germane to the Special Meeting.
Your vote is important regardless of the number of shares you own. Whether you plan to attend the Special Meeting or not, please sign, date and return the enclosed proxy card as soon as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.
Thank you for your participation. We look forward to your continued support.



ABOUT THIS PROXY STATEMENT/PROSPECTUS
This document, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Capitol, constitutes a prospectus of Capitol under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Doma Common Stock to be issued to Doma Stockholders under the Merger Agreement if the Business Combination is consummated. This document also constitutes a notice of meeting and proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the Special Meeting at which Capitol Stockholders will be asked to consider and vote upon a proposal to approve the Business Combination by the approval and adoption of the Merger Agreement, among other matters.
You should rely only on the information contained in, or incorporated by reference into, this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated as of the date set forth on the cover hereof. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement/prospectus is accurate as of any date other than the date of such incorporated document. Neither the mailing of this proxy statement/prospectus to Capitol Stockholders nor the issuance by Capitol of any securities in connection with the Business Combination will create any implication to the contrary.
Information contained in this proxy statement/prospectus regarding Capitol has been provided by Capitol and information contained in this proxy statement/prospectus regarding Doma has been provided by Doma. Information provided by either Capitol or Doma does not constitute any representation, estimate or projection of the other.
This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.



MARKET AND INDUSTRY DATA
This proxy statement/prospectus contains information concerning the market and industry in which Doma conducts its business. Doma operates in an industry in which it is difficult to obtain precise industry and market information. Doma has obtained market and industry data in this proxy statement/prospectus from industry publications and from surveys or studies conducted by third parties that it believes to be reliable, including research information produced by the American Land Title Association, Fannie Mae, IBIS World, Mortgage Bankers Association and Zillow. Doma cannot assure you of the accuracy and completeness of such information, and it has not independently verified the market and industry data contained in this proxy statement/prospectus or the underlying assumptions relied on therein. As a result, you should be aware that any such market, industry and other similar data may not be reliable. While Doma is not aware of any misstatements regarding any industry data presented in this proxy statement/prospectus, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the section “Risk Factors” below.



TABLE OF CONTENTS
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265
F-1
i


F-1
ANNEXES
A-1
B-1
C-1
D-1
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ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and financial information about Capitol from other documents that are not included in or delivered with this proxy statement/prospectus. This information is available for you to review through the SEC’s website at www.sec.gov. You can also obtain the documents incorporated by reference into this proxy statement/prospectus free of charge by requesting them in writing or by telephone at the following addresses and telephone numbers:
Capitol Investment Corp. V
1300 17th Street North, Suite 820
Arlington, Virginia 22209
Telephone: (202) 654-7060
or
Morrow Sodali LLC
470 West Avenue
Stamford, Connecticut 06902
Telephone: (800) 662-5200
(banks and brokers call collect at (203) 658-9400)
Email: CAP.info@investor.morrowsodali.com
To obtain timely delivery in advance of the Special Meeting, Capitol Stockholders must request the materials no later than                         , 2021, five business days prior to the Special Meeting.
You also may obtain additional proxy cards and other information related to the proxy solicitation by contacting the appropriate contact listed above. You will not be charged for any of these documents that you request.
For a more detailed description of the information incorporated by reference in this proxy statement/prospectus and how you may obtain it, see the section “Where You Can Find More Information” beginning on page 265.
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SELECTED DEFINITIONS
Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our” and “Capitol” refer to Capitol Investment Corp. V, and the terms “New Doma,” “combined company” and “post-combination company” refer to Capitol Investment Corp. V and its subsidiaries following the consummation of the Business Combination.
Unless otherwise stated in this proxy statement/prospectus or the context otherwise requires, references to:
Adjournment Proposal” are to a proposal to approve the adjournment of the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the Special Meeting;
Advisory Charter Proposal A” are to a proposal for the name of New Doma to be “Doma Holdings, Inc.” as opposed to “Capitol Investment Corp. V”;
Advisory Charter Proposal B” are to a proposal that New Doma will be authorized to issue 2,100,000,000 shares of capital stock, consisting of (i) 2,000,000,000 shares of New Doma Common Stock, par value $0.0001 per share, and (ii) 100,000,000 shares of preferred stock, par value $0.0001 per share, as opposed to Capitol having 451,000,000 shares of capital stock, consisting of  (a) 450,000,000 shares of common stock, including 400,000,000 shares of Class A common stock, par value $0.0001 per share, and 50,000,000 shares of Class B common stock, par value $0.0001 per share, and (b) 1,000,000 shares of preferred stock, par value $0.0001 per share;
Advisory Charter Proposal C” are to a proposal that the Proposed Certificate of Incorporation will remove various provisions applicable only to special purpose acquisition companies that the Current Certificate of Incorporation contains (such as the obligation to dissolve and liquidate if a business combination is not consummated in a certain period of time);
Advisory Charter Proposals” are to Advisory Charter Proposal A, Advisory Charter Proposal B and Advisory Charter Proposal C, collectively;
Alternative Financing” are to any alternative financing obtained by Capitol through commercially reasonable efforts;
Amendment No. 1 to the Merger Agreement” are to the Amendment No. 1 to Agreement and Plan of Merger, dated March 18, 2021, by and among Capitol, Merger Sub and Doma Holdings, Inc. and attached to this proxy statement/prospectus as Annex A-2;
Available New Doma Cash” are to cash and cash equivalents of Capitol and its subsidiaries as of the Closing Date, including (i) the cash available to be released from the Trust Account following any Redemption in connection with the Offer, (ii) the proceeds actually received by Capitol in the PIPE Financing (which shall include the amount of any Alternative Financing, if applicable) and (iii) cash and cash equivalents of Capitol and its subsidiaries held outside of the Trust Account;
Business Combination” are to the Merger Agreement (including the Merger) and the Transactions;
Business Combination Proposal” are to a proposal to approve and adopt the Merger Agreement and approve the Business Combination;
Capitol Board of Directors” are to the board of directors of Capitol;
Capitol Class A Common Stock” are to the Class A Common Stock of Capitol, par value $0.0001 per share;
Capitol Class B Common Stock” are to the Class B Common Stock of Capitol, par value $0.0001 per share;
Capitol Common Stock” are to Capitol Class A Common Stock and the Capitol Class B Common Stock, collectively;
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Capitol Stockholders” are to holders of Capitol Common stock;
Capitol units” and “units” are to the units of Capitol, each unit representing one share of Capitol Class A Common Stock and one-third of one redeemable warrant to acquire one share of Capitol Class A Common Stock, that were offered and sold by Capitol in its initial public offering and registered pursuant to the IPO Registration Statement (less the number of units that have been separated into the underlying public shares and underlying warrants upon the request of the holder thereof) which will automatically separate into their component parts and will not be traded after the Business Combination;
Capitol Warrants” are to the public warrants and the private placement warrants;
Cash Eligible Shares” are to shares of Doma Common Stock that are issued and outstanding as of the date of the Merger Agreement (excluding Doma Restricted Shares) that (i) have been held continuously by the holder thereof (including by any of its affiliates) since June 1, 2019 or (ii) were acquired upon the exercise of a Doma Option that had a grant date of June 1, 2019 or earlier and have been held continuously by the holder thereof (including by any of its affiliates) since the date of exercise;
Cash Eligible Options” are to Doma Options that are vested and exercisable as of the date specified by Doma and that remains vested and exercisable as of immediately prior to the Effective Time, and for which the applicable grant date was June 1, 2019 or earlier;
Charter Proposal” are to a proposal to approve the Proposed Certificate of Incorporation.
Closing” are to the closing of the Business Combination;
Closing Date” are to the date of the Closing;
Condition Precedent Proposals” are to the Business Combination Proposal, the Charter Proposal, the Stock Issuance Proposal, the Incentive Plan Proposal and the ESPP Proposal, the Director Election Proposal, collectively;
Continental” are to Continental Stock Transfer & Trust Company;
COVID-19” are to SARS-CoV-2 or COVID-19, and any evolutions thereof;
Current Bylaws” are to Capitol’s bylaws in effect as of the date of this proxy statement/prospectus;
Current Certificate of Incorporation” are to Capitol’s amended and restated certificate of incorporation, adopted as of December 1, 2020;
DGCL” are to the Delaware General Corporation Law, as amended;
Director Election Proposal” are to a proposal to approve the election of ten directors who, upon consummation of the Business Combination, will be the directors of New Doma;
Doma” are to Doma Holdings, Inc. (f/k/a States Title Holding, Inc.) prior to the Business Combination;
Doma 2019 Equity Incentive Plan” are to the States Title Holding, Inc. 2019 Equity Incentive Plan;
Doma Capital Stock” are to the Doma Common Stock and Doma Preferred Stock;
Doma Common Stock” are to shares of Doma Common Stock, par value $0.0001 per share;
Doma Dissenting Shares” are to shares of Doma Capital Stock outstanding immediately prior to the Effective Time and owned by a holder who is entitled to demand and has properly demanded appraisal of such shares in accordance with, and who complies in all respects with, Section 262 of the DGCL;
Doma Options” are to options to purchase shares of Doma Common Stock;
Doma Preferred Stock” are to shares of Doma Preferred Stock, par value $0.0001 per share;
v


Doma Restricted Shares” are to unvested restricted shares of Doma Common Stock granted pursuant to the Doma 2019 Equity Incentive Plan upon the “early exercise” of Doma Options;
Doma Stockholders” are to the holders of Doma Capital Stock prior to the Business Combination;
Doma Support Agreements” are to the Voting and Support Agreements entered into by Capitol, Doma and certain holders of Doma Capital Stock following the execution of the Merger Agreement;
Doma Treasury Shares” are to shares of Doma Capital Stock held in Doma’s treasury, which treasury shares shall be canceled as part of the Merger;
Doma Warrants” are to warrants to purchase shares of Doma Capital Stock;
Earnout Fully Diluted Shares” means the sum of (i) the aggregate number of outstanding shares of New Doma Common Stock (including Exchanged Restricted Stock, but excluding Sponsor Covered Shares), plus (ii) the maximum number of shares underlying New Doma Options that are vested (calculated on a net exercise basis and assuming, for this purpose, a price per share of New Doma Common Stock of $10.00) and the maximum number of shares underlying New Doma Warrants (calculated on a net exercise basis and assuming, for this purpose, a price per share of New Doma Common Stock of $10.00), in each case of these clauses (i) and (ii), as of immediately following Closing, and, for the avoidance of doubt, after giving effect to all redemptions and any forfeiture pursuant to the Sponsor Support Agreement.
Earnout Shares” are to 5.0% of the Earnout Fully Diluted Shares in the form of earnout consideration, payable in two equal tranches if the closing price of the New Doma Common Stock exceeds $15.00 and $17.50 per share for any 20 trading days within any 30-trading day period following the Closing and ending no later than the five-year anniversary of the Closing;
Effective Time” are to the time of filing of a certificate of merger with the Secretary of State of the State of Delaware upon consummation of the Merger or such later time as may be agreed by Capitol and Doma in writing and specified in such certificate of merger;
ESPP” are to the Doma Holdings, Inc. Employee Stock Purchase Plan attached to this proxy statement/prospectus as Annex D;
ESPP Proposal” are to a proposal to approve the ESPP;
Exchange Act” are to the Securities Exchange Act of 1934, as amended;
Exchanged Restricted Stock” are to each outstanding Doma Restricted Share which will receive an award with respect to a number of restricted shares of New Doma Common Stock;
Founder” are to Max Simkoff;
GAAP” are to the U.S. generally accepted accounting principles;
HSR Act” are to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
Incentive Plan” are to the Doma Holdings, Inc. 2021 Omnibus Incentive Plan attached to this proxy statement/prospectus as Annex C;
Incentive Plan Proposal” are to a proposal to approve the Incentive Plan;
initial public offering” or “IPO” are to Capitol’s initial public offering that was consummated on December 4, 2020;
IPO Registration Statement” are to the Registration Statement on Form S-1 (333-249856) filed by Capitol in connection with its initial public offering, which became effective on December 1, 2020;
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JOBS Act” are to the Jumpstart Our Business Startups Act of 2012;
Merger” are to the merger of Doma with and into Merger Sub, with Doma being the surviving entity of the Merger;
Merger Agreement” are to the Agreement and Plan of Merger, dated March 2, 2021, by and among Capitol, Merger Sub and Doma Holdings, Inc., as amended by Amendment No. 1 to the Merger Agreement and attached to this proxy statement/prospectus as Annex A-1;
Merger Sub” are to Capitol V Merger Sub, Inc., a Delaware corporation;
Minimum Available Cash Amount” are to Available New Doma Cash being at least equal to $450.0 million;
Minimum Cash Condition” are to the condition at Closing that the Minimum Available Cash Amount is satisfied;
New Doma” are to Capitol after the Closing and its name change from Capitol Investment Corp. V to Doma Holdings, Inc.;
New Doma Board of Directors” are to the board of directors of New Doma;
New Doma Common Stock” are to shares of New Doma Common Stock, par value $0.0001 per share;
New Doma Options” are to options to purchase New Doma Common Stock after the assumption by New Doma of the options to purchase Doma Common Stock;
New Doma Warrants” are to warrants to purchase shares of New Doma Common Stock issued as replacement warrants for Doma Warrants in the Merger;
NYSE” are to the New York Stock Exchange;
Offer” are to the offer provided to the Capitol Stockholders to have their Capitol Class A Common Stock redeemed for the consideration, and on the terms and subject to the conditions and limitations, set forth in the Merger Agreement, Capitol’s organizational documents, the Trust Agreement and this proxy statement/prospectus in conjunction with obtaining approval from the Capitol Stockholders of the Merger Agreement and the proposals contemplated by this proxy statement/prospectus;
Person” are to any individual, firm, corporation, partnership (limited or general), limited liability company, incorporated or unincorporated association, joint venture, joint stock company, governmental agency or instrumentality or other entity of any kind;
Per Share Merger Consideration Value” are to the quotient of $2,917,000,000 divided by the sum of, as of immediately prior to the Effective Time, (x) the number of issued and outstanding shares of Doma Common Stock (including, without duplication, the number of issued and outstanding shares of Doma Preferred Stock on an as-converted basis); (y) the number of shares of Doma Common Stock issued or issuable upon the exercise of all outstanding, vested and unexercised options to purchase shares of Doma Common Stock; and (z) the shares of Doma Common Stock underlying any issued and outstanding warrants of Doma, in the case of (y) and (z) as determined on a net exercise basis;
PIPE Financing” are to the purchase of shares of New Doma Common Stock pursuant to the Subscription Agreements;
PIPE Investors” are to those certain investors participating in the PIPE Financing pursuant to the Subscription Agreements;
private placement warrants” are to the Capitol private placement warrants outstanding as of the date of this proxy statement/prospectus;
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pro forma” are to giving pro forma effect to the Business Combination;
Proposed Bylaws” are to the proposed bylaws of New Doma upon the Closing, included as Exhibit 3.4 to this registration statement;
Proposed Certificate of Incorporation” are to the proposed certificate of incorporation of New Doma upon the Closing attached to this proxy statement/prospectus as Annex B;
Proposed Organizational Documents” are to the Proposed Certificate of Incorporation and the Proposed Bylaws;
public shares” are to the Capitol’s Class A Common Stock, par value $0.0001 per share, that were offered and sold by Capitol in its initial public offering and registered pursuant to the IPO registration statement;
public warrants” are to the redeemable warrants (including those that underlie the units) that were offered and sold by Capitol in its initial public offering and registered pursuant to the IPO registration statement;
“redemption” are to each redemption of public shares for cash pursuant to the Offer;
Registration Rights Agreement” are to the Registration Rights Agreement to be entered into at Closing, by and among New Doma, the Sponsors, certain stockholders of Doma, and certain other stockholders;
Sarbanes-Oxley Act” are to the Sarbanes-Oxley Act of 2002;
SEC” are to the U.S. Securities and Exchange Commission;
Securities Act” are to the Securities Act of 1933, as amended;
Special Meeting” are to the special meeting in lieu of an annual meeting of Capitol to be held on       , 2021;
Sponsor Shares” are to the shares of Capitol Class B Common Stock purchased by the Sponsors in a private placement prior to the initial public offering and the New Doma Common Stock that will be issued upon the conversion thereof;
Sponsor Support Agreement” are to that certain Support Agreement, dated March 2, 2021, by and among the Sponsors, Capitol, and Doma, as amended and modified from time to time;
Sponsors” are to (i) Capitol Acquisition Management V LLC, a Delaware limited liability company, (ii) Capitol Acquisition Founder V LLC, a Delaware limited liability company, (iii) Lawrence Calcano, (iv) Richard C. Donaldson, (v) Raul J. Fernandez and (vi) Thomas Sidney Smith, Jr., collectively;
Stock Issuance Proposal” are to a proposal to approve, assuming the Business Combination Proposal and the Charter Proposal are approved and adopted, for the purposes of complying with the applicable listing rules of The New York Stock Exchange, the issuance of (x) shares of New Doma Common Stock pursuant to the terms of the Merger Agreement and (y) shares of New Doma Common Stock to certain institutional investors in connection with the PIPE Financing, plus any additional shares pursuant to subscription agreements we may enter into prior to closing of the Business Combination.
Subscription Agreements” are to the subscription agreements pursuant to which the PIPE Financing will be consummated;
Transactions” are to the transactions contemplated by the Merger Agreement and documents related thereto;
Trust Account” are to the trust account established at the consummation of Capitol’s initial public offering maintained by Continental, acting as trustee, into which substantially all of the proceeds from Capitol’s initial public offering have been deposited for the benefit of Capitol, certain of its public stockholders and the underwriters of Capitol’s initial public offering; and
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Trust Agreement” are to the Investment Management Trust Agreement, dated December 1, 2020, by and between Capitol and Continental.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus includes forward-looking statements regarding, among other things, the plans, strategies and prospects, both business and financial, of Capitol and Doma. These statements are based on the beliefs and assumptions of the management of Capitol and Doma. Although Capitol and Doma believe that their respective plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, neither Capitol nor Doma can assure you that either will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions. The forward-looking statements are based on projections prepared by, and are the responsibility of, Doma’s management. Deloitte & Touche LLP, Doma’s independent registered public accounting firm, has not examined, compiled or otherwise applied procedures with respect to the accompanying forward-looking financial information presented herein and, accordingly, expresses no opinion or any other form of assurance on it. The report of Deloitte & Touche LLP included in this proxy statement/prospectus relates to historical financial information of Doma. It does not extend to the forward-looking information and should not be read as if it does. Forward-looking statements contained in this proxy statement/prospectus include, but are not limited to, statements about the ability of Capitol and Doma prior to the Business Combination, and New Doma following the Business Combination, to:
meet the Closing conditions to the Business Combination, including approval by stockholders of Capitol and the availability of at least $450.0 million of cash at the Closing, consisting of cash held in the Trust Account after giving effect to redemptions of public shares, if any, cash received from PIPE Investors, and cash and cash equivalents of Capitol held outside the Trust Account;
realize the benefits expected from the Business Combination;
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;
the ability to obtain and/or maintain the listing of New Doma’s Common Stock on NYSE;
New Doma’s ability to raise financing in the future and to comply with restrictive covenants related to long-term indebtedness;
New Doma’s success in retaining or recruiting, or changes required in, its officers, key employees or directors following the Business Combination;
factors relating to the business, operations and financial performance of Doma, including:
New Doma’s ability to drive an increasing proportion of orders in both its Strategic and Enterprise Accounts and Local channels through its Doma Intelligence platform;
changes in the competitive and regulated industries in which New Doma operates, variations in technology and operating performance across competitors, and changes in laws and regulations affecting New Doma’s business;
the ability to implement business plans, forecasts and other expectations after the completion of the Business Combination, and identify and realize additional opportunities;
the impact of COVID-19 on New Doma’s business and/or the ability of the parties to complete the Business Combination;
costs related to the Business Combination and the failure to realize anticipated benefits of the Business Combination or to realize any financial projections or estimated pro forma results and the related underlying assumptions, including with respect to estimated Capitol Stockholder redemptions; and
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other factors detailed under the section “Risk Factors.”
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this proxy statement/prospectus are more fully described under the heading “Risk Factors” and elsewhere in this proxy statement/prospectus. The risks described under the heading “Risk Factors” are not exhaustive. Other sections of this proxy statement/prospectus describe additional factors that could adversely affect the business, financial condition or results of operations of Capitol and Doma prior to the Business Combination, and New Doma following the Business Combination. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can Capitol or Doma assess the impact of all such risk factors on the business of Capitol and Doma prior to the Business Combination, and New Doma following the Business Combination, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to Capitol or Doma or persons acting on their behalf are expressly qualified in their entirety by the foregoing cautionary statements. Capitol and Doma prior to the Business Combination, and New Doma following the Business Combination, undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION AND THE SPECIAL MEETING
The following are answers to certain questions that you may have regarding the Business Combination and the Special Meeting. Capitol urges you to read carefully the remainder of this document because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the appendices to, and the documents incorporated by reference in, this proxy statement/prospectus.
Q: Why am I receiving this proxy statement/prospectus?
A: Capitol, Merger Sub and Doma have entered into the Merger Agreement, pursuant to which, among other things, Merger Sub will merge with and into Doma with Doma surviving the merger as a wholly owned subsidiary of Capitol. Capitol will hold the Special Meeting to, among other things, obtain the approvals required for the Business Combination and the other transactions contemplated by the Merger Agreement and you are receiving this proxy statement/prospectus in connection with such meeting. Doma is also providing these consent solicitation materials to the holders of Doma Common Stock and Doma Preferred Stock, to solicit, among other things, the required written consent to adopt and approve in all respects the Merger Agreement and the transactions contemplated thereby. See the section “The Business Combination Proposal.” In addition, a copy of the Merger Agreement and Amendment No. 1 to the Merger Agreement are attached to this proxy statement/prospectus as Annex A-1 and Annex A-2, respectively. We urge you to read carefully this proxy statement/prospectus, including the annexes and the other documents referred to herein, in their entirety.
Q: Are there any other matters being presented to stockholders at the special meeting?
A: In addition to voting on the Business Combination, the stockholders of Capitol will vote on the following:
1.Separate proposals to approve differences between the organizational documents of Capitol that will be in effect upon the closing of the Transactions and Capitol’s current certificate of incorporation, including: (i) the name of the public entity will be “Doma Holdings, Inc.” as opposed to “Capitol Investment Corp. V”; (ii) Capitol will have 2,000,000,000 authorized shares of common stock and 100,000,000 authorized shares of preferred stock, as opposed to Capitol having 400,000,000 authorized shares of Capitol Class A Common Stock, 50,000,000 authorized shares of Capitol Class B Common Stock, and 1,000,000 authorized shares of preferred stock; and (iii) Capitol’s Proposed Certificate of Incorporation and Proposed Bylaws will not include the various provisions applicable only to specified purpose acquisition corporations that Capitol’s Current Certificate of Incorporation and Current Bylaws include (such as the obligation to dissolve and liquidate if a business combination is not consummated in a certain period of time). See the section “The Charter Proposal” and “The Advisory Charter Proposals.”
2.A proposal to approve, assuming the Business Combination Proposal and the Charter Proposal are approved and adopted, for the purposes of complying with the applicable listing rules of the NYSE, the issuance of (x) shares of New Doma Common Stock pursuant to the terms of the Merger Agreement and (y) shares of New Doma Common Stock to certain institutional investors in connection with a concurrent private placement, plus any additional shares pursuant to subscription agreements we may enter into prior to closing of the Business Combination. See the section “The Stock Issuance Proposal.”
3.A proposal to approve the Incentive Plan. See the section “The Incentive Plan Proposal.”
4.A proposal to approve the Employee Stock Purchase Plan. See the section “The ESPP Proposal.”
5.A proposal to elect ten directors, effective as of and contingent upon the Effective Time of the Business Combination, as directors to serve staggered terms on our board of directors under the Proposed Certificate of Incorporation until the 2022, 2023 and 2024 annual meetings of stockholders, respectively, and until their respective successors are duly elected and qualified or until their earlier resignation, removal or death See the section “The Director Election Proposal.”
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Capitol will hold the special meeting to consider and vote upon these proposals. This proxy statement/prospectus contains important information about the proposed business combination and the other matters to be acted upon at the special meeting. Stockholders should read it carefully.
Consummation of the Transactions is conditioned on approval of the Director Election Proposal, the Stock Issuance Proposal, the Incentive Plan Proposal and the ESPP Proposal. If any of the proposals is not approved, the other proposals will not be presented to stockholders for a vote.
The vote of stockholders is important. Stockholders are encouraged to vote as soon as possible after carefully reviewing this proxy statement/prospectus.
Q: What are the conditions to completion of the Business Combination?
A: The Closing is subject to certain conditions, including, among other things (i) Capitol must obtain the approval of its stockholders for certain of the proposals set forth in this proxy statement/prospectus for their approval and Doma must also obtain the written consent of its stockholders for the Merger Agreement, the Business Combination and certain other actions related thereto, (ii) the expiration or termination of the waiting period (or any extension thereof) applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) (which has already occurred), and (iii) Capitol having at least $450.0 million of cash at the Closing, consisting of cash held in the Trust Account after giving effect to redemptions of public shares, if any, cash received from PIPE investors, and cash and cash equivalents of Capitol held outside the Trust Account. Unless waived, if any of these conditions are not satisfied, the Business Combination may not be consummated. Furthermore, in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. See “The Merger Agreement—Closing Conditions” beginning on page 133.
Q: Why is Capitol proposing the Business Combination?
Capitol was organized to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more businesses or entities. Since the initial public offering, Capitol’s activity has been limited to the evaluation of business combination candidates.
Based on its due diligence investigations of Doma and the industry in which it operates, including the financial and other information provided by Doma in the course of their negotiations in connection with the Merger Agreement, Capitol believes that Doma has a very appealing market opportunity and growth profile, strong position in its industry and a compelling valuation. As a result, Capitol believes that a business combination with Doma will provide Capitol Stockholders with an opportunity to participate in the ownership of a company with significant growth potential. See the section “The Business Combination Proposal—The Capitol Board of Directors’ Reasons for Approval of the Transactions.
Q: When do you expect the Business Combination to be completed?
A: Subject to the satisfaction or waiver of the closing conditions described in the section “The Merger Agreement—Closing Conditions” beginning on page 133, including the adoption of the Merger Agreement by the Capitol Stockholders at the Special Meeting, the Business Combination is expected to close in the second quarter of 2021. However, neither Capitol nor Doma can assure you of when or if the Business Combination will be completed and it is possible that factors outside of the control of both companies could result in the Business Combination being completed at a different time or not at all.
Q: What happens if the Business Combination is not completed?
A: If Capitol does not complete the Business Combination with Doma for whatever reason, Capitol would search for another target business with which to complete a business combination. If Capitol does not complete the Business Combination with Doma or another business combination by December 1, 2022 (or such later date as may be approved by Capitol Stockholders), Capitol must redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to an amount then held in the Trust Account (net of taxes payable and less up to $100,000 of interest to pay dissolution expenses). The Sponsors have no redemption rights in the event a business
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combination is not effected in the required time period, and, accordingly, their initial shares will be worthless. Additionally, in the event of such liquidation, there will be no distribution with respect to our outstanding warrants. Accordingly, the warrants will expire worthless.
Questions and Answers About Capitol’s Special Stockholder Meeting
Q: When and where is the Special Meeting?
A: The Special Meeting will be held at             Eastern Time, on             , 2021, in virtual format. Capitol Stockholders may attend, vote and examine the list of Capitol Stockholders entitled to vote at the Special Meeting by visiting https://www.cstproxy.com/capinvestmentcorpv/sm2021 and entering the control number found on their proxy card, voting instruction form or notice included in their proxy materials. You may also attend the meeting telephonically by dialing 1-877-770-3647 (toll-free within the United States and Canada) or +1 312-780-0854 (outside of the United States and Canada, standard rates apply). The passcode for telephone access is 67815312#, but please note that you will not be able to vote or ask questions if you choose to participate telephonically. In light of public health concerns regarding the COVID-19 pandemic, the Special Meeting will be held in virtual meeting format only. You will not be able to attend the Special Meeting physically.
Q: I am a Capitol warrant holder. Why am I receiving this proxy statement/prospectus?
A: Upon consummation of the Business Combination, the Capitol Warrants shall, by their terms, entitle the holders to purchase Capitol Class A Common Stock at a purchase price of $11.50 per share. This proxy statement/prospectus includes important information about Doma and the business of Doma and its subsidiaries following consummation of the Business Combination. Because holders of Capitol Warrants will be able to exercise their warrants for New Doma Common Stock beginning on the later of (x) 30 days following the consummation of the Business Combination and (y) December 4, 2021, Capitol urges you to read the information contained in this proxy statement/prospectus carefully. See the section “Risk Factors—Risks Related to the Business Combination and Capitol—We are not registering the shares of New Doma Common Stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants at that time and potentially causing such warrants to expire worthless.”
Q: Why is Capitol proposing the Business Combination?
A: Capitol was organized to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar Business Combination with one or more businesses or entities.
See the section “The Business Combination—Recommendation of the Capitol Board of Directors and Reasons for the Business Combination.
Q: Did the Capitol Board of Directors obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the Business Combination?
A: No. The Capitol Board of Directors did not obtain a third-party valuation or fairness opinion in connection with their determination to approve the Business Combination with Doma. The directors and officers of Capitol and Capitol’s advisors have substantial experience in evaluating the operating and financial merits of companies from a wide range of industries and concluded that their experience and backgrounds, together with the experience and sector expertise of Capitol’s financial advisors and consultants, enabled them to make the necessary analyses and determinations regarding the Business Combination with Doma. In addition, Capitol’s directors and officers and Capitol’s advisors have substantial experience with mergers and acquisitions. Accordingly, investors will be relying solely on the judgment of the Capitol Board of Directors and Capitol’s advisors in valuing Doma’s business.
Q: Do I have redemption rights?
A: If you are a holder of public shares, you have the right to demand that Capitol redeem such shares for a pro rata portion of the cash held in Capitol’s Trust Account. Capitol sometimes refers to these rights to demand redemption of the public shares as “redemption rights.”
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Notwithstanding the foregoing, a holder of public shares, together with any affiliate of such holder or any other person with whom such holder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking redemption with respect to more than 20% of the public shares without the consent of Capitol. Accordingly, all public shares in excess of 20% held by a public stockholder, together with any affiliate of such stockholder or any other person with whom such holder is acting in concert or as a “group,” will not be redeemed without the consent of Capitol.
Under Capitol’s certificate of incorporation and bylaws, the business combination may only be consummated if Capitol has at least $5,000,001 of net tangible assets after giving effect to all holders of public shares that properly demand redemption of their shares into cash. This means that a substantial number of public shares may be redeemed and Capitol can still consummate the business combination. However, Doma is not required to consummate the Business Combination if there is not at least $450,000,000 of Available Cash.
Q: Will how I vote affect my ability to exercise redemption rights?
A: No. You may exercise your redemption rights whether you vote your public shares for or against, or whether you abstain from voting on, the Business Combination Proposal or any other proposal described in this proxy statement/prospectus. As a result, the Business Combination Proposal can be approved by stockholders who will redeem their public shares and no longer remain stockholders and the Business Combination may be consummated even though the funds available from Capitol’s Trust Account and the number of public stockholders are substantially reduced as a result of redemptions by public stockholders. However, Doma is not required to consummate the Business Combination if there is not at least $450,000,000 of Available New Doma Cash. Also, with fewer public shares and public stockholders, the trading market for Capitol’s Class A Common Stock may be less liquid than the market for public shares prior to the Business Combination and Capitol may not be able to meet the listing standards of a national securities exchange.
Q: How do I exercise my redemption rights?
A: If you are a holder of public shares and wish to exercise your redemption rights, you must (i) demand that Capitol redeem your shares for cash no later than the second business day preceding the vote on the Business Combination Proposal by delivering your stock to Capitol’s transfer agent physically or electronically using Depository Trust Company’s DWAC (Deposit and Withdrawal at Custodian) system. Any holder of public shares will be entitled to demand that such holder’s shares be redeemed for a pro rata portion of the amount then in the Trust Account (which, for illustrative purposes, was approximately $345,014,302, or $10.00 per share, as of June 8, 2021, the “Capitol Record Date”). Such amount, including interest earned on the funds held in the Trust Account and not previously released to Capitol to pay its taxes, will be paid promptly upon consummation of the Business Combination. However, under Delaware law, the proceeds held in the Trust Account could be subject to claims which could take priority over those of Capitol’s public stockholders exercising redemption rights, regardless of whether such holders vote for or against the Business Combination Proposal. Therefore, the per-share distribution from the Trust Account in such a situation may be less than originally anticipated due to such claims. Your vote on any proposal will have no impact on the amount you will receive upon exercise of your redemption rights.
Any request for redemption, once made by a holder of public shares, may be withdrawn at any time up to the time the vote is taken with respect to the Business Combination Proposal at the Special Meeting. If you deliver your shares for redemption to Capitol’s transfer agent and later decide prior to the Special Meeting not to elect redemption, you may request that Capitol’s transfer agent return the shares (physically or electronically). You may make such request by contacting Capitol’s transfer agent at the address listed at the end of this section.
If a holder of public shares properly makes a request for redemption and the public shares are delivered as described to Capitol’s transfer agent as described herein, then, if the Business Combination is consummated, Capitol will redeem these shares for a pro rata portion of funds deposited in the Trust Account. If you exercise your redemption rights, then you will be exchanging your shares of Capitol Common Stock for cash and you will cease to have any rights as a Capitol Stockholder (other than the right to receive the redemption amount) upon consummation of the Business Combination.
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For a discussion of the material U.S. federal income tax considerations for holders of public shares with respect to the exercise of these redemption rights, see “Material U.S. Federal Income Tax Consequences—Material U.S. Federal Income Tax Consequences of the Redemption to Capitol Stockholders” beginning on page 257.
If you are a holder of public shares and you exercise your redemption rights, it will not result in the loss of any public warrants that you may hold.
Q: Do I have appraisal rights if I object to the proposed Business Combination?
A: No. Neither Capitol Stockholders nor its unit or warrant holders have appraisal rights in connection with the Business Combination under the DGCL. See the section “Capitol’s Special Meeting of Stockholders—Appraisal Rights.
Q: What happens to the funds deposited in the Trust Account after consummation of the Business Combination?
A: Of the net proceeds of Capitol’s initial public offer and simultaneous private placement of warrants, approximately $345,000,000 was placed in the Trust Account following the Capitol initial public offering. After consummation of the Business Combination, the funds in the Trust Account will be used to pay holders of the public shares who exercise redemption rights, to pay fees and expenses incurred in connection with the Business Combination (including aggregate fees of up to $12,075,000 as deferred underwriting commissions) and for Capitol’s working capital and general corporate purposes.
Q: What happens if the Business Combination is not consummated?
A: If Capitol does not complete the Business Combination with Doma for whatever reason, Capitol would search for another target business with which to complete a business combination. If Capitol does not complete the Business Combination with Doma or another target business by December 4, 2022. Capitol must redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the amount then held in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to the Capitol to pay taxes (less up to $100,000 of interest to pay dissolution expenses) divided by the number of outstanding public shares. The Sponsors have no redemption rights in the event a business combination is not effected by December 4, 2022, and, accordingly, their founder shares will be worthless. Additionally, in the event of such liquidation, there will be no distribution with respect to Capitol’s outstanding warrants. Accordingly, the warrants will expire worthless.
Q: How do the Sponsors, officers and directors of Capitol intend to vote on the proposals?
A: Capitol’s Sponsors, as well as Capitol’s officers and directors, beneficially own and are entitled to vote an aggregate of 20% of Capitol’s outstanding common stock. These holders have agreed to vote their shares in favor of the Business Combination Proposal. The holders have also indicated that they intend to vote their shares in favor of all other proposals being presented at the Special Meeting.
Q: What constitutes a quorum at the Special Meeting?
A: A majority of the voting power of the issued and outstanding Capitol Common Stock entitled to vote at the Special Meeting must be present, in person (which would include presence at the virtual Special Meeting) or represented by proxy, at the Special Meeting to constitute a quorum and in order to conduct business at the Special Meeting. Abstentions and broker non-votes will be counted as present for the purpose of determining a quorum. The Sponsors, who currently own 20% of the issued and outstanding shares of common stock, will count towards this quorum. In the absence of a quorum, the chairman of the Special Meeting has power to adjourn the Special Meeting. As of the Capitol Record Date for the Special Meeting, 21,562,500 shares of Capitol Common Stock would be required to achieve a quorum.
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Q: Do any of Capitol’s directors or officers have interests in the Business Combination that may differ from or be in addition to the interests of Capitol Stockholders?
A: Certain of Capitol’s executive officers and certain non-employee directors may have interests in the Business Combination that may be different from, or in addition to, the interests of Capitol Stockholders generally. The Capitol Board of Directors was aware of and considered these interests to the extent such interests existed at the time, among other matters, in approving the Merger Agreement and in recommending that the Business Combination be approved by the stockholders of Capitol. See “The Business Combination—Interests of Capitol’s Sponsors, Directors and Officers in the Business Combination” beginning on page 96 of this proxy statement/prospectus.
Q: What do I need to do now?
A: Capitol urges you to read carefully and consider the information contained in this proxy statement/prospectus, including the annexes and the other documents referred to herein, and to consider how the Business Combination will affect you as a stockholder and/or warrant holder of Capitol. Stockholders should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy card.
Q: How do I vote?
A: If you are a holder of record of Capitol Common Stock on the record date, you may vote in person (which would include presence at the virtual Special Meeting) or by submitting a proxy for the Special Meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage-paid envelope. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the broker, bank or nominee with instructions on how to vote your shares or, if you wish to attend the meeting and vote in person (which would include presence at the virtual Special Meeting), obtain a proxy from your broker, bank or nominee.
Q: If my shares are held in “street name” by a broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?
A: No. Your broker, bank or nominee cannot vote your shares unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee.
Q: What will happen if I return my proxy card without indicating how to vote?
A: If you sign and return your proxy card without indicating how to vote on any particular proposal, the common stock represented by your proxy will be voted as recommended by the Capitol Board of Directors with respect to that proposal.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. Stockholders may send a later-dated, signed proxy card to Capitol’s transfer agent at the address set forth at the end of this section so that it is received prior to the vote at the Special Meeting or attend the Special Meeting in person (which would include presence at the virtual Special Meeting) and vote. Stockholders also may revoke their proxy by sending a notice of revocation to Capitol’s transfer agent, which must be received prior to the vote at the Special Meeting.
Q: What happens if I fail to take any action with respect to the Special Meeting?
A: If you fail to take any action with respect to the Special Meeting and the Business Combination is approved by stockholders and consummated, your shares of Capitol Common Stock will automatically be converted into shares of New Doma Common Stock. Failure to take any action with respect to the Special Meeting will not affect your ability to exercise your redemption rights. If you fail to take any action with respect to the Special Meeting and the Business Combination is not approved, you will continue to be a stockholder and/or warrant holder of Capitol.
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Q: What should I do if I receive more than one set of voting materials?
A: Stockholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your Capitol Common Stock.
Q: What should I do with my share and/or warrant certificates?
A: Those stockholders who do not elect to have their Capitol Common Stock redeemed for a pro rata share of the Trust Account do not need to deliver their shares to Capitol’s transfer agent in connection with the business combination as they will automatically convert into shares of Capitol Common Stock. Capitol Stockholders who exercise their redemption rights must deliver their share certificates to Capitol’s transfer agent (either physically or electronically) no later than two business days prior to the Special Meeting as described above.
Upon consummation of the Transactions, the Capitol Warrants will automatically convert into warrants to purchase shares of New Doma Common Stock. Therefore, warrant holders do not need to deliver their warrants to Capitol’s transfer agent in connection with the Business Combination.
Q: Who can help answer my questions?
A: If you have questions about the Business Combination or if you need additional copies of the proxy statement/prospectus or the enclosed proxy card you should contact:
Mr. L. Dyson Dryden
Capitol Investment Corp. V
1300 17th Street, Suite 820
Arlington, Virginia 22209
Tel: (202) 654-7060 Fax: (202) 654-7070
or:
Morrow Sodali LLC
470 West Avenue
Stamford, Connecticut 06902
Telephone: (800) 662-5200
(banks and brokers call collect at (203) 658-9400)
Email: CAP.info@investor.morrowsodali.com
You may also obtain additional information about Capitol from documents filed with the SEC by following the instructions in the section “Where You Can Find More Information.” If you are a holder of public shares and you intend to seek redemption of your public shares, you will need to deliver your stock (either physically or electronically) to Capitol’s transfer agent at the address below prior to the vote at the Special Meeting. If you have questions regarding the certification of your position or delivery of your stock, please contact:
Continental Stock Transfer & Trust Company
1 State Street Plaza, 30th Floor
New York, New York 10004
(212) 509-4000
Attn: Mark Zimkind
Email: mzimkind@continentalstock.com
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SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information included in this proxy statement/prospectus and does not contain all of the information that may be important to you. You should read this entire document and its annexes and the other documents to which we refer before you decide how to vote with respect to the proposals to be considered and voted on at the Special Meeting.
The Merger Agreement is the primary legal document that governs the Business Combination and the other transactions that will be undertaken in connection with the Business Combination. The Merger Agreement is also described in detail in this proxy statement/prospectus in the section “The Merger Agreement.”
Information About the Parties to the Business Combination
Capitol Investment Corp. V
1300 17th Street North, Suite 820
Arlington, Virginia 22209
(202) 654-7060
Capitol Investment Corp. V is a blank check company whose business purpose is to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.
Doma Holdings, Inc.
101 Mission Street, Suite 740
San Francisco, California 94105
(650) 419-3827
Doma Holdings, Inc. is a technology company that is architecting the future of real estate transactions. Using machine intelligence and its proprietary technology solutions, Doma is creating a vastly more simple, efficient, and affordable real estate closing experience for current and prospective homeowners, lenders, title agents and real estate professionals.
Capitol V Merger Sub, Inc.
c/o Capitol Investment Corp. V
1300 17th Street North, Suite 820
Arlington, Virginia 22209
(202) 654-7060
Capitol V Merger Sub, Inc. is a Delaware corporation and wholly owned subsidiary of Capitol, which was formed for the purpose of effecting a merger with Doma.
The Business Combination and the Merger Agreement
The terms and conditions of the Business Combination are contained in the Merger Agreement and Amendment No. 1 to the Merger Agreement, which are attached as Annex A-1 and Annex A-2, respectively, to this proxy statement/prospectus. We encourage you to read the Merger Agreement carefully and in its entirety, as it is the legal document that governs the Business Combination.
If the Merger Agreement is approved and adopted and the Business Combination is consummated, Merger Sub will merge with and into Doma with Doma surviving the Merger as a wholly owned subsidiary of New Doma (formerly Capitol) upon the Closing.
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Structure of the Business Combination
Pursuant to the Merger Agreement, Merger Sub will merge with and into Doma, with Doma surviving the Business Combination. Upon consummation of the foregoing transactions, Doma will be a wholly owned subsidiary of New Doma (formerly Capitol). In addition, immediately prior to the consummation of the Business Combination, New Doma will amend and restate the Current Certificate of Incorporation to be the Proposed Certificate of Incorporation, as described in the section of this proxy statement/prospectus “Description of New Doma Securities.”
The following diagrams illustrate in simplified terms the current structure of Capitol and Doma and the expected structure of New Doma (formerly Capitol) immediately following the Closing (voting and economic percentages are presented assuming no redemptions of public shares and exclude 1.725 million Sponsor Covered Shares, which are subject to vesting post-Business Combination).
Simplified Pre-Combination Structure
CIC-20210615_G1.JPG

Simplified Post-Combination Structure
CIC-20210615_G2.JPG
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Merger Consideration
Under the Merger Agreement, Capitol has agreed to acquire all of the outstanding equity interests of Doma (A) at a Per Share Merger Consideration Value equal to $2.917 billion, divided by the aggregate number of shares of Doma Common Stock, Doma Preferred Stock, vested options to acquire Doma Common Stock (on a net exercise basis) and warrants to acquire Doma Capital Stock (on a net exercise basis), plus (B) the contingent right to receive certain earnout shares (“Earnout Shares”).
Consideration to Doma Stockholders
Subject to the cash elections described below, at the Effective Time, each outstanding share of Doma Common Stock (and each share of Doma Preferred Stock, which will automatically convert into shares of Doma Common Stock immediately prior to the Effective Time) will be converted into the right to receive (A) shares of New Doma Common Stock equal to the exchange ratio and (B) the contingent right to receive certain Earnout Shares.
Certain Doma Stockholders and option holders will have the right to elect to receive a portion of their consideration in the form of cash in lieu of shares of common stock of New Doma Common Stock or options to acquire New Doma Common Stock, as the case may be, subject to proration if the aggregate cash consideration to satisfy all cash elections exceeds or is less than the Secondary Available Cash Consideration (as defined in the Merger Agreement). If the eligible Doma Stockholders and option holders elect to receive an aggregate amount of cash that is greater than the Secondary Available Cash Consideration, the amount of cash to be paid to each Doma Stockholder or option holder that elected to receive cash will be adjusted downward on a pro rata basis and each such Doma Stockholder or option holder will receive a proportionate number of additional shares of New Doma Common Stock so that such stockholder or option holder receives their respective appropriate total aggregate merger consideration.
At the Effective Time of the Business Combination, each outstanding Doma Option that is outstanding and unexercised and that is not converted into cash pursuant to a cash election as described above, whether or not then vested or exercisable, will be assumed by New Doma and will be converted into (A) an option to acquire New Doma Common Stock with the same terms and conditions as applied to the Doma Option immediately prior to the Effective Time provided that the number of shares underlying such New Doma Option will be determined by multiplying the number of shares of Doma Common Stock subject to such option immediately prior to the Effective Time, by the exchange ratio, which product shall be rounded down to the nearest whole number of shares, and the per share exercise price of such New Doma Option will be determined by dividing the per share exercise price immediately prior to the Effective Time by the exchange ratio, which quotient shall be rounded down to the nearest whole cent and (B) the contingent right to receive certain Option Earnout Shares; provided that unvested Doma Options shall be entitled to the Option Earnout Shares only to the extent that the corresponding converted option is not forfeited prior to the issuance of the applicable Option Earnout Shares; provided, further that certain holders of Doma Options will have the option to elect to receive the amount of cash consideration received by Doma Stockholders described above (subject to the limitations as described in the Merger Agreement).
At the Effective Time, each outstanding share of restricted Doma Common Stock will be converted into (i) an award with respect to a number of restricted shares of New Doma Common Stock, which shall continue to have, and shall be subject to, the same terms and conditions as applied to the award of such restricted share of Doma Common Stock immediately prior to the Effective Time (but taking into account any changes thereto provided for in the Doma 2019 Equity Incentive Plan) equal to the number of Doma Restricted Shares subject to award immediately prior to the Effective Time multiplied by the exchange ratio and (ii) the contingent right to receive certain Restricted Stock Earnout Shares; provided that holders of restricted Doma Common Stock shall be entitled to the Restricted Stock Earnout Shares only to the extent that the corresponding shares of restricted Doma Common Stock are not forfeited prior to the issuance of the applicable Restricted Stock Earnout Shares.
At the Effective Time, Doma Warrants to purchase approximately 0.7 million shares of Doma Capital Stock are expected to be converted into the right to receive a number of shares of New Doma Common Stock determined by multiplying the number of shares of Doma Common Stock subject to such Doma Warrants immediately prior to the Effective Time, by the exchange ratio, plus the right to receive a certain portion of Earnout Shares. At the Effective
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Time, Doma Warrants to purchase approximately 0.1 million shares of Doma Capital Stock are expected to be converted into warrants exercisable for shares of New Doma Common Stock on the same terms and conditions as applied to the existing Doma Warrants, plus the right to receive a certain portion of Earnout Shares.
Consideration to Capitol Holders
Upon consummation of the Transactions, (i) each outstanding share of Class A Common Stock of Capitol will automatically convert into one share of New Doma Common Stock, (ii) the outstanding warrants to purchase common stock of Capitol will automatically convert into warrants to purchase shares of New Doma Common Stock of Capitol and (iii) each outstanding share of Class B Common Stock of Capitol will automatically convert into one share of New Doma Common Stock.
Earnout Shares
Additional shares of New Doma Common Stock will be payable to each holder of Doma Common Stock (after giving effect to the Conversion and including Doma Restricted Shares), Doma Options (whether vested or unvested) or Doma Warrants, in each case, as of immediately prior to the Effective Time with an Earnout Pro Rata Portion in excess of zero (each such holder, an “Earnout Participant”), as follows:
First Share Price Milestone. If the closing share price of New Doma Common Stock equals or exceeds $15.00 per share for any 20 trading days within any consecutive 30-trading day period beginning on or after the Closing Date and ending on or before to the five-year anniversary of the Closing Date (the “First Share Price Milestone”), New Doma will issue to each Earnout Participant a number of shares of New Doma Common Stock equal to such participant’s Earnout Pro Rata Portion of 2.5% of the Earnout Fully Diluted Shares (as defined in the Merger Agreement) (the “First Earnout Shares”).
Second Share Price Milestone. If the closing share price of New Doma Common Stock equals or exceeds $17.50 per share for any 20 trading days within any consecutive 30-trading day period beginning on or after the Closing Date and ending on or before the five-year anniversary of the Closing Date (the “Second Share Price Milestone” and, together with the First Share Price Milestone, the “Earnout Milestones”), New Doma will issue to each Earnout Participant a number of shares of New Doma Common Stock equal to such participant’s Earnout Pro Rata Portion of 2.5% of the Earnout Fully Diluted Shares (the “Second Earnout Shares” and, together with the First Earnout Shares, the “Earnout Shares”).
For additional information on the Earnout Shares, see “Business Combination Proposal—Earnout Shares.
Related Agreements
This section describes certain additional agreements entered into or to be entered into pursuant to the Merger Agreement. For additional information, see “Related Agreements.”
Sponsor Support Agreement
In connection with the execution of the Merger Agreement, Capitol, Doma and the Sponsors entered into the Sponsor Support Agreement, a copy of which is included as Exhibit 10.1. The Sponsors agreed, among other things, (i) that 20% of the aggregate of Capitol’s Class B Common Stock held by the Sponsors (but not more than 1,725,000 shares) (the “Sponsor Covered Shares”) shall become unvested and subject to forfeiture, only to be vested again if certain conditions described more fully in the Sponsor Support Agreement are satisfied, (ii) to forfeit additional Capitol Class B Common Stock conditioned on the non-fulfillment of certain terms set forth in the Sponsor Support Agreement, (iii) subject to customary permitted transfers, not to transfer any Capitol Class B Common Stock or warrants to purchase Capitol’s Class A Common Stock until the date that is one year after the Closing Date, subject to certain conditions related to the Sponsor Covered Shares and (iv) to donate an aggregate of $5 million of New Doma Common Stock (the “Capitol Charitable Contribution”) to a charity to be mutually agreed to by each such Sponsor and Doma.
For a more complete description of the Sponsor Support Agreement, see “Related Agreements—Sponsor Support Agreement.
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Doma Support Agreements
In connection with the execution of the Merger Agreement, Capitol also entered into Voting and Support Agreements (the “Doma Support Agreements”), by and among Capitol, Doma and certain stockholders of Doma (the “Key Stockholders”), a copy of which is included as Exhibit 10.2. Under the Doma Support Agreements, the Key Stockholders agreed, among other things, within 48 hours following the SEC declaring effective the proxy statement/prospectus relating to the approval by Capitol Stockholders of the Business Combination, to execute and deliver a written consent with respect to the outstanding shares of Doma Capital Stock held by the Key Stockholders adopting the Merger Agreement and related transactions and approving the Business Combination. The Doma Support Agreements also obligate the Key Stockholders to deliver a Lock-Up Agreement at the Closing.
For a more complete description of the Doma Support Agreements, see “Related Agreements—Doma Support Agreements.
Registration Rights Agreement
The Merger Agreement contemplates that, at the Closing, New Doma, the Sponsors, certain Doma Stockholders and certain of their respective affiliates will enter into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”), a copy of which is included as Exhibit 10.4.
For a more complete description of the Registration Rights Agreement, see “Related Agreements—Registration Rights Agreement.
Lock-Up Agreements
The Key Stockholders, Doma’s directors and officers and certain other holders of Doma’s Capital Stock have agreed to enter into Lock-Up Agreements (the “Lock-Up Agreements”), a copy of which is included as Exhibit 10.3.
For a more complete description of the Lock-Up Agreements, see “Related Agreements—Lock-Up Agreements.
Subscription Agreements
In connection with the execution of the Merger Agreement, Capitol entered into Subscription Agreements (the “Subscription Agreements”) with certain investors (collectively, the “PIPE Investors”), a copy of which is included as Exhibit 10.5. Pursuant to the Subscription Agreements, and on the terms and subject to the conditions of which, the PIPE Investors have collectively subscribed for 30,000,000 shares of New Doma Common Stock for an aggregate purchase price equal to $300 million (the “PIPE Financing”). The PIPE Investors include funds and accounts managed by BlackRock, Fidelity Management & Research Company LLC, The Gores Group, Hedosophia, SB Management, a subsidiary of SoftBank Group Corp., and Wells Capital. Existing Doma shareholder, Lennar, has also committed to the PIPE Financing and Spencer Rascoff, co-founder and former CEO of Zillow Group, has committed a personal investment to the PIPE Financing. The PIPE Financing will be consummated substantially concurrently with the Closing, subject to the terms and conditions contemplated by the Subscription Agreements.
For a more complete description of the Subscription Agreements, see “Related Agreements—Subscription Agreements.
Date, Time and Place of Special Meeting of Capitol Stockholders
The Special Meeting will be held at                    Eastern Time, on                    , 2021, virtually, to consider and vote upon the Business Combination Proposal, the Charter Proposal, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Plan Proposal, the ESPP Proposal and the Adjournment Proposal.
Voting Power; Record Date
Stockholders will be entitled to vote or direct votes to be cast at the Special Meeting if they owned Capitol Common Stock at the close of business on June 8, 2021, which is the record date for the Special Meeting.
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Stockholders will have one vote for each share of Capitol Common Stock owned at the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. Capitol Warrants do not have voting rights. On the Capitol Record Date, there were 43,125,000 shares of Capitol Common Stock entitled to vote at the Special Meeting, of which 34,500,000 were held by nonaffiliated stockholders with the rest being held by the Sponsors and officers and directors of Capitol.
Quorum and Vote of Capitol Stockholders
A quorum of Capitol Stockholders is necessary to hold a valid meeting. A quorum will exist at the Special Meeting with respect to each matter to be considered at the Special Meeting if the holders of a majority of shares of Capitol Common Stock are present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting. All shares represented by proxy are counted as present for purposes of establishing a quorum. The proposals presented at the Special Meeting will require the following votes:
The Business Combination Proposal requires the affirmative vote of a majority of the shares of Capitol Common Stock represented in person (which would include presence at the virtual Special Meeting) or by proxy and entitled to vote thereon and who vote at the Special Meeting.
The Charter Proposal requires the affirmative vote of a majority of the shares of Capitol Common Stock represented in person (which would include presence at the virtual Special Meeting) or by proxy and entitled to vote thereon and who vote at the Special Meeting.
The Director Election Proposal requires the affirmative vote of a majority of the shares of Capitol Class B Common Stock represented in person (which would include presence at the virtual Special Meeting) or by proxy and entitled to vote thereon and who vote at the Special Meeting.
The Stock Issuance Proposal requires the affirmative vote of a majority of the shares of Capitol Common Stock represented in person (which would include presence at the virtual Special Meeting) or by proxy and entitled to vote thereon and who vote at the Special Meeting.
The Incentive Plan Proposal requires the affirmative vote of a majority of the shares of Capitol Common Stock represented in person (which would include presence at the virtual Special Meeting) or by proxy and entitled to vote thereon and who vote at the Special Meeting.
The ESPP Proposal requires the affirmative vote of a majority of the shares of Capitol Common Stock represented in person (which would include presence at the virtual Special Meeting) or by proxy and entitled to vote thereon and who vote at the Special Meeting.
The Adjournment Proposal requires the affirmative vote of a majority of the shares of Capitol Common Stock represented in person (which would include presence at the virtual Special Meeting) or by proxy and entitled to vote thereon and who vote at the Special Meeting.
Proposals
The following is a summary of the proposals to be put to the Special Meeting and certain transactions contemplated by the Merger Agreement. Each of the proposals below, except the Adjournment Proposal, is cross-conditioned on the approval of each other. The Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus. The transactions contemplated by the Business Combination Proposal will be consummated only if the Condition Precedent Proposals are approved at the Special Meeting.
Business Combination Proposal
As discussed in this proxy statement/prospectus, Capitol Stockholders are being asked to approve and adopt the Merger Agreement and Amendment No. 1 to the Merger Agreement, copies of which are attached to this proxy statement/prospectus as Annex A-1 and Annex A-2, respectively. The Merger Agreement provides for, among other
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things, the Business Combination, in accordance with the terms and subject to the conditions of the Merger Agreement as more fully described elsewhere in this proxy statement/prospectus. After consideration of the factors identified and discussed in the section “Business Combination Proposal — The Capitol Board of Directors’ Reasons for the Business Combination,” the Capitol Board of Directors concluded that the Business Combination met all of the requirements disclosed in the prospectus for Capitol’s initial public offering, including that the business of Doma and its subsidiaries had a fair market value equal to at least 80% of the net assets held in trust (net of amounts disbursed to management for working capital purposes and excluding the amount of deferred underwriting discounts and commissions held in trust). For more information about the transactions contemplated by the Merger Agreement, see “Business Combination Proposal.”
Charter Proposal
Assuming the approval of the Business Combination Proposal, Capitol Stockholders are also being asked to approve the Proposed Certificate of Incorporation, a copy of which is attached to this proxy statement/prospectus as Annex B. For additional information, see “Charter Proposal.”
Advisory Charter Proposals
The Capitol Stockholders are also being asked to approve three separate resolutions (collectively the “Advisory Charter Proposals”) to approve the differences between the constitutional documents of Capitol that will be in effect upon the closing of the Business Combination and Capitol’s current constitutional documents, including: (i) the name of the public entity will be “Doma Holdings, Inc.,” (ii) the public entity will have 2,000,000,000 authorized shares of common stock and 100,000,000 authorized shares of preferred stock, and (iii) the Proposed Certificate of Incorporation does not include the various provisions applicable only to specified purpose acquisition corporations. For additional information, see “Advisory Charter Proposals.”
Stock Issuance Proposal
Assuming the approval of the Business Combination Proposal, the Capitol Stockholders are also being asked to approve the issuance of 302,114,813 shares Capitol Common Stock issuable pursuant to the Merger Agreement. See the section “Stock Issuance Proposal.”
Incentive Plan Proposal
Assuming the approval of the Business Combination Proposal, the Charter Proposal and the Stock Issuance Proposal are approved, Capitol Stockholders are also being asked to approve the Incentive Plan, a copy of which is attached to this proxy statement/prospectus as Annex C, including the authorization of the initial share reserve under the Incentive Plan. For additional information, see “Incentive Plan Proposal.”
ESPP Proposal
Assuming the approval of the Business Combination Proposal, the Charter Proposal and the Stock Issuance Proposal are approved, Capitol Stockholders are also being asked to approve the ESPP, a copy of which is attached to this proxy statement/prospectus as Annex D, including the authorization of the initial share reserve under the ESPP. For additional information, see “ESPP Proposal.
Director Election Proposal
Assuming the approval of the Business Combination Proposal and the Charter Proposal, the Capitol Stockholders are also being asked to approve the Director Election Proposal. Upon the consummation of the Business Combination, the Board will consist of ten directors. For additional information on the proposed directors, see “Director Election Proposal.”
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Adjournment Proposal
If Capitol is unable to consummate the Business Combination for any reason, Capitol’s board of directors may submit a proposal to adjourn the Special Meeting to a later date or dates, if necessary. See the section “The Adjournment Proposal.”
Recommendation of the Capitol Board of Directors
Capitol’s Board of Directors has unanimously determined that the Business Combination is in the best interests of, and advisable to, the Capitol Stockholders and recommends that the Capitol Stockholders adopt the Merger Agreement and approve the Business Combination. The Capitol Board of Directors made its determination after consultation with its legal and financial advisors and consideration of a number of factors.
The Capitol Board of Directors recommends that you vote “FOR” the approval of the Business Combination Proposal, “FOR” the approval of the Charter Proposal, “FOR” the approval, on an advisory basis, of each of the Advisory Charter Proposals, “FOR” the approval of the Director Election Proposal, “FOR” the approval of the ESPP Proposal, “FOR” the approval of the Incentive Plan Proposal,” FOR” the approval of the Stock Issuance Proposal and “FOR” the approval of the Adjournment Proposal.
For more information about the Capitol Board of Directors’ recommendation and the proposals, see the sections entitled “The Special Meeting—Vote Required and Capitol Board Recommendation” beginning on page 75 and “The Business Combination Proposal—The Capitol Board of Directors’ Reasons for Approval of the Transactions” beginning on page 8.
The Capitol Board of Directors’ Reasons for Approval of the Transactions
In considering the Business Combination, Capitol’s Board of Directors considered the following positive factors, although not weighted or in any order of significance:
Technology-First Player in Large, Antiquated Market Ripe for Disruption. Doma is architecting the future of residential real estate transactions by overhauling the current system and building one based on what today’s consumers expect: a simple, digital and frictionless experience. The market incumbents’ products are largely commoditized, not differentiated by technology and still require a manual, time-consuming process.
Established Technology Platform with Significant Embedded Investment. Doma’s proprietary platform, Doma Intelligence, uses data analytics, machine learning and natural language processing to replace large portions of the manual real estate closing process with technology solutions. Doma’s technology platform is being trained on 30 years of historical data and has been built with a significant research and development investment over four years.
Large Market Opportunity with Expansion Potential. Doma operates today in the estimated $23 billion title, escrow and closing market, which is based on Doma’s internal estimates and 2020 estimates from the Mortgage Bankers Association. Doma currently has an estimated market share of less than 1% of total market orders, which is based on Doma’s 2020 direct closed orders divided by the Mortgage Bankers Association’s estimate of the total number of U.S. mortgage originations in 2020. Doma believes its machine intelligence-centric approach has the potential to create value across the broader $318 billion home ownership services market, with the appraisal and warranty segments representing an $11 billion near-term market opportunity.
Strong Value Propositions. Doma Intelligence reduces the time, effort and cost of the closing process with achievements to date including providing clear-to-close decisions on over 80% of title insurance orders for refinance transactions driven through Doma Intelligence in one minute or less, enabling up to 50% fewer “touches” for one of our largest, longest tenured customers, delivering 15% to 25% faster closings than the traditionally manual title and escrow process and achieving over 20% higher close rates for orders. These
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efficiencies increase revenue and profit potential for Doma and its lender and real estate partners and also provide cost savings for the homeowner.
Tailwinds for Technology-Enabled and Digital Services in the Real Estate Market. The residential real estate market is still largely analog, but consumers, including millennials who represent the next wave of first-time homebuyers, increasingly expect instant, digital experiences.
Strong Market Traction and Marquee Clients. Doma’s technology platform is being utilized by large national mortgage originators and lenders, including Wells Fargo & Company, Chase Home Lending, PennyMac and Homepoint, after commercial launch in 2018. Doma estimates it has a less than 10% share of wallet with its existing strategic and enterprise accounts (“S&EA”) partners, indicating a meaningful expansion opportunity.
Clear Path to Sustained Growth of Core Business. Doma expects to meaningfully grow its current market share by adding new S&EA partners, increasing wallet share with existing customers and partners, leveraging Doma’s existing geographic presence in local markets and expanding into new ones.
Attractive Financial Profile. Doma’s adjusted gross profit margin as a percentage of retained premiums and fees in 2020 was approximately 48%. Reductions in direct fulfillment costs enabled by Doma Intelligence and enhanced scale of the business are expected to drive continued improvement in adjusted gross profit margin as a percentage of retained premiums and fees.
Accretive M&A Opportunities. Doma believes there is a significant opportunity to accelerate growth through the acquisition of strategically targeted title agencies, as well as in other adjacencies in the closing experience and within the broader Proptech sector. Doma believes these acquisitions will be accretive due to a combination of attractive valuation multiples and cost savings achieved by migrating transaction volume onto the Doma platform.
Strong Tech-First Management Team. Doma’s management team combines both technical and operational expertise. Max Simkoff, Chief Executive Officer, founded Doma in 2016 and has led Doma from a start-up focused on developing a technology solution to a fully operational title agency and escrow business with a captive insurance underwriter and over 1,000 employees. Christopher Morrison, Chief Operating Officer, was previously an associate partner in the insurance practice at McKinsey & Company. Noaman Ahmad, Chief Financial Officer, brings experience from a variety of finance functions at Aon plc and The Warranty Group. Hasan Rizvi, Chief Technology Officer, was previously with Oracle where he managed approximately one-third of the company’s product and technology organization.
Supported by World Class Board of Directors and Advisors. Doma has assembled a board of directors that includes former U.S. Treasury Secretary Larry Summers, tech industry veteran Karen Richardson, former COO of JPMorgan Chase and former President of Cerberus Capital Management Matt Zames and Lennar founder and Executive Chairman Stuart Miller. Doma also has an exceptional team of industry advisors, including Nextdoor CEO Sarah Friar and Carlyle Group Vice Chairman John Kanas, among others.
Commitment of Current Stockholders. The existing stockholders of Doma are, in the aggregate, retaining at least 97% of their equity interests in the transaction, which the Capitol Board of Directors believes reflects their belief in and commitment to the continued growth prospects of the combined company.
Top Tier Sponsorship from PIPE Investors. Top-tier investors anchoring the PIPE Financing include both existing Capitol Stockholders and existing Doma Stockholders.
Strong Capitalization to Execute on Growth Opportunity. The transaction will provide up to $501 million of cash proceeds to Doma’s balance sheet and will enable Doma to continue to invest in growth, market expansion, acquisitions and new products that extend the strategic advantage of its machine intelligence driven platform.
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Attractive Valuation. The Capitol Board of Directors believes Doma’s implied valuation following the Business Combination relative to the current valuations of comparable publicly traded companies in the Insurtech and Proptech sectors is favorable to Capitol.
The Capitol Board of Directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the Business Combination, including, but not limited to, the following:
Macroeconomic Risks. Macroeconomic uncertainty, including as it relates to COVID-19, could negatively affect the combined company’s results of operations.
Benefits Not Achieved.
The potential benefits of the Transactions may not be fully achieved or may not be achieved within the expected timeframe.
Doma might not achieve its projected financial results.
Limitations of Review. Capitol did not obtain a third-party valuation or fairness opinion in connection with the Business Combination, or any formal reports or presentations regarding Doma from any of its third-party financial advisors. In addition, Capitol’s senior management and outside counsel reviewed only certain materials in connection with their due diligence review of Doma.
Harm to Doma’s Business.
There is a potential for diversion of management and employee attention during the period prior to completion of the Business Combination, which could result in potential negative effects on Doma’s business.
Despite the efforts of Capitol and Doma prior to the consummation of the Business Combination, Doma may lose key personnel, which could result in potential negative effects on Doma’s business.
Minority Ownership. Capitol’s public stockholders will hold a minority share position in the post-merger company.
Litigation. Litigation challenging the Business Combination could occur, or there could be an adverse judgment granting permanent injunctive relief that could enjoin consummation of the Business Combination.
Fees and Expenses. There are substantial fees and expenses associated with completing the Business Combination.
Potential Inability to Complete the Transactions.
The Merger Agreement prohibits Capitol from soliciting or engaging in discussions regarding alternative transactions during the pendency of the Business Combination.
Capitol Stockholders may object to and challenge the Business Combination and take actions that may prevent or delay the consummation of the Business Combination, including to vote down the proposals at the special meeting or exercise their redemption rights.
Capitol may not obtain the proceeds of the PIPE Financing, resulting in Capitol being unable to retain sufficient cash in the Trust Account to meet the requirements of the Merger Agreement.
The Transactions are conditioned on the satisfaction of certain closing conditions that are not within Capitol’s control.
There are risks and costs to Capitol if the Business Combination is not completed, including the risk of liquidation.
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Post-Business Combination Corporate Governance. The parties have not entered into any agreement in respect of the composition of the board of directors of New Doma after the Closing, except for the parties’ respective rights to designate the initial director nominees. See “The Merger Agreement” for detailed discussions of the terms and conditions of the Merger Agreement. Furthermore, because the Doma Stockholders will collectively control shares representing a majority of New Doma’s total outstanding shares of common stock upon completion of the Business Combination, and because the board of directors of New Doma will be classified following the Closing pursuant to the terms of the Proposed Organizational Documents, the Doma Stockholders may be able to elect future directors and make other decisions (including approving certain transactions involving New Doma and other corporate actions) without the consent or approval of any of Capitol’s current stockholders, directors or management team. See “Charter Proposal” for detailed discussions of the terms and conditions of the Proposed Organizational Documents.
Interests of Capitol’s Sponsors, Directors and Officers. Capitol’s Sponsors, directors and officers may have interests in the Business Combination as individuals that are in addition to, and may be different from, the interests of Capitol’s stockholders. See “Proposal No. 1—The Business Combination Proposal—Interests of Capitol’s Sponsors, Directors and Officers in the Business Combination.”
Other Risks. Various other risks associated with the business of Doma, as described in the section “Risk Factors” appearing elsewhere in this proxy statement/prospectus.
The foregoing discussion of material factors considered by the Capitol Board of Directors is not intended to be exhaustive but does sets forth the principal factors considered by the Capitol Board of Directors.
Ownership of New Doma Following the Business Combination
As of the date of this proxy statement/prospectus, there are (i) 34,500,000 shares of Capitol Class A Common Stock and (ii) 8,625,000 shares of Capitol Class B Common Stock outstanding. In addition, as of the date of this proxy statement/prospectus, there are an aggregate of 11,500,000 public warrants and 5,833,333 private placement warrants of Capitol, in each case, issued and outstanding. Each whole warrant entitles the holder thereof to purchase one share of New Doma Common Stock.
The following table summarizes the pro forma common stock outstanding in New Doma immediately following the consummation of the Business Combination under two scenarios:
Assuming No Redemptions – This scenario assumes that none of the Capitol Stockholders will elect to redeem their Class A Common Stock for a pro rata portion of cash in the Trust Account, and thus the full amount of $345.0 million held in the Trust Account is available for the Business Combination.
Assuming Maximum Redemptions – This scenario assumes that Capitol Stockholders will redeem approximately 19.5 million shares of Class A Common Stock for an aggregate redemption payment of $195.1 million. The aggregate redemption payment of $195.1 million was calculated as the difference between (i) cash and cash equivalents of approximately $0.1 million from Capitol as of March 31, 2021, available trust cash of $345.0 million and PIPE financing of $300.0 million, collectively $645.1 million, and (ii) minimum cash of $450.0 million. The number of public redemption shares of approximately 19.5 million shares of Class A Common Stock was calculated based on the estimated per share redemption value of approximately $10.00 ($345.0 million in the Trust Account divided by 34.5 million outstanding shares of Class A Common Stock held by Capitol’s public shareholders).
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Assuming No Redemptions Assuming Maximum Redemptions
In thousands
Shares Ownership, % Shares Ownership, %
Doma stockholders(1)
276,327 79.5  % 276,845 84.2  %
Capitol public stockholders(2)
34,500 9.9  % 14,991 4.6  %
Sponsors(3)
6,900 2.0  % 6,900 2.1  %
PIPE Investors 30,000 8.6  % 30,000 9.1  %
Total 347,727 100.0  % 328,736 100.0  %
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(1)The New Doma Common Stock issued to the Sellers was calculated as Share Consideration divided by $10.00 per share.
(2)Under the Maximum Redemptions scenario, the Capitol Class A Common Stock held by Capitol public stockholders was calculated as the difference between 34.5 million shares outstanding as of March 31, 2021 and the potential maximum redemption of 19.5 million shares.
(3)The New Doma Common Stock held by the Sponsors was calculated as 8.625 million shares of Capitol Class B Common Stock outstanding as of March 31, 2021 excluding the 1.725 million shares of Class B Common Stock subject to vesting post Business Combination, converted on a one-for-one basis into New Doma Common Stock.
The numbers of shares and percentage interests set forth above have been presented for illustrative purposes only and do not necessarily reflect what New Doma’ ownership will be after the Closing. For more information about the merger consideration, these scenarios and the underlying assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” and “The Merger Agreement—Effects of the Merger Agreement—Aggregate Merger Consideration.”
Regulatory Approvals
The Transactions are not subject to any federal or state regulatory requirement or approval, except for the filings with the State of Delaware necessary to effectuate the Transactions and the filing of required notifications and the expiration or termination of the required waiting periods under the HSR Act, which has already occurred.
Conditions to the Completion of the Business Combination
The obligations of the parties to consummate, or cause to be consummated, the Merger are subject to the satisfaction or waiver of certain customary closing conditions, including, among others, (i) approval of the Business Combination and the consummation of the Transactions by the respective stockholders of Capitol and Doma, (ii) effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus forms a part to be filed by Capitol in connection with the Business Combination, (iii) expiration or termination of the waiting period under the HSR Act (which has already occurred), (iv) receipt of approval for listing on the NYSE of the shares of New Doma Common Stock to be issued in connection with the Merger, (v) that Capitol has at least $5,000,001 of net tangible assets upon Closing, and (vi) the absence of any injunctions or statute, rule or regulation prohibiting the Transactions.
The obligations of Capitol or Doma to consummate, or cause to be consummated, the Merger are subject to the satisfaction of the certain additional conditions, any one or more of which may be waived in writing by Capitol or Doma, as applicable. In particular, the Merger Agreement provides that the obligation of Doma to consummate the Merger is conditioned on, as of the Closing, the amount of Available New Doma Cash being equal to or greater than $450,000,000.
For further details, see “The Merger Agreement.”
Termination
The Merger Agreement may be terminated and the Transactions abandoned (notwithstanding any approval of the Merger Agreement by Doma or Capitol Stockholders) at any time prior to Closing:
by mutual written agreement of Doma and Capitol;
by written notice of either Doma or Capitol, if:
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the Closing has not occurred on or before December 31, 2021, subject to the limitations set forth in the Merger Agreement or any governmental order or applicable law that permanently enjoins or prohibits the consummation of the Transactions; or
a Terminating Doma Breach (as defined in the Merger Agreement) or Terminating Capitol Breach (as defined in the Merger Agreement) occurs, and the respective party fails to cure such breach within 30 days after receiving written notice of such breach or, if less than 30 days away, by December 31, 2021, subject to limitations set forth in the Merger Agreement; or
by written notice to Doma from Capitol, if the Voting and Support Agreements are not delivered to Capitol within 24 hours after the date of the Merger Agreement (which condition was satisfied by the delivery of the Doma Support Agreements as further described in the section “Related Agreements—Doma Support Agreements”).
Redemption Rights
Public stockholders may seek to redeem the public shares that they hold, regardless of whether they vote for or against the proposed Business Combination or do not vote at the Special Meeting. Any public stockholder may request redemption of their public shares for a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, calculated as of two business days prior to the consummation of the Business Combination, including interest earned on the funds held in the Trust Account and not previously released to us to fund our working capital requirements (subject to an aggregate limit of $100,000) and/or to pay our taxes, divided by the number of then issued and outstanding public shares. If a holder properly seeks redemption as described in this section and the Business Combination is consummated, the holder will no longer own these shares following the Business Combination.
Notwithstanding the foregoing, a public stockholder, together with any affiliate of such holder or any other person with whom such holder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking redemption rights with respect to 20% or more of the shares of the public shares. Accordingly, if a public stockholder, alone or acting in concert or as a group, seeks to redeem more than 20% of the public shares, then any such shares in excess of that 20% limit would not be redeemed for cash.
Capitol’s Sponsors will not have redemption rights with respect to any shares of Capitol Common Stock owned by them, directly or indirectly.
You will be entitled to receive cash for any public shares to be redeemed only if you:
hold public shares or hold public shares through units and you elect to separate your units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares; and
prior to 12:00 p.m., New York City time, on                     , 2021, (a) submit a written request, including the legal name, phone number and address of the beneficial owner of the shares for which redemption is requested, to the transfer agent that Capitol selects to redeem your public shares for cash and (b) deliver your public shares to the transfer agent, physically or electronically through DTC.
Holders of units must elect to separate the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If holders hold their units in an account at a brokerage firm or bank, holders must notify their broker or bank that they elect to separate the units into the underlying public shares and public warrants, or if a holder holds units registered in its own name, the holder must contact the transfer agent, directly and instruct them to do so.
Any request to redeem public shares, once made, may be withdrawn at any time until the deadline for submitting redemption requests and thereafter, with Capitol’s consent, until the Closing. Furthermore, if a holder of a public share delivers its certificate in connection with an election of its redemption and subsequently decides prior to the deadline for submitting redemption requests not to elect to exercise such rights, it may simply request that
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Capitol instruct the transfer agent to return the certificate (physically or electronically). The holder can make such request by contacting the transfer agent, at the address or email address listed in this proxy statement/prospectus.
If the Business Combination is not approved or completed for any reason, then public stockholders who elected to exercise their redemption rights will not be entitled to redeem their shares. In such case, Capitol will promptly return any public shares previously delivered by public holders.
For more information on redemption rights, please see “The Special Meeting—Redemption Rights.
No Delaware Appraisal Rights
Neither Capitol Stockholders nor Capitol warrant holders have appraisal rights in connection with the Business Combination under the DGCL.
Proxy Solicitation
Proxies may be solicited by mail, telephone or in person. Capitol has engaged Morrow Sodali LLC to assist in the solicitation of proxies. If a Capitol Stockholder grants a proxy, it may still vote its shares in person (which would include presence at the virtual Special Meeting) if it revokes its proxy before the Special Meeting. A Capitol Stockholder may also change its vote by submitting a later-dated proxy as described in the section entitled “The Special Meeting—Revoking Your Proxy.”
Interests of Capitol’s Directors and Officers in the Business Combination
When you consider the recommendation of the Capitol Board of Directors in favor of approval of the Business Combination Proposal, you should keep in mind that the Sponsors and Capitol’s directors and officers have interests in such proposal that are different from, or in addition to, those of Capitol Stockholders and warrant holders generally. These interests include, among other things, the interests listed below:
Prior to Capitol’s initial public offering, the Sponsors purchased 8,625,000 shares of Capitol Class B Common Stock for an aggregate purchase price of $25,000, or approximately $0.003 per share. As a result of the significantly lower investment per share of our Sponsors as compared with the investment per share of our public stockholders, a transaction that results in an increase in the value of the investment of the Sponsors may result in a decrease in the value of the investment of our public stockholders. In addition, if Capitol does not consummate a business combination by December 4, 2022 (or if such date is extended at a duly called special meeting, such later date), it would cease all operations except for the purpose of winding-up, redeeming all of the outstanding public shares for cash and, subject to the approval of its remaining stockholders and its board of directors, liquidating and dissolving, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. In such event, the 8,625,000 shares of Capitol Class B Common Stock owned by the Sponsors would be worthless because following the redemption of the public shares, Capitol would likely have few, if any, net assets. Furthermore, the Sponsors and Capitol’s directors and officers have agreed to waive their respective rights to liquidating distributions from the Trust Account in respect of any shares of Capitol Common Stock held by them, if Capitol fails to complete a business combination within the required period. Additionally, in such event, the 5,833,333 private placement warrants purchased by the Sponsors simultaneously with the consummation of Capitol’s initial public offering for an aggregate purchase price of $8,750,000 will also expire worthless. Capitol’s directors and executive officers, Mark D. Ein, L. Dyson Dryden, Alfheidur H. Saemundsson and Preston P. Parnell, also have a direct or indirect economic interest in such private placement warrants and in the 8,625,000 shares of Capitol Class B Common Stock owned by the Sponsors. The 8,625,000 shares of New Doma Common Stock into which the 8,625,000 shares of Capitol Class B Common Stock held by the Sponsors (without giving effect to the forfeiture or transfer of any Sponsor Covered Shares (as defined below)) will automatically convert in connection with the Business Combination, if unrestricted and freely tradable, would have had an aggregate market value of $85.6 million based upon the closing price of $9.92 per public share on the NYSE on June 14, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. However, given that such shares of New Doma Common Stock will be subject to certain restrictions, including those described
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elsewhere in this proxy statement/prospectus, Capitol believes such shares have less value. The 5,833,333 private placement warrants held by the Sponsors, if unrestricted and freely tradable, would have had an aggregate market value of $7.6 million based upon the closing price of $1.31 per public warrant on the NYSE on June 14, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus.
Mark D. Ein, a current director of Capitol, is expected to be a director of New Doma after the consummation of the Business Combination. As such, in the future, Mr. Ein may receive fees for his service as a director, which may consist of cash or stock-based awards, and any other remuneration that the New Doma Board of Directors determines to pay to its non-employee directors.
The Sponsors (including their respective representatives and affiliates) and Capitol’s directors and officers, are, or may in the future become, affiliated with entities that are engaged in a similar business to Capitol. For example, Messrs. Ein and Dryden, each of whom serves as an officer and director of Capitol and is an affiliate of the Sponsors, have also recently incorporated Capitol Investment Corp. VI (“Capitol VI”) and Capitol Investment Corp. VII (“Capitol VII”), each of which is a Delaware blank check company formed for the purpose of effecting their respective initial business combinations. Mr. Ein is the Chief Executive Officer and Chairman of the Board of Directors of each of Capitol VI and Capitol VII and Mr. Dryden is the President and Chief Financial Officer and a director of each of Capitol VI and Capitol VII, and three of Capitol’s other officers and directors are also officers or directors of each of Capitol VI and Capitol VII and owe fiduciary duties under the DGCL to each of Capitol VI and Capitol VII. Messrs. Ein and Dryden are also directors of BrightSpark Capitol Corp. (“BrightSpark”), a Delaware blank check company formed for the purpose of effecting an initial business combination, and Alfheidur H. Saemundsson is chief financial officer of BrightSpark. The Sponsors and Capitol’s directors and officers are not prohibited from sponsoring, or otherwise becoming involved with, any other blank check companies prior to Capitol completing its initial business combination. Capitol’s directors and officers also may become aware of business opportunities which may be appropriate for presentation to Capitol, and the other entities to which they owe certain fiduciary or contractual duties, including Capitol VI, Capitol VII and BrightSpark. Accordingly, they may have had conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in Capitol’s favor and such potential business opportunities may be presented to other entities prior to their presentation to Capitol, subject to applicable fiduciary duties under the DGCL. Capitol’s amended and restated certificate of incorporation provides that it renounces its interest in any corporate opportunity offered to any director or officer of Capitol unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of Capitol and it is an opportunity that Capitol is able to complete on a reasonable basis.
Capitol’s existing directors and officers will be eligible for continued indemnification and continued coverage under Capitol’s directors’ and officers’ liability insurance after the Business Combination and pursuant to the Merger Agreement.
In order to protect the amounts held in the Trust Account, the Sponsors have agreed that they will be liable jointly and severally to Capitol if and to the extent any claims by a third party (other than Capitol’s independent public accountants) for services rendered or products sold to Capitol, or a prospective target business with which Capitol has entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in value of the trust assets, less taxes payable, except as to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held the Trust Account (whether or not such waiver is enforceable), and except as to any claims under the indemnity of the underwriters of Capitol’s initial public offering against certain liabilities, including liabilities under the Securities Act.
The Sponsors have advanced funds to Capitol for working capital purposes, amounting to $700,000 as of April 20, 2021. These outstanding advances have been documented in convertible promissory notes issued
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by Capitol to such lenders. Following the issuance of the convertible promissory notes, $270,000 remains under a funding commitment provided by the Sponsors in February 2021. In May 2021, the Sponsors committed to provide an additional $756,000 in loans. The loans are non-interest bearing, unsecured and due and payable in full on consummation of Capitol’s initial business combination. If Capitol does not complete its initial business combination within the required period, Capitol may use a portion of the working capital held outside the Trust Account to repay such advances and any other working capital advances made to Capitol, but no proceeds held in the Trust Account would be used to repay such advances and any other working capital advances made to Capitol, and such related party may not be able to recover the value it has loaned Capitol and any other working capital advances it may make. Up to $1,500,000 of such loans may be convertible into warrants of New Doma at a price of $1.50 per warrant at the option of the lender. The warrants would be identical to the private placement warrants.
Capitol’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them related to identifying, investigating, negotiating and completing an initial business combination. However, if Capitol fails to consummate a business combination by December 4, 2022, they will not have any claim against the Trust Account for reimbursement. Accordingly, Capitol may not be able to reimburse these expenses if the Business Combination or another business combination is not completed by such date.
Pursuant to the Registration Rights Agreement, the Sponsors will have customary registration rights, including demand and piggy-back rights, subject to cooperation and cut-back provisions with respect to the shares of New Doma Common Stock and warrants held by such parties following the consummation of the Business Combination.
The existence of financial and personal interests of one or more of Capitol’s directors may result in a conflict of interest on the part of such director(s) between what such director may believe is in the best interests of Capitol and its stockholders and what such director may believe is best for such director in determining to recommend that stockholders vote for the proposals. In addition, Capitol’s officers have interests in the Business Combination that may conflict with your interests as a stockholder.
The personal and financial interests of the Sponsors, as well as Capitol’s directors and officers, may have influenced their motivation in identifying and selecting Doma as a business combination target, completing an initial business combination with Doma and influencing the operation of the business following the Business Combination. In considering the recommendations of the Capitol Board of Directors to vote for the proposals, its stockholders should consider these interests.
Stock Exchange Listing
Capitol’s units, Class A Common Stock and public warrants are publicly traded on the NYSE under the symbols “CAP.U,” “CAP” and “CAP WS,” respectively. Capitol intends to apply to list the New Doma Common Stock and public warrants on the NYSE under the symbols “DOMA” and “DOMA WS,” respectively, upon the Closing of the Business Combination. New Doma will not have units traded following the Closing of the Business Combination.
Material U.S. Federal Tax Consequences.
For a discussion summarizing the U.S. federal income tax considerations of the exercise of redemption rights, please see “U.S. Federal Income Tax Considerations.”
Accounting Treatment
The Business Combination will be accounted for as a reverse recapitalization and Capitol will be treated as the acquired company for financial statement reporting purposes. Doma will be deemed the predecessor and New Doma will be the successor SEC registrant, meaning that Doma’s financial statements for periods prior to the consummation of the Business Combination will be disclosed in Doma’s future periodic reports. Given the transaction is treated as a reverse recapitalization, the Business Combination will be treated as the equivalent of
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Doma issuing stock for the net assets of Capitol, accompanied by a recapitalization. The net assets of Doma and Capitol will be stated at historical cost. No goodwill or intangible assets will be recorded in connection with the Business Combination.
Comparison of Stockholders’ Rights
Following the consummation of the Business Combination, the rights of Capitol Stockholders who become New Doma stockholders in the Business Combination will no longer be governed by the Current Certificate of Incorporation and Current Bylaws and instead will be governed by the Proposed Certificate of Incorporation and New Doma’s Proposed Bylaws. See the section “Comparison of Stockholders’ Rights.”
Summary of Risk Factors
Capitol Stockholders should consider all the information contained in this proxy statement/prospectus in deciding how to vote for the proposals presented herein. The occurrence of one or more of the events or circumstances described in the section “Risk Factors,” alone or in combination with other events or circumstances, may materially adversely affect New Doma’s business, financial condition and operating results. Such risks include, but are not limited to:
Capitol
Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to Capitol prior to the consummation of the Business Combination.
Risks Related to the Business Combination and Capitol:
The Sponsors have agreed to vote in favor of the Business Combination, regardless of how Capitol’s public stockholders vote.
Neither the Capitol Board of Directors nor any committee thereof obtained a third-party valuation in determining whether or not to pursue the Business Combination.
Because the Sponsors and Capitol’s directors and officers have interests that are different, or in addition to (and which may conflict with), the interests of our stockholders, a conflict of interest may have existed in determining whether the Business Combination with Doma is appropriate as our initial business combination. Such interests include that the Sponsors will lose their entire investment in us if our initial business combination is not completed.
Following the consummation of the Business Combination, our only significant asset will be our ownership interest in Doma and such ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on New Doma Common Stock or satisfy our other financial obligations.
The public stockholders will experience immediate dilution as a consequence of the issuance of New Doma Common Stock as consideration in the Business Combination and the PIPE Financing and due to future issuances pursuant to the Incentive Award Plan. Having a minority share position may reduce the influence that our current stockholders have on the management of New Doma.
Additional Risks Related to Ownership of New Doma Common Stock Following the Business Combination and New Doma Operating as a Public Company:
The price of New Doma’s securities may be volatile.
New Doma does not intend to pay cash dividends for the foreseeable future.
Future resales of New Doma Common Stock after the consummation of the Business Combination may cause the market price of New Doma’s securities to drop significantly, even if New Doma’s business is doing well.
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The obligations associated with being a public company will involve significant expenses and will require significant resources and management attention, which may divert from New Doma’s business operations.
Risks if the Business Combination is not Consummated:
If we are not able to complete the Business Combination with Doma by December 4, 2022 (or if such date is extended at a duly called meeting of stockholders, such later date) or if we are not able to complete another business combination by such date, in each case, we would cease all operations except for the purpose of winding up and we would redeem the public shares and liquidate the Trust Account, in which case Capitol’s public stockholders may only receive approximately $10.00 per share, or less than such amount in certain circumstances, and the Capitol Warrants will expire worthless.
If the net proceeds of Capitol’s initial public offering not being held in the Trust Account are insufficient to allow us to operate through to December 4, 2022 and we are unable to obtain additional capital, we may be unable to complete our initial business combination, in which case our public stockholders may only receive $10.00 per share, and our warrants will expire worthless.
Doma
Unless the context otherwise requires, references in this subsection to “we,” “us,” “our” and “the Company” generally refer to Doma in the present tense or New Doma from and after the Business Combination.
Risks Related to Doma’s Business and Industry:
COVID-19 has adversely affected our business and could have adverse effects on our business in the future.
We have a history of net losses and could continue to incur substantial net losses in the future.
Our future growth and profitability depend in part on our ability to successfully operate in the highly competitive real estate and insurance industries.
Our success and ability to grow our business depend on retaining and expanding our S&EA partner base. If we fail to add new S&EA partners or retain current S&EA partners, our business, revenue, operating results and financial condition could be harmed.
If we are unable to expand our product offerings, our prospects for future growth may be adversely affected.
Adverse changes in economic conditions, especially those affecting the levels of real estate and mortgage activity, may reduce our revenues.
We collect, process, store, share, disclose and use consumer information and other data and are subject to stringent and changing privacy laws, regulations and standards, policies and contractual obligations. Our actual or perceived failure to protect such information and data, respect consumers’ privacy or comply with data privacy and security laws and regulations and our policies and contractual obligations could damage our reputation and brand and harm our business and operating results.
We must comply with extensive government regulations. These regulations could adversely affect our ability to increase our revenues and operating results.
Emerging Growth Company and Smaller Reporting Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended
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transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of New Doma’s financial statements with those of another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
We will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of Capitol’s initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of New Doma Common Stock held by non-affiliates exceeds $250 million as of the end of that fiscal year’s second fiscal quarter or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of New Doma Common Stock held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter.
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MARKET PRICE, TICKER SYMBOL AND DIVIDEND INFORMATION
Capitol
Market Price and Ticker Symbol
Capitol’s units, Class A Common Stock and public warrants are currently listed on the NYSE under the symbols “CAP.U,” “CAP” and “CAP WS,” respectively.
The closing price of Capitol’s units, Class A Common Stock and public warrants on March 2, 2021, the last trading day before announcement of the execution of the Merger Agreement, was $10.51, $9.97 and $1.26, respectively. As of June 8, 2021, the record date for the Special Meeting, the closing price for each unit, share of Class A Common Stock and public warrant was $10.35, $9.90 and $1.40, respectively.
Holders
As of June 14, 2021, there was one holder of record of Capitol units, one holder of record of Capitol Class A Common Stock, six holders of record of Capitol Class B Common Stock, one holder of record of Capitol’s public warrants and six holders of record of Capitol’s private warrants. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders whose units, Capitol Class A Common Stock and public warrants are held of record by banks, brokers and other financial institutions.
Dividend Policy
Capitol has not paid any cash dividends on its common stock to date and does not intend to pay cash dividends prior to the completion of the Business Combination. The payment of cash dividends in the future will be dependent upon New Doma’s revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of the Business Combination. If Capitol incurs any indebtedness in connection with the Business Combination, New Doma’s ability to declare dividends may be limited by restrictive covenants that may be agreed to in connection therewith. The payment of any cash dividends subsequent to the Business Combination will be within the discretion of the New Doma Board of Directors at such time.
Doma
Market Price and Ticker Symbol
There is no public market for shares of Doma Common Stock.
Holders
As of June 4, 2021, the number of record holders of Doma Common Stock, on an as-converted basis, was approximately 195.
Dividend Policy
Doma has never declared or paid cash dividends on Doma Capital Stock.
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RISK FACTORS
Capitol Stockholders should carefully consider the following risk factors together with all of the other information included in this proxy statement/prospectus before they decide whether to vote or instruct their vote to be cast to approve the relevant proposals described in this proxy statement/prospectus, including the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Doma” and the consolidated financial statements and notes thereto included herein.
The following risks and uncertainties may have a material adverse effect on Capitol or Doma’s business, financial condition, results of operations or reputation. The risks described below are not the only risks Capitol or Doma face. Additional risks not presently known to Capitol or Doma or that Capitol or Doma currently believe are not material may also significantly affect New Doma’s business, financial condition, results of operations or reputation. New Doma’s business could be harmed by any of these risks. In that event, the trading price of Capitol’s securities and shares of New Doma Common Stock could decline and you could lose all or part of your investment.
Risks Related to the Business Combination and Capitol
Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to Capitol prior to the consummation of the Business Combination.
The Sponsors have agreed to vote in favor of the Business Combination, regardless of how Capitol’s public stockholders vote.
The Sponsors and each director and officer of Capitol have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in the case of the Sponsors, subject also to the terms and conditions contemplated by the Sponsor Support Agreement. As of the date of this proxy statement/prospectus, the Sponsors own 20% of Capitol’s issued and outstanding common stock.
Neither the Capitol Board of Directors nor any committee thereof obtained a third-party valuation in determining whether or not to pursue the Business Combination.
Neither the Capitol Board of Directors nor any committee thereof is required to obtain an opinion that the price that we are paying for Doma is fair to us from a financial point of view. Neither the Capitol Board of Directors nor any committee thereof obtained a third-party valuation in connection with the Business Combination. In analyzing the Business Combination, the Capitol Board of Directors and management conducted due diligence on Doma. While there were numerous items considered by the Capitol Board of Directors in its assessment of the Business Combination and the financial terms set forth in the Merger Agreement, the primary model relied upon in valuing Doma was a comparison of selected financial data of Doma with its peers in the industry. The comparable companies the Capitol Board of Directors reviewed were Lemonade, Inc., Metromile, Inc. and Root, Inc. within the Insurtech sector, and Opendoor Technologies Inc. and Redfin Corporation in the Proptech sector. The stock price information used by the Capitol Board of Directors in the comparable company analysis was as of March 1, 2021, the most recent data available at the time the Capitol Board of Directors met and concluded that the Business Combination was in the best interest of Capitol’s stockholders. From March 1, 2021 through June 14, 2021, the stock prices of the comparable companies decreased by 27% on average. Therefore, following March 1, 2021, the enterprise values for the peer companies used in the comparable company analysis have been significantly lower. For a further description of the comparable company analysis undertaken by the Capitol Board of Directors, see “Proposal No. 1 – The Business Combination Proposal—The Capitol Board of Directors’ Reasons for Approval of the Transactions—Comparable Company Analysis.”
Accordingly, investors will be relying solely on the judgment of the Capitol Board of Directors and management in valuing Doma, and the Capitol Board of Directors and management may not have properly valued such businesses. The lack of a third-party valuation may also lead an increased number of stockholders to vote against the Business Combination or demand redemption of their shares, which could potentially impact our ability to consummate the Business Combination.
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We may be forced to close the Business Combination even if we determined it is no longer in our stockholders’ best interest.
Our public stockholders are protected from a material adverse event of Doma arising between the date of the Merger Agreement and the Closing primarily by the right to redeem their public shares for a pro rata portion of the funds held in the Trust Account, calculated as of two business days prior to the vote at the Special Meeting, including interest earned on the funds held in the Trust Account and not previously released to us (net of taxes payable). Accordingly, if a material adverse event were to occur after approval of the Condition Precedent Proposals at the Special Meeting, we may be forced to close the Business Combination even if we determine it is no longer in our stockholders’ best interest to do so (as a result of such material adverse event) which could have a significant negative impact on our business, financial condition or results of operations.
Because the Sponsors and Capitol’s directors and officers have interests that are different, or in addition to (and which may conflict with), the interests of our stockholders, a conflict of interest may have existed in determining whether the Business Combination with Doma is appropriate as our initial business combination. Such interests include that the Sponsors will lose their entire investment in us if our initial business combination is not completed.
When you consider the recommendation of the Capitol Board of Directors in favor of approval of the Business Combination Proposal, you should keep in mind that the Sponsors and Capitol’s directors and officers have interests in such proposal that are different from, or in addition to, those of Capitol Stockholders and warrant holders generally. These interests include, among other things, the interests listed below:
Prior to Capitol’s initial public offering, the Sponsors purchased 8,625,000 shares of Capitol Class B Common Stock for an aggregate purchase price of $25,000, or approximately $0.003 per share. As a result of the significantly lower investment per share of our Sponsors as compared with the investment per share of our public stockholders, a transaction that results in an increase in the value of the investment of the Sponsors may result in a decrease in the value of the investment of our public stockholders. In addition, if Capitol does not consummate a business combination by December 4, 2022 (or if such date is extended at a duly called special meeting, such later date), it would cease all operations except for the purpose of winding-up, redeeming all of the outstanding public shares for cash and, subject to the approval of its remaining stockholders and its board of directors, liquidating and dissolving, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. In such event, the 8,625,000 shares of Capitol Class B Common Stock owned by the Sponsors would be worthless because following the redemption of the public shares, Capitol would likely have few, if any, net assets. Furthermore, the Sponsors and Capitol’s directors and officers have agreed to waive their respective rights to liquidating distributions from the Trust Account in respect of any shares of Capitol Common Stock held by them, if Capitol fails to complete a business combination within the required period. Additionally, in such event, the 5,833,333 private placement warrants purchased by the Sponsors simultaneously with the consummation of Capitol’s initial public offering for an aggregate purchase price of $8,750,000 will also expire worthless. Capitol’s directors and executive officers, Mark D. Ein, L. Dyson Dryden, Alfheidur H. Saemundsson and Preston P. Parnell, also have a direct or indirect economic interest in such private placement warrants and in the 8,625,000 shares of Capitol Class B Common Stock owned by the Sponsors. The 8,625,000 shares of New Doma Common Stock into which the 8,625,000 shares of Capitol Class B Common Stock held by the Sponsors (without giving effect to the forfeiture or transfer of any Sponsor Covered Shares) will automatically convert in connection with the Business Combination, if unrestricted and freely tradable, would have had an aggregate market value of $85.6 million based upon the closing price of $9.92 per public share on the NYSE on June 14, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. However, given that such shares of New Doma Common Stock will be subject to certain restrictions, including those described elsewhere in this proxy statement/prospectus, Capitol believes such shares have less value. The 5,833,333 private placement warrants held by the Sponsors, if unrestricted and freely tradable, would have had an aggregate market value of $7.6 million based upon the closing price of $1.31 per public warrant on the NYSE on June 14, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus.
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Mark D. Ein, a current director of Capitol, is expected to be a director of New Doma after the consummation of the Business Combination. As such, in the future, Mr. Ein may receive fees for his service as a director, which may consist of cash or stock-based awards, and any other remuneration that the New Doma Board of Directors determines to pay to its non-employee directors.
The Sponsors (including their respective representatives and affiliates) and Capitol’s directors and officers, are, or may in the future become, affiliated with entities that are engaged in a similar business to Capitol. For example, Messrs. Ein and Dryden, each of whom serves as an officer and director of Capitol and is an affiliate of the Sponsors, have also recently incorporated Capitol VI and Capitol VII, each of which is a Delaware blank check company formed for the purpose of effecting their respective initial business combinations. Mr. Ein is the Chief Executive Officer and Chairman of the Board of Directors of each of Capitol VI and Capitol VII and Mr. Dryden is the President and Chief Financial Officer and a director of each of Capitol VI and Capitol VII, and three of Capitol’s other officers and directors are also officers or directors of each of Capitol VI and Capitol VII and owe fiduciary duties under the DGCL to each of Capitol VI and Capitol VII. Messrs. Ein and Dryden are also directors of BrightSpark, a Delaware blank check company formed for the purpose of effecting an initial business combination, and Alfheidur H. Saemundsson is Chief Financial Officer of BrightSpark. The Sponsors and Capitol’s directors and officers are not prohibited from sponsoring, or otherwise becoming involved with, any other blank check companies prior to Capitol completing its initial business combination. Capitol’s directors and officers also may become aware of business opportunities which may be appropriate for presentation to Capitol, and the other entities to which they owe certain fiduciary or contractual duties, including Capitol VI, Capitol VII and BrightSpark. Accordingly, they may have had conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in Capitol’s favor and such potential business opportunities may be presented to other entities prior to their presentation to Capitol, subject to applicable fiduciary duties under the DGCL. Capitol’s amended and restated certificate of incorporation provides that it renounces its interest in any corporate opportunity offered to any director or officer of Capitol unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of Capitol and it is an opportunity that Capitol is able to complete on a reasonable basis.
Capitol’s existing directors and officers will be eligible for continued indemnification and continued coverage under Capitol’s directors’ and officers’ liability insurance after the Business Combination and pursuant to the Merger Agreement.
In order to protect the amounts held in the Trust Account, the Sponsors have agreed that they will be liable jointly and severally to Capitol if and to the extent any claims by a third party (other than Capitol’s independent public accountants) for services rendered or products sold to Capitol, or a prospective target business with which Capitol has entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in value of the trust assets, less taxes payable, except as to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held the Trust Account (whether or not such waiver is enforceable), and except as to any claims under the indemnity of the underwriters of Capitol’s initial public offering against certain liabilities, including liabilities under the Securities Act.
The Sponsors have advanced funds to Capitol for working capital purposes, amounting to $700,000 as of April 20, 2021. These outstanding advances have been documented in convertible promissory notes issued by Capitol to such lenders. Following the issuance of the convertible promissory notes, $270,000 remains under a funding commitment provided by the Sponsors in February 2021. In May 2021, the Sponsors committed to provide an additional $756,000 in loans. The loans are non-interest bearing, unsecured and due and payable in full on consummation of Capitol’s initial business combination. If Capitol does not complete its initial business combination within the required period, Capitol may use a portion of the working capital held outside the Trust Account to repay such advances and any other working capital
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advances made to Capitol, but no proceeds held in the Trust Account would be used to repay such advances and any other working capital advances made to Capitol, and such related party may not be able to recover the value it has loaned Capitol and any other working capital advances it may make. Up to $1,500,000 of such loans may be convertible into warrants of New Doma at a price of $1.50 per warrant at the option of the lender. The warrants would be identical to the private placement warrants.
Capitol’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them related to identifying, investigating, negotiating and completing an initial business combination. However, if Capitol fails to consummate a business combination by December 4, 2022, they will not have any claim against the Trust Account for reimbursement. Accordingly, Capitol may not be able to reimburse these expenses if the Business Combination or another business combination is not completed by such date.
Pursuant to the Registration Rights Agreement, the Sponsors will have customary registration rights, including demand and piggy-back rights, subject to cooperation and cut-back provisions with respect to the shares of New Doma Common Stock and warrants held by such parties following the consummation of the Business Combination.
The existence of financial and personal interests of one or more of Capitol’s directors may result in a conflict of interest on the part of such director(s) between what such director may believe is in the best interests of Capitol and its stockholders and what such director may believe is best for such director in determining to recommend that stockholders vote for the proposals. In addition, Capitol’s officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section “The Business Combination ProposalInterests of Capitol’s Sponsors, Directors and Officers in the Business Combination” for a further discussion of these considerations.
The personal and financial interests of the Sponsors, as well as Capitol’s directors and officers, may have influenced their motivation in identifying and selecting Doma as a business combination target, completing an initial business combination with Doma and influencing the operation of the business following the Business Combination. In considering the recommendations of Capitol Board of Directors to vote for the proposals, its stockholders should consider these interests.
The exercise of Capitol’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are appropriate and in Capitol’s stockholders’ best interest.
In the period leading up to the Closing, events may occur that, pursuant to the Merger Agreement, would require Capitol to agree to amend the Merger Agreement, to consent to certain actions taken by Doma or to waive rights that Capitol is entitled to under the Merger Agreement. Such events could arise because of changes in the course of Doma’s business or a request by Doma to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement. In any of such circumstances, it would be at Capitol’s discretion, acting through its board of directors, to grant its consent or waive those rights. The existence of financial and personal interests of one or more of the directors described in the preceding risk factors (and described elsewhere in this proxy statement/prospectus) may result in a conflict of interest on the part of such director(s) between what such director may believe is best for Capitol and its stockholders and what such director may believe is best for such director in determining whether or not to take the requested action. As of the date of this proxy statement/prospectus, Capitol does not believe there will be any changes or waivers that Capitol’s directors and officers would be likely to make after stockholder approval of the Business Combination Proposal has been obtained. While certain changes could be made without further stockholder approval, Capitol will circulate a new or amended proxy statement/prospectus and resolicit Capitol’s stockholders if changes to the terms of the transaction that would have a material impact on its stockholders are required prior to the vote on the Business Combination Proposal.
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Capitol and Doma will incur significant transaction and transition costs in connection with the Business Combination.
Capitol and Doma have both incurred and expect to incur significant, non-recurring costs in connection with consummating the Business Combination and operating as a public company following the consummation of the Business Combination. Capitol and Doma may also incur additional costs to retain key employees. Certain transaction costs incurred in connection with the Merger Agreement (including the Business Combination), including all legal, accounting, consulting, investment banking and other fees, expenses and costs, will be paid by New Doma following the closing of the Business Combination.
The announcement of the proposed Business Combination could disrupt Doma’s relationships with its customers, suppliers, business partners and others, as well as its operating results and business generally.
Whether or not the Business Combination and related transactions are ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the Business Combination on Doma’s business include the following:
its employees may experience uncertainty about their future roles, which might adversely affect New Doma’s ability to retain and hire key personnel and other employees;
customers, suppliers, business partners and other parties with which Doma maintains business relationships may experience uncertainty about its future and seek alternative relationships with third parties, seek to alter their business relationships with Doma or fail to extend an existing relationship with New Doma; and
Doma has expended and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Business Combination.
If any of the aforementioned risks were to materialize, they could lead to significant costs that may impact Doma and, in the future, New Doma’s results of operations and cash available to fund its business.
Subsequent to the consummation of the Business Combination, New Doma may be exposed to unknown or contingent liabilities and may be required to subsequently take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and share price, which could cause you to lose some or all of your investment.
We cannot assure you that the due diligence conducted in relation to Doma has identified all material issues or risks associated with Doma, its business or the industry in which it competes. Furthermore, we cannot assure you that factors outside of Doma’s and Capitol’s control will not later arise. As a result of these factors, we may be exposed to liabilities and incur additional costs and expenses and we may be forced to later write-down or write-off assets, restructure our operations or incur impairment or other charges that could result in our reporting losses. Even if our due diligence has identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. If any of these risks materialize, this could have a material adverse effect on our financial condition and results of operations and could contribute to negative market perceptions about our securities or New Doma. Additionally, we have no indemnification rights against the Doma Stockholders under the Merger Agreement and all of the purchase price consideration will be delivered at the Closing. Accordingly, any stockholders or warrant holders of Capitol who choose to remain New Doma stockholders or warrant holders following the Business Combination could suffer a reduction in the value of their shares or warrants. Such stockholders or warrant holders are unlikely to have a remedy for such reduction in value.
The historical financial results of Doma and unaudited pro forma financial information included elsewhere in this proxy statement/prospectus may not be indicative of what New Doma’s actual financial position or results of operations would have been.
The historical financial results of Doma included in this proxy statement/prospectus may not reflect the financial condition, results of operations or cash flows they would have achieved as a standalone public company during the periods presented or those New Doma will achieve in the future. This is primarily the result of the
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following factors: (i) New Doma will incur additional ongoing costs as a result of the Business Combination, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act; and (ii) New Doma’s capital structure will be different from that reflected in Doma’s historical financial statements. New Doma’s financial condition and future results of operations could be materially different from amounts reflected in its historical financial statements included elsewhere in this proxy statement/prospectus, so it may be difficult for investors to compare New Doma’s future results to historical results or to evaluate its relative performance or trends in its business.
Similarly, the unaudited pro forma financial information in this proxy statement/prospectus is presented for illustrative purposes only and has been prepared based on a number of assumptions, including, but not limited to, Capitol being treated as the “acquired” company for financial reporting purposes in the Business Combination, the total debt obligations and the cash and cash equivalents of Doma on the Closing Date and the number of shares of Capitol Class A Common Stock that are redeemed in connection with the Business Combination. Accordingly, such pro forma financial information may not be indicative of New Doma’s future operating or financial performance and New Doma’s actual financial condition and results of operations may vary materially from New Doma’s pro forma results of operations and balance sheet contained elsewhere in this proxy statement/prospectus, including as a result of such assumptions not being accurate. See “Unaudited Pro Forma Condensed Combined Financial Information.
Following the consummation of the Business Combination, our only significant asset will be our ownership interest in Doma and such ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on New Doma Common Stock or satisfy our other financial obligations.
Following the consummation of the Business Combination, we will have no direct operations and no significant assets other than our ownership of Doma. We and certain investors, the Doma Stockholders and directors and officers of Doma and its affiliates will become stockholders of New Doma. We will depend on Doma for distributions, loans and other payments to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded company and to pay any dividends with respect to New Doma Common Stock. The financial condition and operating requirements of Doma may limit our ability to obtain cash from Doma. The earnings from, or other available assets of, Doma may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on New Doma Common Stock or satisfy our other financial obligations.
This lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our Business Combination.
We have a specified Minimum Cash Condition. This redemption threshold may make it more difficult for us to complete the Business Combination as contemplated.
The Merger Agreement provides that Doma’s obligation to consummate the Business Combination is conditioned on, among other things, as of the Closing, the Minimum Cash Condition being satisfied. This condition is for the sole benefit of Doma. If such condition is not met, and such condition is not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated.
There can be no assurance that Doma could and would waive the Minimum Cash Condition. If such condition is not met, and such condition is not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated.
Waiving the Minimum Cash Condition may negatively impact the analysis regarding our ability to continue as a going concern.
If Doma waives such condition and the Business Combination is consummated with less than the Minimum Available Cash Amount, the cash held by New Doma and its subsidiaries (including Doma) in the aggregate, after the Closing may not be sufficient to allow us to operate and pay our bills as they become due. Furthermore, our affiliates are not obligated to make loans to us in the future (other than our Sponsors’ and directors’ commitment to provide us loans in order to finance operating costs, including transaction costs in connection with a business
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combination, prior to the business combination). The additional exercise of redemption rights with respect to a large number of our public stockholders may make us unable to take such actions as may be desirable in order to optimize the capital structure of New Doma after consummation of the Business Combination and we may not be able to raise additional financing from unaffiliated parties necessary to fund our expenses and liabilities after the Closing. Any such event in the future may negatively impact the analysis regarding our ability to continue as a going concern at such time. In addition, there may be a less active and less liquid trading market for the New Doma Common Stock (there are a total of 34.5 million shares of Capitol Common Stock with redemption rights, and the number of shares of New Doma Common Stock outstanding would be reduced by the number of public shares redeemed), the New Doma Common Stock price may be more volatile, and our stockholders (including the PIPE Investors) may not be able to sell their New Doma Common Stock at a price at or above the price they paid to purchase their shares.
Certain insiders may elect to purchase shares from public stockholders prior to the consummation of the Business Combination, which may influence the vote on the Business Combination and reduce the public “float” of our securities.
At any time at or prior to the Business Combination, during a period when they are not then aware of any material non-public information regarding us or Capitol’s securities, the Sponsors, Doma or our or their respective directors, officers, advisors or affiliates may purchase public shares or warrants from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or execute agreements to purchase such shares or warrants from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire public shares or warrants or vote their public shares in favor of the Condition Precedent Proposals. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of Capitol’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsors, Doma or their respective directors, officers, advisors or affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholder would be required to revoke their prior elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood of (1) satisfaction of the requirement that holders of a majority of the Capitol Common Stock, represented in person (which would include presence at the virtual Special Meeting) or by proxy and entitled to vote at the Special Meeting, vote in favor of the Business Combination Proposal, the Stock Issuance Proposal, the Charter Proposal, the Incentive Award Plan Proposal, the ESPP Proposal, the Director Election Proposal and the Adjournment Proposal, (2) satisfaction of the Minimum Cash Condition, (3) otherwise limiting the number of public shares electing to redeem and (4) Capitol’s net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) being at least $5,000,001. The purpose of such purchases of public warrants would be to reduce the number of public warrants outstanding or to vote such warrants on any matters submitted to the warrant holders for approval in connection with the Business Combination.
Entering into any such arrangements may have a depressive effect on the Capitol Class A Common Stock (e.g., by giving an investor or holder the ability to effectively purchase shares or warrants at a price lower than market, such investor or holder may therefore become more likely to sell the shares such investor or holder owns, either at or prior to the Business Combination). If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares or warrants by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the Special Meeting and would likely increase the chances that such proposals would be approved. In addition, if such purchases are made, the public “float” of our securities and the number of beneficial holders of our securities may be reduced, possibly making it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.
We are not registering the shares of New Doma Common Stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants at that time and potentially causing such warrants to expire worthless.
We are not registering the shares of New Doma Common Stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of the Warrant Agreement, we
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have agreed that, as soon as practicable, but in no event later than 20 business days after the closing of our initial business combination, we will use our commercially reasonable efforts to file with the SEC a registration statement covering the issuance of such shares, and we will use our commercially reasonable efforts to cause the same to become effective and to maintain the effectiveness of such registration statement and a current prospectus relating thereto until the warrants expire or are redeemed. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current, complete or correct or the SEC issues a stop order relating to such registration statement. Beginning on the 61st day following the closing of the business combination, if the shares issuable upon exercise of the warrants are not registered under the Securities Act in accordance with the above requirements, holders of warrants who seek to exercise their warrants will not be permitted to do so for cash and, instead, will be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act or another exemption. In no event will warrants be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration or qualification is available. If the New Doma Common Stock is at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act, we may, at our option, not permit holders of warrants who seek to exercise their warrants to do so for cash and, instead, require them to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act; in the event we so elect, we will not be required to file or maintain in effect a registration statement for the registration, under the Securities Act, of the shares issuable upon exercise of the warrants, and in the event we do not so elect, we will use our commercially reasonable efforts to register or qualify the shares underlying the warrants under applicable state securities laws to the extent an exemption is not available. In no event will we be required to net cash settle any warrant exercise. If the issuance of the shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant, other than on a cashless basis in certain circumstances, and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of New Doma Common Stock included in the units. There may be a circumstance where an exemption from registration exists for holders of our private placement warrants to exercise their warrants while a corresponding exemption does not exist for holders of the public warrants. In such an instance, the Sponsors and their respective permitted transferees (which may include our directors and executive officers) would be able to exercise their warrants and sell the New Doma Common Stock underlying their warrants while holders of our public warrants would not be able to exercise their warrants and sell the underlying shares of New Doma Common Stock. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying shares of New Doma Common Stock for sale under all applicable state securities laws. As a result, we may redeem the warrants as set forth above even if the holders are otherwise unable to exercise their warrants.
If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per share redemption amount received by stockholders may be less than $10.00 per share (which was the offering price per unit in Capitol’s initial public offering).
Our placing of funds in the Trust Account at Capitol’s initial public offering may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers, prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account, there is no guarantee that they will execute such agreements or, even if they execute such agreements, that they would be prevented from bringing claims against the Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances.
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Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. Upon redemption of our public shares, if we have not completed our business combination within the required time period, or upon the exercise of a redemption right in connection with our business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the ten years following redemption. Accordingly, the per share redemption amount received by public stockholders could be less than the $10.00 per public share initially held in the Trust Account, due to claims of such creditors.
The Sponsors have agreed that they will be liable jointly and severally to us if and to the extent any claims by a third party (other than Capitol’s independent public accountants) for services rendered or products sold to us, or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public share due to reductions in value of the trust assets, less taxes payable, except as to any claims by a third party or prospective target business who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsors will not be responsible to the extent of any liability for such third-party claims. We have not independently verified whether the Sponsors have sufficient funds to satisfy their indemnity obligations and believe that the Sponsors’ only assets are securities of Capitol. The Sponsors may not have sufficient funds available to satisfy those obligations. We have not asked the Sponsors to reserve for such obligations and, therefore, no funds are currently set aside to cover any such obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for the Business Combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete the Business Combination, and you would receive such lesser amount per share in connection with any redemption of your public shares. None of our directors or officers will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
If, after we distribute the proceeds in the Trust Account to our public stockholders, Capitol files a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our board of directors may be exposed to claims of punitive damages.
If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover some or all amounts received by our stockholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith by paying public stockholders from the Trust Account prior to addressing the claims of creditors, thereby exposing itself and us to claims of punitive damages.
If, before distributing the proceeds in the Trust Account to our public stockholders, we file a winding-up or bankruptcy petition or an involuntary winding-up or bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
If, before distributing the proceeds in the Trust Account to our public stockholders, we file a winding-up or bankruptcy petition or an involuntary winding-up or bankruptcy petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable insolvency law, and may be included in our liquidation estate and subject to the claims of third parties with priority over the claims of our stockholders. To the
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extent any liquidation claims deplete the Trust Account, the per share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.
Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of the Trust Account distributed to Capitol’s public stockholders upon the redemption of the public shares in the event Capitol does not complete an initial business combination within the required time period may be considered a liquidating distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, it is Capitol’s intention to redeem the public shares as soon as reasonably possible following the required time period in the event Capitol does not complete an initial business combination and, therefore, it does not intend to comply with the foregoing procedures.
Because Capitol does not intend to comply with Section 280 of the DGCL, Section 281(b) of the DGCL requires it to adopt a plan, based on facts known to it at such time that will provide for its payment of all existing and pending claims or claims that may be potentially brought against it within the ten years following its dissolution. However, because Capitol is a blank check company, rather than an operating company, and Capitol’s operations are limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from Capitol’s vendors (such as lawyers, investment bankers, consultants, etc.) or prospective target businesses. If Capitol’s plan of distribution complies with Section 281(b) of the DGCL, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would likely be barred after the third anniversary of the dissolution. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, Capitol’s stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of Capitol’s stockholders may extend beyond the third anniversary of such date. Furthermore, if the pro rata portion of the Trust Account distributed to Capitol’s public stockholders upon the redemption of the public shares in the event Capitol does not complete an initial business combination within the required time period is not considered a liquidating distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidating distribution.
Past performance by Capitol’s management team may not be indicative of future performance of an investment in Doma or New Doma.
Past performance by Capitol’s management team, including with respect to Capitol I, Capitol II, Capitol III and Capitol IV, is not a guarantee of success with respect to the Business Combination. You should not rely on the historical record of Capitol’s management team, or the performance of Capitol I, Capitol II, Capitol III or Capitol IV as indicative of the future performance of an investment in Doma or New Doma or the returns Doma or New Doma will, or is likely to, generate going forward.
The public stockholders will experience immediate dilution as a consequence of the issuance of New Doma Common Stock as consideration in the Business Combination and the PIPE Financing and due to future issuances pursuant to the Incentive Award Plan. Having a minority share position may reduce the influence that our current stockholders have on the management of New Doma.
It is anticipated that, following the Business Combination, (1) our public stockholders are expected to own approximately 10% of the outstanding New Doma Common Stock, (2) the Doma Stockholders are expected to
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collectively own approximately 79% of the outstanding New Doma Common Stock (without taking into account any public shares held by the Doma Stockholders prior to the consummation of the Business Combination), (3) the PIPE Investors are expected to collectively own approximately 9% of the outstanding New Doma Common Stock and (4) the Sponsors are expected to collectively own approximately 2% of the outstanding New Doma Common Stock. These percentages exclude the Sponsor Covered Shares, the Earnout Shares and stock options and warrants expected to be outstanding and unexercised as of the Closing, and assume (i) that no public stockholders exercise their redemption rights in connection with the Business Combination, (ii) New Doma issues 30,000,000 shares of New Doma Common Stock to the PIPE Investors pursuant to the PIPE Financing and (iii) the maximum amount of the Secondary Available Cash Consideration is available to the Doma Stockholders and that such Doma Stockholders make cash elections in the aggregate equal to the maximum amount of the Secondary Available Cash Consideration. If the actual facts are different from these assumptions, the percentage ownership retained by Capitol’s existing stockholders in New Doma will be different.
In addition, Doma employees and consultants hold, and after Business Combination, are expected to be granted, equity awards under the Incentive Award Plan and purchase rights under the ESPP. You will experience additional dilution when those equity awards and purchase rights become vested and settled or exercisable, as applicable, for shares of New Doma Common Stock.
The issuance of additional New Doma Common Stock will significantly dilute the equity interests of existing holders of Capitol securities and may adversely affect prevailing market prices for our public shares or public warrants.
Warrants will become exercisable for New Doma Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
Outstanding warrants to purchase an aggregate of 17,333,333 shares of New Doma Common Stock will become exercisable in accordance with the terms of the Warrant Agreement governing those securities. These warrants will become exercisable at any time commencing on the later of 30 days after the completion of the Business Combination and 12 months from the closing of Capitol’s initial public offering, or on December 4, 2021. The exercise price of these warrants will be $11.50 per share. To the extent such warrants are exercised, additional shares of New Doma Common Stock will be issued, which will result in dilution to the holders of New Doma Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of New Doma Common Stock. However, there is no guarantee that the public warrants will ever be in the money prior to their expiration and, as such, the warrants may expire worthless. See “—Even if the Business Combination is consummated, the public warrants may never be in the money, and they may expire worthless and the terms of the warrants may be amended in a manner adverse to a holder if holders of at least 50% of the then-outstanding public warrants approve of such amendment.”
Even if the Business Combination is consummated, the public warrants may never be in the money, and they may expire worthless and the terms of the warrants may be amended in a manner adverse to a holder if holders of at least 50% of the then-outstanding public warrants approve of such amendment.
The warrants were issued in registered form under a Warrant Agreement between Continental Stock Transfer & Trust Company, as warrant agent, and Capitol. The Warrant Agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then-outstanding public warrants to make any change that increases the exercise price or shortens the exercise period of the public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 50% of the then-outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 50% of the then-outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of New Doma Common Stock purchasable upon exercise of a warrant.
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We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of the shares of New Doma Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption to the warrants holders and provided certain other conditions are met. We will not redeem the warrants unless an effective registration statement under the Securities Act covering the shares issuable upon exercise of the warrants is effective and a current prospectus relating to those shares is available throughout the 30-day redemption period, except if we elect to require the warrants to be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you to (i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the private placement warrants will be redeemable by us (except as described below) so long as they are held by the Sponsors or their permitted transferees.
In addition, we have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant, provided that the closing price of the shares of New Doma Common Stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption to the warrants holders and provided certain other conditions are met. In such a case, holders will be able to exercise their warrants prior to redemption for a number of shares of New Doma Common Stock determined based on the redemption date and the fair market value of a share of New Doma Common Stock. Any such redemption may have similar consequences to a cash redemption described above. In addition, such redemption may occur at a time when the warrants are “out of the money,” in which case you would lose any potential embedded value from a subsequent increase in the value of New Doma Common Stock had your warrants remained outstanding, and may not compensate the holders for the value of the warrants, including because the number of shares of New Doma Common Stock received is capped at 0.361 shares of New Doma Common Stock per warrant (subject to adjustment) irrespective of the remaining life of the warrants.
There can be no assurance that the shares of New Doma Common Stock that will be issued in connection with the Business Combination will be approved for listing on the NYSE following the Closing, or that New Doma will be able to comply with the continued listing rules of the NYSE.
Capitol’s units, public shares and public warrants are currently listed on the NYSE. In connection with the Business Combination, we will be required to demonstrate compliance with the NYSE’s initial listing requirements, which are more rigorous than the NYSE’s continued listing requirements. We will apply to have New Doma’s securities listed on the NYSE upon consummation of the Business Combination. We cannot assure you that we will be able to meet all initial listing requirements.
Even if New Doma’s securities are listed on the NYSE, New Doma may be unable to maintain the listing of its securities in the future. The continued eligibility for listing of New Doma’s securities may depend on, among other things, the number of our shares that are redeemed. If, after the Business Combination, the NYSE delists the shares of New Doma Common Stock or public warrants from trading on its exchange for failure to meet its listing rules, New Doma and its stockholders could face significant material adverse consequences including:
a limited availability of market quotations for our securities;
reduced liquidity for our securities;
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a determination that New Doma Common Stock is a “penny stock” which will require brokers trading in shares of New Doma Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
a limited amount of news and analyst coverage; and
a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” New Doma Common Stock and public warrants are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state, other than the state of Idaho, having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if New Doma’s securities were no longer listed on the NYSE, such securities would not qualify as covered securities and New Doma would be subject to regulation in each state in which it offers its securities.
Capitol’s and Doma’s ability to consummate the Business Combination, and the operations of New Doma following the Business Combination, may be materially adversely affected by the recent COVID-19 pandemic.
The COVID-19 pandemic has resulted, and other infectious diseases could result, in a widespread health crisis that has and could continue to adversely affect the economies and financial markets worldwide, which may delay or prevent the consummation of the Business Combination, and the business of Doma or New Doma following the Business Combination could be materially and adversely affected. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted.
The parties will be required to consummate the Business Combination even if Doma, its business, financial condition and results of operations are materially affected by COVID-19. The disruptions posed by COVID-19 have continued, and other matters of global concern may continue, for an extensive period of time, and if Doma is unable to recover from business disruptions due to COVID-19 or other matters of global concern on a timely basis, Doma’s ability to consummate the Business Combination and New Doma’s financial condition and results of operations following the Business Combination may be materially adversely affected. Each of Doma and New Doma may also incur additional costs due to delays caused by COVID-19, which could adversely affect New Doma’s financial condition and results of operations.
Capitol’s warrants are accounted for as liabilities and the changes in value of Capitol’s warrants could have a material effect on its financial results.
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the SEC together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”). Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the Warrant Agreement governing Capitol’s warrants. As a result of the SEC Statement, Capitol reevaluated the accounting treatment of its 11,500,000 public warrants and 5,833,000 private placement warrants, and determined to classify the warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings.
As a result, included on Capitol’s consolidated balance sheet as of December 31, 2020 and March 31, 2021 contained elsewhere in this proxy statement/prospectus are derivative liabilities related to embedded features contained within Capitol’s warrants. Accounting Standards Codification Topic 815, “Derivatives and Hedging—Contracts in Entity’s Own Equity,” provides for the remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in
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earnings in the statement of operations. As a result of the recurring fair value measurement, Capitol’s financial statements and results of operations may fluctuate quarterly, based on factors that are outside of Capitol’s control. Due to the recurring fair value measurement, Capitol expects that it will recognize non-cash gains or losses on its warrants each reporting period and that the amount of such gains or losses could be material.
Capitol identified a material weakness in its internal control over financial reporting as of December 31, 2020. If Capitol is unable to develop and maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results in a timely manner, which may adversely affect investor confidence in Capitol and materially and adversely affect its business and operating results.
Following the issuance of the SEC Statement, on May 10, 2021, Capitol’s management and audit committee concluded that, in light of the SEC Statement, it was appropriate to restate Capitol’s previously issued audited financial statements as of and for the year ended December 31, 2020 (the “Restatement”). See “—Capitol’s warrants are accounted for as liabilities and the changes in value of Capitol’s warrants could have a material effect on its financial results.” As part of such process, Capitol identified a material weakness in its internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Capitol’s annual or interim financial statements will not be prevented, or detected and corrected, on a timely basis.
Effective internal controls are necessary for Capitol to provide reliable financial reports and prevent fraud. Capitol is implementing remedial measures that it believes will effectively remedy the material weakness as more fully described in Part II, Item 9A, Controls and Procedures, of its Annual Report on Form 10-K/A, filed with the SEC on May 11, 2021. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.
If Capitol identifies any new material weaknesses in the future, any such newly identified material weakness could limit its ability to prevent or detect a misstatement of its accounts or disclosures that could result in a material misstatement of Capitol’s annual or interim financial statements. In such case, Capitol may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in Capitol’s financial reporting and Capitol’s stock price may decline as a result. Capitol cannot assure you that the measures it has taken to date, or any measures it may take in the future, will be sufficient to avoid potential future material weaknesses.
Capitol and, following the Business Combination, New Doma, may face litigation and other risks as a result of the material weakness in Capitol’s internal control over financial reporting.
Following the issuance of the SEC Statement, Capitol’s management and audit committee concluded that it was appropriate to restate its previously issued audited financial statements as of and for the year ended December 31, 2020. See “—Capitol’s warrants are accounted for as liabilities and the changes in value of Capitol’s warrants could have a material effect on its financial results.” As part of the Restatement, Capitol identified a material weakness in its internal controls over financial reporting.
As a result of such material weakness, the Restatement, the change in accounting for the warrants and other matters raised or that may in the future be raised by the SEC, Capitol and, following the Business Combination, New Doma, face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the Restatement and material weaknesses in Capitol’s internal control over financial reporting and the preparation of its financial statements. As of the date of this proxy statement/prospectus, Capitol has no knowledge of any such litigation or dispute. However, Capitol can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on Capitol’s business, results of operations and financial condition or its ability to complete the Business Combination and related transactions.
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Additional Risks Related to Ownership of New Doma Common Stock Following the Business Combination and New Doma Operating as a Public Company
The price of New Doma’s securities may be volatile.
Upon consummation of the Business Combination, the price of New Doma’s securities may fluctuate due to a variety of factors, including:
changes in the industries in which New Doma and its customers operate;
developments involving New Doma’s competitors;
changes in laws and regulations affecting its business;
variations in its operating performance and the performance of its competitors in general;
actual or anticipated fluctuations in New Doma’s quarterly or annual operating results;
publication of research reports by securities analysts about New Doma or its competitors or its industry;
the public’s reaction to New Doma’s press releases, its other public announcements and its filings with the SEC;
actions by stockholders, including the sale by the PIPE Investors of any of their shares of New Doma Common Stock;
additions and departures of key personnel;
commencement of, or involvement in, litigation involving the combined company;
changes in its capital structure, such as future issuances of securities or the incurrence of additional debt;
the volume of shares of New Doma Common Stock available for public sale; and
general economic and political conditions, such as the effects of the COVID-19 outbreak, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.
These market and industry factors may materially reduce the market price of New Doma’s securities regardless of the operating performance of New Doma.
New Doma does not intend to pay cash dividends for the foreseeable future.
Following the Business Combination, New Doma currently intends to retain its future earnings, if any, to finance the further development and expansion of its business and does not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of the New Doma Board of Directors and will depend on its financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as its board of directors deems relevant.
If analysts do not publish research about New Doma’s business or if they publish inaccurate or unfavorable research, New Doma’s stock price and trading volume could decline.
The trading market for New Doma Common Stock will depend in part on the research and reports that analysts publish about its business. New Doma does not have any control over these analysts. If one or more of the analysts who cover New Doma downgrade the New Doma Common Stock or publish inaccurate or unfavorable research about its business, the price of New Doma Common Stock would likely decline. If few analysts cover New Doma, demand for New Doma Common Stock could decrease and the price and trading volume of New Doma Common
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Stock may decline. Similar results may occur if one or more of these analysts stop covering New Doma in the future or fail to publish reports on it regularly.
New Doma may be subject to securities litigation, which is expensive and could divert management attention.
The market price of New Doma Common Stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. New Doma may be the target of this type of litigation in the future. Securities litigation against New Doma could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm its business.
Future resales of New Doma Common Stock after the consummation of the Business Combination may cause the market price of New Doma’s securities to drop significantly, even if New Doma’s business is doing well.
After the consummation of the Business Combination and subject to certain exceptions, the Sponsors and a substantial number of the Doma Stockholders will be contractually restricted from selling or transferring any of their shares of New Doma Common Stock (the “Lock-up Securities”). Assuming no redemptions and no cash elections, such restrictions begin at Closing and end on (i) for the Lock-up Securities held by Doma Stockholders expected to hold approximately 60.0% of the New Doma Common Stock immediately following the Closing, the date that is 180 days after the Closing, (ii) for the Lock-up Securities held by entities affiliated with Doma’s Chief Executive Officer Max Simkoff (approximately 13.7% of the New Doma Common Stock immediately following the Closing), a date that is up to 18 months after the Closing (but could be as little as 180 days or 12 months, depending on the amount of secondary cash consideration paid in the Merger and whether the Doma CEO makes a cash election) and (iii) for the Lock-up Securities held by the Sponsors, the date that is 12 months after the Closing.
However, following the expiration of such lockup, the Sponsors and the Doma Stockholders will not be restricted from selling shares of New Doma Common Stock held by them, other than by applicable securities laws. Additionally, the PIPE Investors will not be restricted from selling any of their shares of New Doma Common Stock following the Closing, other than by applicable securities laws. As such, sales of a substantial number of shares of New Doma Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of New Doma Common Stock. Upon completion of the Business Combination, assuming that (i) no additional public stockholders redeem their public shares in connection with the Business Combination, (ii) the maximum amount of the Secondary Available Cash Consideration is available to Doma Stockholders and (iii) such Doma Stockholders make cash elections equal to such maximum amount of the Secondary Available Cash Consideration, the Sponsors and the Doma Stockholders (including the Sponsor Covered Shares but excluding the shares of New Doma Common Stock reserved in respect of awards outstanding as of immediately prior to the Closing that will be converted into awards based on New Doma Common Stock) are expected to collectively own approximately 82% of the outstanding shares of New Doma Common Stock. Assuming (i) redemption of 19.5 million public shares in connection with the Business Combination, (ii) the maximum amount of the Secondary Available Cash Consideration is available to Doma Stockholders and (iii) such Doma Stockholders make cash elections equal to such maximum amount of the Secondary Available Cash Consideration, in the aggregate, the ownership of the Sponsors and the Doma Stockholders would increase to approximately 86% of the outstanding shares of New Doma Common Stock (including both the Sponsor Covered Shares and the shares of New Doma Common Stock reserved in respect of awards outstanding as of immediately prior to the Closing that will be converted into awards based on New Doma Common Stock).
The shares held by Sponsors and the Doma Stockholders may be sold after the expiration of the applicable lock-up period. As restrictions on resale end and registration statements (filed after the Closing to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in New Doma’s share price or the market price of New Doma Common Stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
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The obligations associated with being a public company will involve significant expenses and will require significant resources and management attention, which may divert from New Doma’s business operations.
As a public company, New Doma will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires the filing of annual, quarterly and current reports with respect to a public company’s business and financial condition. The Sarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. As a result, New Doma will incur significant legal, accounting and other expenses that Doma did not previously incur. New Doma’s entire management team and many of its other employees will need to devote substantial time to compliance, and may not effectively or efficiently manage its transition into a public company.
These rules and regulations will result in New Doma incurring substantial legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations will likely make it more difficult and more expensive for New Doma to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for New Doma to attract and retain qualified people to serve on its board of directors, its board committees or as executive officers.
Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate the Business Combination, require substantial financial and management resources and increase the time and costs of completing a business combination.
The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because Doma is not currently subject to Section 404 of the Sarbanes-Oxley Act. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act are significantly more stringent than those required of Doma as a privately held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to New Doma after the Business Combination. If we are not able to implement the requirements of Section 404, including any additional requirements once we are no longer an emerging growth company, in a timely manner or with adequate compliance, we may not be able to assess whether our internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of New Doma Common Stock. Additionally, once we are no longer an emerging growth company, we will be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.
We are currently an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and to the extent we have taken advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are currently an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, 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 non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
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Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of New Doma Common Stock held by non-affiliates exceeds $250 million as of the end of that fiscal year’s second fiscal quarter, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of New Doma Common Stock held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
Once we lose our “emerging growth company” and/or “smaller reporting company” status, we will no longer be able to take advantage of certain exemptions from reporting, and we will also be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will incur additional expenses in connection with such compliance and our management will need to devote additional time and effort to implement and comply with such requirements.
Delaware law and New Doma’s Proposed Organizational Documents contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
The Proposed Organizational Documents that will be in effect upon consummation of the Business Combination, and the DGCL, contain provisions that could have the effect of rendering more difficult, delaying or preventing an acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of New Doma Common Stock, and therefore depress the trading price of New Doma Common Stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of the New Doma Board of Directors or taking other corporate actions, including effecting changes in our management. Among other things, the Proposed Organizational Documents include provisions regarding:
providing for a classified board of directors with staggered, three-year terms;
the ability of the New Doma Board of Directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
prohibiting cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
the limitation of the liability of, and the indemnification of, New Doma’s directors and officers;
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the ability of the New Doma Board of Directors to amend New Doma’s bylaws, which may allow the New Doma Board of Directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend New Doma’s bylaws to facilitate an unsolicited takeover attempt; and
advance notice procedures with which stockholders must comply to nominate candidates to the New Doma Board of Directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the New Doma Board of Directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of New Doma.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the New Doma Board of Directors or management.
The provisions of the Proposed Certificate of Incorporation requiring exclusive forum in the Court of Chancery of the State of Delaware and the federal district courts of the United States for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
New Doma’s Proposed Certificate of Incorporation will provide that, unless New Doma otherwise consents in writing, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of New Doma, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of New Doma to New Doma or New Doma stockholders, or any claim for aiding and abetting any such alleged breach, (iii) any action asserting a claim against New Doma, its directors, officers or employees arising pursuant to any provision of the DGCL, the Proposed Certificate of Incorporation or the Proposed Bylaws or (iv) any action asserting a claim against New Doma, its directors, officers or employees governed by the internal affairs doctrine. This provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act or any claim for which the U.S. federal district courts have exclusive jurisdiction.
Further, the Proposed Certificate of Incorporation will also provide that, unless New Doma consents in writing, the U.S. federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Although the Proposed Certificate of Incorporation provides that the U.S. federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act it is possible that a court could rule that such provisions are inapplicable for a particular claim or action or that such provisions are unenforceable. Moreover, investors cannot waive compliance with federal securities laws and the rules and regulations thereunder.
These provisions may have the effect of discouraging lawsuits against New Doma’s directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against New Doma, a court could find the exclusive forum provisions contained in the Proposed Certificate of Incorporation to be inapplicable or unenforceable in such action.
Risks if the Business Combination is not Consummated
If we are not able to complete the Business Combination with Doma by December 4, 2022 (or if such date is extended at a duly called meeting of stockholders, such later date) or if we are not able to complete another business combination by such date, in each case, we would cease all operations except for the purpose of winding up and we would redeem the public shares and liquidate the Trust Account, in which case Capitol’s public stockholders may only receive approximately $10.00 per share, or less than such amount in certain circumstances, and the Capitol Warrants will expire worthless.
If Capitol is not able to complete the Business Combination with Doma by December 4, 2022 (or if such date is extended at a duly called meeting of stockholders, such later date), or if we are not able to complete another business combination by such date, Capitol will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the
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funds held in the Trust Account (less taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of Capitol’s remaining stockholders and its board of directors, liquidate and dissolve, subject, in each case, to its obligations under Delaware law to provide for claims of creditors and in all cases subject to the other requirements of applicable law. In such case, our public stockholders may only receive approximately $10.00 per share, or less than $10.00 per share, and our warrants will expire worthless.
You will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to sell your public shares and/or public warrants, potentially at a loss.
Our public stockholders will be entitled to receive funds from the Trust Account only upon the earliest to occur of (1) our completion of an initial business combination (including the Closing), and then only in connection with those public shares that such public stockholder properly elected to redeem, subject to certain limitations; (2) the redemption of any public shares properly submitted in connection with a stockholder vote to amend the Capitol’s amended and restated certificate of incorporation to (A) modify the substance and timing of our obligation to allow redemption in connection with our initial business combination or to redeem 100% of the public shares if we do not complete a business combination by December 4, 2022 or (B) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity; and (3) the redemption of the public shares if we have not completed an initial business combination by December 4, 2022, subject to applicable law. In no other circumstances will a stockholder have any right or interest of any kind to or in the Trust Account. Holders of public warrants will not have any right to the proceeds held in the Trust Account with respect to the public warrants. Accordingly, to liquidate your investment, you may be forced to sell your public shares and/or public warrants, potentially at a loss.
If we have not completed our initial business combination by December 4, 2022, our public stockholders may be forced to wait until after December 4, 2022 before redemption from the Trust Account.
If we have not completed our initial business combination by December 4, 2022 (or if such date is further extended at a duly called special meeting, such later date), we will distribute the aggregate amount then on deposit in the Trust Account (less taxes payable and up to $100,000 of interest to pay dissolution expenses), pro rata to our public stockholders by way of redemption and cease all operations except for the purposes of winding up of our affairs, as further described in this proxy statement/prospectus. Any redemption of public stockholders from the Trust Account shall be affected automatically by function of Capitol’s amended and restated certificate of incorporation prior to any voluntary winding up. If we are required to wind-up, liquidate the Trust Account and distribute such amount therein, pro rata, to our public stockholders, as part of any liquidation process, such winding up, liquidation and distribution must comply with the applicable provisions of the DGCL. In that case, investors may be forced to wait beyond December 4, 2022 (or if such date is further extended at a duly called special meeting, such later date), before the redemption proceeds of the Trust Account become available to them, and they receive the return of their pro rata portion of the proceeds from the Trust Account. We have no obligation to return funds to investors prior to the date of our redemption or liquidation unless, prior thereto, we consummate our initial business combination or amend certain provisions of our amended and restated certificate of incorporation and only then in cases where investors have properly sought to redeem their public shares. Only upon our redemption or any liquidation will public stockholders be entitled to distributions if we have not completed our initial business combination within the required time period and do not amend certain provisions of our amended and restated certificate of incorporation prior thereto.
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If the net proceeds of Capitol’s initial public offering not being held in the Trust Account are insufficient to allow us to operate through to December 4, 2022 and we are unable to obtain additional capital, we may be unable to complete our initial business combination, in which case our public stockholders may only receive $10.00 per share, and our warrants will expire worthless.
As of March 31, 2021, Capitol had cash of $86,962 held outside the Trust Account, which is available for use by us to cover the costs associated with identifying a target business and negotiating a business combination and other general corporate uses. In addition, as of March 31, 2021, Capitol had total current liabilities of $628,753.
The funds available to us outside of the Trust Account may not be sufficient to allow us to operate until December 4, 2022, assuming that our initial business combination is not completed during that time. Of the funds available to us, we could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a “no-shop” provision (a provision in letters of intent designed to keep target businesses from “shopping” around for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into a letter of intent where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business.
If we are required to seek additional capital, we would need to borrow funds from our Sponsors, members of our management team or other third parties to operate or may be forced to liquidate. Neither the members of our management team nor any of their affiliates is under any further obligation to advance funds to Capitol in such circumstances (other than the loan commitment of the Sponsors discussed elsewhere in this proxy statement/prospectus). Any such advances would be repaid only from funds held outside the Trust Account or from funds released to us upon completion of our initial business combination. If we are unable to obtain additional financing, we may be unable to complete our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. Consequently, our public stockholders may only receive approximately $10.00 per share on our redemption of the public shares and the public warrants will expire worthless.
Risks Related to Doma’s Business and Industry
The following risk factors will apply to the business and operations of Doma following the closing of the Business Combination. Unless the context otherwise requires, references in subsections “—Risks Related to Doma’s Business and Industry” and “—Risks Related to Doma’s Intellectual Property” to “we,” “us,” “our,” and “the Company” generally refer to Doma in the present tense or New Doma from and after the Business Combination.
COVID-19 has adversely affected our business and could have adverse effects on our business in the future.
On March 11, 2020, the World Health Organization declared the novel coronavirus, known as COVID-19, a pandemic. COVID-19 has resulted in significant macroeconomic impacts and market disruptions, particularly as federal, state and local governments enacted emergency measures intended to combat the spread of the virus, including shelter-in-place orders, travel limitations, quarantine periods and social distancing. The COVID-19 pandemic has had, and continues to have, a significant impact on the national economy and the communities in which we operate. While the pandemic’s effect on the macroeconomic environment has yet to be fully determined and could continue for months or years, we expect that the pandemic and governmental programs created as a response to the pandemic will continue to affect core aspects of our business. Such effects, if they worsen or continue for a prolonged period, may have a material adverse effect on our business and results of operation.
We operate in the real estate industry and our business volumes are directly impacted by market trends for mortgage refinancing transactions, existing real estate resale transactions and new real estate purchase transactions, particularly in the residential segment of the market. Our success depends on a high volume of residential and, to a lesser extent, commercial real estate transactions, throughout the markets in which we operate. This transaction volume affects all of the ways that we generate revenue, including the number of transactions our title and escrow business closes. Responses to the COVID-19 pandemic initially led to a material decline in resale and purchase
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transactions, and for a period of time, the future performance of the U.S. economy was perceived to be in peril. As a result, Doma management made the difficult decision to reduce our workforce by approximately 12%, resulting in approximately $1 million of severance costs. The significant decline in home sales and refinancing transactions also adversely impacted our lender partner acquisition efforts through our Strategic & Enterprise Accounts (“S&EA”) channel in the first half of 2020. Subsequent U.S. federal stimulus measures, including interest rate reductions by the Federal Reserve, and local regulatory initiatives, such as permitting remote notarization, eventually led to an increase in mortgage refinancing and purchase volumes. Changes in the aforementioned economic policies and initiatives, including limitations imposed by governmental authorities on processes and procedures attendant to real estate transactions, such as in-person showings, in-home inspections and appraisals and county recordings, negative market reactions to new measures, as well as COVID-19’s overall impacts on the U.S. economy, may in the future have a material adverse impact on our results of operations and prospects.
The COVID-19 pandemic may also affect the volume and severity of our title insurance claims. As part of the federal response to the COVID-19 pandemic, the CARES Act allows borrowers to request a mortgage forbearance and prevents lenders and loan service providers from foreclosing on mortgages backed by the government-sponsored enterprises (“GSE”), such as Fannie Mae or Freddie Mac, or federal mortgages. The federal moratorium on foreclosures of GSE-backed mortgages is set to expire on June 30, 2021. There is no assurance that the government will extend this moratorium. The expiration of these foreclosure moratoriums could result in an influx of foreclosure proceedings, which could expose lenders to mortgage losses. If defaults or foreclosures are at elevated levels, there may be an influx of title insurance claims under loan policies or claims might be reported earlier than under normal conditions. A significant increase in claim volume or the severity of those claims could have an adverse effect on our results of operations and financial condition.
The COVID-19 pandemic may also affect the productivity of our team members. As a result of the pandemic, in March 2020, we transitioned to a remote working environment, with a peak of 81% of our team members working remotely as of May 2020. While we believe our team members have transitioned well to working from home, over time such remote operations may decrease the cohesiveness of our teams and our ability to maintain our culture, both of which are integral to our success. Additionally, a remote working environment may impede our ability to undertake new business projects, to foster a creative environment, to hire new team members and to retain existing team members.
We have a history of net losses and could continue to incur substantial net losses in the future.
We have incurred net losses on an annual basis since our incorporation in 2016. We incurred net losses of $12.4 million, $27.1 million and $35.1 million for the years ended December 31, 2018, 2019 and 2020, respectively and $16.6 million and $11.8 million for the three months ended March 31, 2020 and 2021, respectively. As a result of these losses, we had an accumulated deficit of $44.0 million and $79.1 million as of December 31, 2019 and 2020, respectively and $60.6 million and $90.9 million as of March 31, 2020 and 2021. We expect to continue to incur significant sales and marketing expenses, including digital marketing and brand advertising, research and development and other expenses as we expand our sales and marketing efforts to increase adoption of our title and escrow products, continue to expand and improve our title and escrow product offerings and enhance our customer experience. As we continue to invest in our business, we expect expenses to continue to increase in the near term. These investments may not result in increased revenue or growth in our business. If we fail to manage our losses or to grow our revenue sufficiently, our business will be seriously harmed.
In addition, as a public company following the Business Combination, we will also incur significant additional legal, accounting and other expenses that we did not incur as a private company. We may encounter unforeseen or unpredictable factors, including unforeseen operating expenses, complications or delays, which may also result in increased costs. Further, it is difficult to predict the size and growth rate of our market or demand for our title and escrow products and success of current or potential future competitors. The net losses that we incur may fluctuate significantly from period to period. We will need to generate significant additional revenue and maintain or improve our gross margins in order to achieve and sustain profitability. It is possible that we will not achieve profitability or, even if we do achieve profitability, we may not remain profitable for any substantial period of time.
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Our future growth and profitability depend in part on our ability to successfully operate in the highly competitive real estate and insurance industries.
The real estate and insurance industries are intensely competitive and are likely to remain so for the foreseeable future. Our competitors include larger and better capitalized traditional insurers with substantially longer operating histories and may in the future include one or more of a growing number of other technology companies entering the insurance industry. Some of these competitors may be more resilient to pricing competition than we are or have the resources necessary to develop competing machine intelligence technologies or reverse engineer certain aspects of our technology, which could adversely affect our prospects.
Even though consumers have a legal right to select their own settlement service vendors and title insurance providers, consumers generally rely on referrals from real estate agents, lenders, developers and attorneys when selecting their settlement services vendors and title insurance providers. There is a great deal of competition among settlement service vendors and title insurance providers for these sources of transactions. We source a significant number of our customer transactions through our S&EA partners and third-party title agents. We rely on our go-to-market team to attract, develop and retain these S&EA partnerships and third-party title agents. However, our title and escrow business and proprietary data science and machine intelligence algorithms are still nascent compared to the established business models and title and escrow practices of the well-established incumbents in the title insurance industry. For example, the top four title insurance companies in 2019 accounted for about 85% of industry-wide premium volume. These competitors rely on their well-established national brands, reputation and experience, size, financial strength and ratings. This competition could adversely affect demand for our products, reduce our market share and growth prospects, and potentially reduce our profitability. We may also be unable to attract and retain the business development talent necessary to compete with the well-established brands, regional underwriters and new entrants into the title and escrow industry.
Our future growth will depend in large part on our ability to grow our title and escrow business using our patented technology and machine intelligence-driven title and escrow processes to disrupt the way title underwriting has traditionally been conducted and sold. However, due to the competitive nature of the real estate and insurance industries, there can be no assurance that we will continue to compete effectively within our industries, or that competitive pressures will not have a material effect on our business, results of operations or financial condition.
Our success and ability to grow our business depend on retaining and expanding our S&EA partner base. If we fail to add new S&EA partners or retain current S&EA partners, our business, revenue, operating results and financial condition could be harmed.
We acquire a significant amount of our order volume through our S&EA partners. Our success and ability to grow our title and escrow business depend on retaining and expanding our S&EA partner base. We must retain and expand our relationships with S&EA partners in order to significantly expand our refinancing order volumes, allow for future product offerings, achieve benefits of scale, and enhance the quantity and quality of proprietary data on which our machine intelligence technology’s capability is based.
Our S&EA partnership agreements do not contain exclusivity provisions that would prevent such S&EA partners from providing leads to competing companies. In addition, the agreements governing these S&EA partnerships contain termination provisions that allow the partner to terminate the agreement early without cause. In the event that one or more of these significant S&EA partners terminate our relationship or reduce the number of leads provided to us, without some growth offset with other S&EA partners, our business would be harmed. Our failure to retain any of our existing S&EA partner relationships, either due to the expiration of their agreements or as a result of their exercise of early termination rights or otherwise, could have a material adverse effect on our results of operations (including growth rates) and financial condition, to the extent we do not acquire new S&EA partners of similar size and profitability or otherwise grow our business. There can be no assurance that these S&EA partners will not terminate our relationship with them or continue referring business to us in the future.
The competition for new S&EA partners is also significant, and we may be unsuccessful in our attempts to expand our S&EA partner base, which could adversely affect our ability to grow. Moreover, the acquisition of a substantial number of new S&EA partners will require additional staffing and investment in customer acquisition.
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Our ability to obtain and retain S&EA relationships depends on our ability to strengthen our reputation and brand, provide superior customer experiences, and maintain our competitive pricing. Additionally, some multi-state lenders may be reluctant to partner with us if they have long-established relationships with larger, traditional title insurers, whom they may perceive to offer reliability given their size, financial resources, and longevity.
Our success depends to a significant extent on the timely roll out of our machine intelligence technology across our centralized operations and branch footprint.
On January 7, 2019, we acquired from the Lennar Corporation (“Lennar”) its subsidiary, North American Title Insurance Company (“NATIC”), a major national underwriter, and a significant volume portfolio of national retail operations under the North American Title Company brand (collectively, the “Acquired Business”) (the “North American Title Acquisition”). Since the North American Title Acquisition, we have continued to invest in the development and rollout of our machine intelligence platform, Doma Intelligence, and have implemented several initiatives to realign the operations of the Acquired Business. We have begun to transform the Acquired Business’s retail agency operations, including streamlining our physical branch footprint to 81 locations as of March 31, 2021 and rationalizing branch back office functions into a common corporate function, implemented a common production platform across all of our branches, and implemented our machine intelligence technology in parts of our North American Title local operations. We continue to invest substantially in our machine intelligence technology, and our success depends to a significant extent on the timely roll out of our machine intelligence technology across our centralized operations and branch footprint. Our success also depends on our ability to expand the use of our machine intelligence technology beyond refinance transactions and into resale and purchase transactions. Significant delays to our planned implementation and roll out of Doma Intelligence, which could occur due to, among other reasons, technology implementation delays at individual local branches, availability of title and property data in certain areas, inability to hire or train adequate service personnel, or regulatory requirements, could have a material adverse impact on our results of operations and growth prospects, including our margin growth and ability to realize significant cost savings over time as manual processes are replaced with our data science-driven approach to title and escrow services.
We have a limited operating history and a novel business model. This makes it difficult to evaluate our current business performance and growth prospects.
We have a limited operating history. Since we launched Doma Intelligence in February 2018, we have experienced rapid growth, which makes it difficult to evaluate our current business performance or future prospects. Our historical results may not be indicative of, or comparable to, our future results. Our inability to adequately assess our performance and growth could have a material adverse effect on our brand, business, financial condition and results of operations.
In addition, as our business model of using machine intelligence technology to enable seamless real estate closings is novel, we have limited data to validate key aspects of our business model, such as the use of our proprietary data science and machine intelligence algorithms. It may take many years for title insurance claims to arise, and insufficient time has passed since the launch of Doma Intelligence and its use at scale to have observed claims activity to validate the performance of the model. We cannot provide any assurance that the early claims data that we collect will provide useful measures for evaluating Doma Intelligence and our automation capabilities and determining reserve and reinsurance requirements. Limited claims history could result in our not setting aside adequate reserves and/or maintaining sufficient reinsurance, which may adversely affect our ability to write future title insurance policies, resulting in the assumption of more risk with respect to those policies or an increase in our capital requirements.
Our brand may not become as widely known or accepted as incumbents’ brands or our brand may become tarnished.
Many of our competitors in the real estate and title insurance industries have brands that are well recognized. As a relatively new entrant into the title and escrow market, we have spent, and expect that we will for the foreseeable future continue to spend, considerable amounts of money and other resources on creating brand awareness and building our reputation. We may not be able to build brand awareness to levels matching our competitors, and our
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efforts at building, maintaining and enhancing our reputation could fail and/or may not be cost-effective. Complaints or negative publicity about our business practices, our marketing and advertising campaigns (including marketing affiliations or partnerships), our compliance with applicable laws and regulations, the integrity of the data that we provide to customers and partners, data privacy and security issues, and other aspects of our business, whether real or perceived, could diminish confidence in our brand, which could adversely affect our reputation and business. As we expand our product offerings and enter new markets, we will need to establish our reputation with current and prospective homeowners, lenders, title agents and real estate professionals, and to the extent we are not successful in creating positive impressions, our business in these newer markets could be adversely affected. While we may choose to engage in a broader marketing campaign to further promote our brand, this effort may not be successful or cost-effective. If we are unable to maintain or enhance our reputation or enhance consumer awareness of our brand in a cost-effective manner, our business, results of operations and financial condition could be materially adversely affected.
We may not be able to manage our growth effectively.
We have experienced substantial growth in our operations, and we expect to experience continued substantial growth in our business. For example, our opened order volume increased by 24% for the three months ended March 31, 2021 compared with the three months ended March 31, 2020, and, after the North American Title Acquisition, our local operations expanded significantly with 81 locations as of March 31, 2021. Furthermore, our employee base grew from 1,030 as of March 31, 2020 to 1,270 as of March 31, 2021. Our rapid growth has placed and may continue to place significant demands on our management and our operational and financial resources. We have hired and expect to continue hiring additional personnel to support our rapid growth. Our organizational structure is becoming more complex as we add staff, and we will need to enhance our operational, financial and management controls as well as our reporting systems and procedures as we transition from being a private company to a public company following the Business Combination. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas without undermining our corporate culture of rapid innovation, teamwork and focus on the title and escrow experience for current and prospective homeowners, lenders, title agents and real estate professionals. If we cannot manage our growth effectively to maintain the quality and efficiency of our customer experience as well as the cost-effectiveness of our products, our business could be harmed as a result, and our results of operations and financial condition could be materially and adversely affected.
If we are unable to expand our product offerings, our prospects for future growth may be adversely affected.
We are, and intend in the future to continue, investing significant resources in developing new, and enhancing existing, product offerings, including an expansion of the use of our machine intelligence underwriting approach to the residential resale market. Our ability to attract and retain customers and partners and therefore increase our revenue depends on our ability to successfully expand our product offerings. New initiatives and product offerings are inherently risky, as they involve unproven business strategies and new products and services with which we may have limited or no prior development or operating experience. Risks from our innovative initiatives include those associated with potential defects in the design and development of the technologies used to automate processes, the misapplication of technologies, the reliance on data that may prove inadequate, and the failure to meet client expectations, among others. Failure to accurately predict demand or growth with respect to new or enhanced products in which we invest could have an adverse impact on our business, and there is always risk that these new products and services will be unprofitable, will increase our costs or will decrease our operating margins or take longer than anticipated to achieve target margins. Further, our development efforts with respect to these initiatives could distract management from current operations and could divert capital and other resources from our existing business. Moreover, insurance regulation applicable to new products or product enhancements could limit our ability to introduce new product offerings, and required regulatory approvals could delay product introductions. As a result of these risks, we could invest significant amounts of capital or other resources in product offerings that are unsuccessful, experience reputational damage or other adverse effects, which could be material. Additionally, we can provide no assurance that we will be able to develop, commercially market and achieve acceptance of our new products and services. Our investment of resources to develop new products and services may either be insufficient or result in expenses that are excessive in light of revenue actually originated from these new products and services. If we are unable to offer new or enhanced products by continuing to innovate and improve on our technology, we may be unable to successfully compete with other companies that are currently in, or that may enter, our industry,
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we may not be able to realize the expected benefits of our investments, and our reputation and future growth could be materially adversely affected.
Acquisitions or investments could disrupt our business and harm our financial condition.
We regularly review and assess strategic alternatives in the ordinary course of our business, including potential acquisitions or investments, and we are in active discussions regarding potential acquisitions and investments. In 2019, we completed the North American Title Acquisition, and we expect to pursue additional acquisitions or investments that we believe will help us achieve our strategic objectives. There is no assurance that such acquisitions or investments will perform as expected or will be successfully integrated into our business or generate substantial revenue, and we may overestimate cash flow, underestimate costs or fail to understand the risks related to any investment or acquired business. The process of acquiring a business, product or technology can also cause us to incur various expenses and create unforeseen operating difficulties, expenditures and other challenges, whether or not those acquisitions are consummated, such as:
intense competition for suitable acquisition targets, which could increase prices and adversely affect our ability to consummate deals on favorable or acceptable terms;
inadequacy of reserves for losses and loss adjustment expenses;
failure or material delay in closing a transaction, including as a result of regulatory review and approvals;
regulatory conditions attached to the approval of the acquisition and other regulatory hurdles;
a need for additional capital that was not anticipated at the time of the acquisition;
anticipated benefits not materializing or being lower than anticipated;
diversion of management time and focus from operating our business to addressing acquisition integration challenges;
transition of the acquired company’s customers or suppliers;
difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company;
retention of employees or business partners of an acquired company;
cultural challenges associated with integrating employees from the acquired company into our organization;
integration of the acquired company’s accounting, management information, human resources and other administrative systems;
the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;
coordination of product development and sales and marketing functions;
theft of our trade secrets or confidential information that we share with potential acquisition candidates;
risk that an acquired company or investment in new offerings cannibalizes a portion of our existing business;
adverse market reaction to an acquisition;
liability for activities of the acquired company before the acquisition, including intellectual property infringement and misappropriation claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and
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litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.
If we are unable to address these difficulties and challenges or other problems encountered in connection with prior or any future acquisition or investment, we might not realize the anticipated benefits of that acquisition or investment and we might incur unanticipated liabilities or otherwise suffer harm to our business.
To the extent that we pay the consideration for any future acquisitions or investments in cash, it would reduce the amount of cash available to us for other purposes. Future acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, increased interest expenses or impairment charges against goodwill on our consolidated balance sheet, any of which could seriously harm our business.
The Merger Agreement permits us to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) assets, securities, properties, interests or businesses or to enter into strategic joint ventures, partnerships or alliances with third parties that are not material to us. In addition, with Capitol’s prior consent, we could enter into such transactions with third parties that are material to us. Accordingly, while we do not have any agreements or commitments for any specific acquisitions at this time, we could, prior to the Closing, enter into such transactions. In addition to the risks described above, any such transaction could delay the consummation of the Business Combination or cause unforeseen difficulties in consummating the Business Combination, including due to the diversion of resources to such transaction, adverse reactions to any such transaction by Capitol’s stockholders or otherwise.
Our product development cycles are complex, and we may incur significant expenses before we generate revenues, if any, from new products.
Because our products are highly technical and require rigorous testing, development cycles can be complex. Moreover, development projects can be technically challenging and expensive, and may be delayed or defeated by the inability to obtain licensing or other regulatory approvals. The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from such expenses. If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of products that are competitive in the marketplace, this could materially and adversely affect our business and results of operations. Additionally, anticipated demand from customers and partners for a product we are developing could decrease after the development cycle has commenced. Such decreased demand from customers and partners may cause us to fall short of our sales targets, and we may nonetheless be unable to avoid substantial costs associated with the product’s development. If we are unable to complete product development cycles successfully and in a timely fashion and generate revenues from such future products, the growth of our business may be harmed.
Adverse changes in economic conditions, especially those affecting the levels of real estate and mortgage activity, may reduce our revenues.
Our financial condition and results of operations are affected by changes in economic conditions, particularly mortgage interest rates, credit availability, real estate prices and consumer confidence. Our revenues and earnings have fluctuated in the past due to the cyclical nature of the housing industry and we expect them to fluctuate in the future.
The demand for our title and escrow offerings is dependent primarily on the volume of residential real estate transactions. The volume of these transactions historically has been influenced by such factors as mortgage interest rates, availability of financing and the overall state of the economy. Typically, when interest rates are increasing or when the economy is experiencing a downturn, real estate activity declines. As a result, the real estate and title insurance industries tend to experience decreased revenues and earnings.
Our revenues and results of operations have been and may in the future be adversely affected by a decline in affordable real estate, real estate activity or the availability of financing alternatives. In addition, weakness or
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adverse changes in the level of real estate activity could have a material adverse effect on our consolidated financial condition or results of operations.
Currently, the demand for products offered through our Doma Intelligence platform is driven by mortgage refinancing activity, which has improved as a result of lower interest rates. If interest rates in the United States rise as has been projected by the Mortgage Bankers Association, or general mortgage activity decreases for any other reason, it is likely that mortgage activity will decline, which would negatively impact our business. If we do not further expand our client base, increase wallet share with existing clients, or improve market share of purchase transactions, we may experience lower transaction volume than our historical volume or expectations during periods of lower mortgage activity.
We expect a number of factors to cause our results of operations to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
Our revenue and results of operations could vary significantly from quarter to quarter and year to year, and may fail to match periodic expectations as a result of a variety of factors, many of which are outside of our control. Our results may vary from period to period as a result of fluctuations in the number of real estate transactions we handle as well as fluctuations in the timing and amount of our expenses. In addition, the insurance industry is subject to its own cyclical trends and uncertainties, including fluctuating interest rates and real estate prices. Fluctuations and variability across the industry may also affect our revenue. As a result, comparing our results of operations on a period-to-period basis may not be meaningful, and the results of any one period should not be relied on as an indication of future performance. Our results of operations may not meet the expectations of investors or public market analysts who follow us, which may adversely affect New Doma’s stock price. In addition to other risk factors discussed in this section and elsewhere in this proxy statement/prospectus, factors that may contribute to the variability of our quarterly and annual results include:
our ability to attract new customers and partners and retain existing customers and partners, including in a cost-effective manner;
our ability to accurately forecast revenue and losses and appropriately plan our expenses;
the effects of changes in search engine placement and prominence;
the effects of increased competition on our business;
our ability to successfully maintain our position in and expand in existing markets as well as successfully enter new markets;
our ability to protect our existing intellectual property and to create new intellectual property;
our ability to maintain an adequate rate of growth and effectively manage that growth;
the length and unpredictability of our sales cycle;
our ability to keep pace with technology changes in the title insurance industry;
the success of our sales, marketing and customer service efforts;
costs associated with defending claims, including title claims, intellectual property infringement claims, misclassifications and related judgments or settlements;
the impact of, and changes in, governmental or other regulation affecting our business;
changes in the economy generally (including due to COVID-19), which could impact the industries in which we operate;
the attraction and retention of qualified employees and key personnel;
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our ability to choose and effectively manage third-party service providers;
our ability to identify and engage in joint ventures and strategic partnerships;
the effectiveness of our internal controls; and
changes in our tax rates or exposure to additional tax liabilities.
We may require additional capital to support business growth or to satisfy our regulatory capital and surplus requirements, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing products and services, satisfy our regulatory capital and surplus requirements, cover losses, improve our operating infrastructure or acquire complementary businesses and technologies. We expect our capital expenditures and working capital requirements to continue to increase in the immediate future, as we continue to invest in the deployment of Doma Intelligence and expand our footprint in local markets and into new geographies. Many factors will affect our capital needs as well as their amount and timing, including our growth and profitability, regulatory requirements, market disruptions and other developments. If our present capital and surplus (including the net proceeds from completion of the Business Combination) is insufficient to meet our current or future operating requirements, including regulatory capital and surplus requirements, or to cover losses, we may need to raise additional funds through equity or debt financings or curtail our product development activities or other growth initiatives.
Historically, we have funded our operations, marketing expenditures and capital expenditures primarily through debt and equity issuances. We evaluate financing opportunities from time to time, and our ability to obtain financing will depend, among other things, on our development efforts, business plans and operating performance, and the condition of the capital markets at the time we seek financing. We cannot be certain that additional financing will be available to us on favorable terms, or at all.
If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of New Doma Common Stock, and existing stockholders may experience dilution. Any debt financing secured by us in the future could require that a substantial portion of our operating cash flow be devoted to the payment of interest and principal on such indebtedness, which may decrease available funds for other business activities, and could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. Moreover, as the holding company of insurance subsidiary, we are subject to extensive laws and regulations in every jurisdiction in which we conduct business, and any issuances of equity or convertible debt securities to secure additional funds may be impeded by regulatory approvals or requirements imposed by such regulatory authorities if such issuances were deemed to result in a person acquiring “control” of our company under applicable insurance laws and regulations. Such regulatory requirements may require potential investors to disclose their organizational structure and detailed financial statements as well as require managing partners, directors and/or senior officers to submit biographical affidavits, which may deter investments in our company.
If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth, maintain minimum amounts of risk-based capital and to respond to business challenges could be significantly limited, and our business, results of operations and financial condition could be adversely affected.
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We collect, process, store, share, disclose and use consumer information and other data and are subject to stringent and changing privacy laws, regulations and standards, policies and contractual obligations. Our actual or perceived failure to protect such information and data, respect consumers’ privacy or comply with data privacy and security laws and regulations and our policies and contractual obligations could damage our reputation and brand and harm our business and operating results.
Use of technology to offer title and escrow products involves the storage and transmission of information, including personal information, in relation to our staff, contractors, business partners and current, past or potential customers. We have legal and contractual obligations regarding confidentiality and the protection and appropriate use of personally identifiable and other proprietary or confidential information. Data privacy has become a significant issue in the United States and around the world. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many government bodies and agencies have adopted or are considering adopting laws and regulations regarding the processing, collection, use, storage and disclosure of personal information and breach notification procedures. We are also required to comply with laws, rules and regulations, as well as contractual obligations, relating to data security. Interpretation of these laws, rules and regulations and their application to our platform in applicable jurisdictions is ongoing and cannot be fully determined at this time.
We are subject to numerous and constantly evolving privacy laws and regulations. Certain of our activities are subject to the privacy regulations of the Gramm-Leach-Bliley Act of 1999 (the “Gramm-Leach-Bliley Act”), along with its implementing regulations, which restricts certain collection, processing, storage, use and disclosure of personal information, requires notice to individuals of privacy practices, provides individuals with certain rights to prevent the use and disclosure of certain nonpublic or otherwise legally protected information and imposes requirements for the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines. On October 24, 2017, the National Association of Insurance Commissioners (“NAIC”) adopted its Insurance Data Security Model Law, or the Insurance Data Security Model Law, intended to serve as model legislation for states to enact in order to govern the cybersecurity and data protection practices of insurers, insurance agents, and other licensed entities registered under state insurance laws. Alabama, Connecticut, Delaware, Indiana, Louisiana, Michigan, Mississippi, New Hampshire, Ohio, South Carolina and Virginia have adopted versions of the Insurance Data Security Model Law, each with a different effective date, and other states may adopt versions of the Insurance Data Security Model Law in the future. The New York Department of Financial Services has promulgated its own Cybersecurity Requirements for Financial Services Companies that is not based upon the Insurance Data Security Model Law and requires insurance companies to establish and maintain a cybersecurity program and implement and maintain cybersecurity policies and procedures with specific requirements. In addition, the California Financial Information Privacy Act further regulates how California consumers’ nonpublic personal information is shared and includes certain more stringent obligations than the Gramm-Leach-Bliley Act.
On June 28, 2018, California enacted a new privacy law known as the California Consumer Privacy Act of 2018 (“CCPA”), which became effective January 1, 2020. The CCPA increases privacy rights for California residents and imposes obligations on companies that process their personal information, including an obligation to provide certain new disclosures to such residents. Specifically, among other things, the CCPA creates new consumer rights, and imposes corresponding obligations on covered businesses, relating to the access to, deletion of, and sharing of personal information collected by covered businesses, including California residents’ right to access and delete their personal information, opt out of certain sharing and sales of their personal information, and receive detailed information about how their personal information is used. The law exempts from certain requirements of the CCPA certain information that is collected, processed, sold, or disclosed pursuant to the California Financial Information Privacy Act or the federal Gramm-Leach-Bliley Act. The definition of “personal information” in the CCPA is broad and may encompass other information that we maintain beyond that excluded under the Gramm-Leach-Bliley Act or the California Financial Information Privacy Act exemption. Further, the CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. In addition, it remains unclear how various provisions of the CCPA will be interpreted and enforced. Moreover, the California Privacy Rights Act (“CPRA”) was approved by California voters in November 2020 and will further
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modify and expand the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts. We may be required to expend significant time and financial resources to evaluate our practices for compliance with CPRA. Some observers have noted that the CCPA and CPRA could mark the beginning of a trend toward more stringent privacy legislation in the United States, and multiple states have enacted, or are expected to enact, similar laws. There is also discussion in Congress of a new comprehensive federal data protection and privacy law to which we likely would be subject if it is enacted. The effects of the CCPA and CPRA, and other similar state or federal laws, are potentially significant and may require us to modify our data processing practices and policies and to incur substantial costs and potential liability in an effort to comply with such legislation.
Complying with privacy and data protection laws and regulations may cause us to incur substantial operational costs or require us to change our business practices. Although we take steps to comply with financial industry cybersecurity regulations and other data security laws such as the CCPA and believe we are materially compliant with their requirements, our failure to comply with new or existing cybersecurity regulations could result in material regulatory actions and other penalties. Because the interpretation and application of privacy and data protection laws are still uncertain, it is possible that these laws and other actual or alleged legal obligations, such as contractual or self-regulatory obligations, may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our platform. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our platform, which could have an adverse effect on our business. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business, results of operations and financial condition.
Additionally, we are subject to the terms of our privacy policies and privacy-related obligations to third parties. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include personally identifiable information or other user data, may result in governmental or regulatory investigations, enforcement actions, regulatory fines, compliance orders, litigation or public statements against us by consumer advocacy groups or others, and could cause consumers to lose trust in us, all of which could be costly and have an adverse effect on our business. In addition, new and changed rules and regulations regarding privacy, data protection (in particular those that impact the use of machine intelligence) and cross-border transfers of consumer information could cause us to delay planned uses and disclosures of data to comply with applicable privacy and data protection requirements. For example, our use of certain vendors outside of the United States to perform services on our platform could subject us to additional data protection regimes and increased risk of noncompliance. Moreover, if third parties that we work with violate applicable laws or our policies, such violations also may put personal information at risk, which may result in increased regulatory scrutiny and have a material adverse effect to our reputation, business and operating results.
If the security of the personal information that we (or our vendors) collect, store or process is compromised or is otherwise accessed without authorization, or if we fail to comply with our commitments and assurances regarding the privacy and security of such information, our reputation may be harmed and we may be exposed to significant liability and loss of business.
Cyberattacks and other malicious internet-based activity continue to increase. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), employee theft or misuse and denial-of-service attacks, sophisticated nation-state and nation-state-supported actors now engage in attacks (including advanced persistent threat intrusions). We cannot guarantee that our or our vendors’ security measures will be sufficient to protect against unauthorized access to or other compromise of personal information. The techniques used to sabotage or to obtain unauthorized access to our or our vendors’ technology, systems, networks and/or physical facilities in which data is stored or through which data is transmitted change frequently, and we or our vendors may be unable to implement adequate preventative measures or stop security breaches while they are occurring. The security measures that we have integrated into our technology, systems, networks and physical facilities, and any such measures
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implemented by our vendors, which are designed to protect against, detect and minimize security breaches, may not be adequate to prevent or detect service interruption, system failure or data loss.
Security breaches, including by hackers or insiders, could expose personal or confidential information, which could result in potential regulatory investigations, fines, penalties, compliance orders, liability, litigation and remediation costs, as well as reputational harm, any of which could materially adversely affect our business and financial results. Third parties may also exploit vulnerabilities in, or obtain unauthorized access to, technology, systems, networks and/or physical facilities utilized by our vendors. For example, unauthorized parties could steal or access our users’ names, email addresses, physical addresses, phone numbers and other information that we collect when providing our title and escrow products such as bank account or other payment information. Further, outside parties may attempt to fraudulently induce employees or consumers to disclose sensitive information in order to gain access to our information or consumers’ information. Any of these incidents, or any other types of security or privacy-related incidents, could result in an investigation by a competent regulator, resulting in a fine or penalty, or an order to implement specific compliance measures. It could also trigger claims by affected third parties. While we use encryption and authentication technology licensed from third parties designed to effect secure transmission of such information, we cannot guarantee the security of the transfer and storage of personal or other confidential information. Any or all of the issues above could adversely affect our ability to attract or retain customers or partners, or subject us to governmental or third-party lawsuits, investigations, regulatory fines or other actions or liability, resulting in a material adverse effect to our business, results of operations and financial condition.
We are required to comply with laws, rules and regulations as well as contractual obligations that require us to maintain the security of personal information. We have contractual and legal obligations to notify relevant stakeholders of security breaches. We operate in an industry that is prone to cyber-attacks. We have previously and may in the future become the target of cyber attacks by third parties seeking unauthorized access to our or our customers’ data or to disrupt our ability to provide our services. Failure to prevent or mitigate cyber-attacks could result in the unauthorized access to personal information. Most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities and others of security breaches involving certain types of data. In addition, our agreements with certain customers and partners may require us to notify them in the event of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers or partners to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach. A security breach of any of our vendors that process personal information of our customers may pose similar risks.
A security breach may cause us to breach customer or partner contracts. Our agreements with certain customers or partners may require us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us to use industry-standard or reasonable security measures to safeguard personal information. A security breach could lead to claims by our customers or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we could be subject to legal action or our customers or partners could end their relationships with us. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages, and in some cases our agreements with customers or partners do not limit our remediation costs or liability with respect to data breaches.
Litigation resulting from security breaches may adversely affect our business. Unauthorized access to our technology, systems, networks or physical facilities, or those of our vendors, could result in litigation with our customers or other relevant stakeholders. These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our costs of doing business, or adversely affect our reputation. We could be required to fundamentally change our business activities and practices or modify our products and/or technology capabilities in response to such litigation, which could have an adverse effect on our business were. If a security breach were to occur, and the confidentiality, integrity or availability of personal information was disrupted, we could incur significant liability, or our technology, systems or networks may be perceived as less desirable, which could negatively affect our business and damage our reputation.
We may not have adequate insurance coverage. The successful assertion of one or more large claims against us that exceed our available insurance coverage, or result in changes to our insurance policies (including premium
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increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.
Technology disruptions or failures, including a failure in our operational or security systems or infrastructure, or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm and adversely impact our results of operations and financial condition.
We are dependent on the secure, efficient, and uninterrupted operation of our technology infrastructure, including computer systems, related software applications and data centers, as well as those of certain third parties and affiliates. Our platform and computer/telecommunication networks must accommodate a high volume of traffic and deliver frequently updated information, the accuracy and timeliness of which is critical to our business. Our technology must be able to facilitate a title and escrow experience that equals or exceeds the experience provided by our competitors. We have or may in the future experience service disruptions and failures caused by system or software failure, fire, power loss, telecommunications failures, team member misconduct, human error, computer hackers, computer viruses and disabling devices, malicious or destructive code, denial of service or information, as well as natural disasters, health pandemics and other similar events, and our disaster recovery planning may not be sufficient for all situations. This is especially applicable in the current response to the COVID-19 pandemic and the shift we have experienced in having most of our team members work from their homes for the time being, as our team members access our secure networks through their home networks. The implementation of technology changes and upgrades to maintain current and integrate new technology systems may also cause service interruptions. Any such disruption could interrupt or delay our ability to provide services to our S&EA partners, third-party agents and consumers, and could also impair the ability of third parties to provide critical services to us.
Additionally, the technology and other controls and processes we have created to help us identify misrepresented information in our title and escrow operations were designed to obtain reasonable, not absolute, assurance that such information is identified and addressed appropriately. Accordingly, such controls may not have detected, and may fail in the future to detect, all misrepresented information in our title and escrow operations. If our operations are disrupted or otherwise negatively affected by a technology disruption or failure, this could result in client dissatisfaction and damage to our reputation and brand and material adverse impacts on our business. We do not carry business interruption insurance sufficient to compensate us for all losses that may result from interruptions in our service as a result of systems disruptions, failures and similar events.
Our title and escrow business relies on data from consumers and unaffiliated third parties, the unavailability or inaccuracy of which could limit the functionality of our products and disrupt our business.
We use data, technology and intellectual property from consumers and unaffiliated third parties in certain of our products, including the data used by the machine learning algorithms in the Doma Intelligence platform, and we may license additional third-party technology and intellectual property in the future. Any errors or defects in this third-party data, technology and intellectual property could result in errors that could harm our brand and business. In addition, licensed data, technology and intellectual property may not continue to be available on commercially reasonable terms, or at all.
Further, although we believe that there are currently adequate replacements for the third-party data, technology and intellectual property we presently use, the loss of our right to use any of this data, technology and intellectual property could result in delays in producing or delivering affected products until equivalent data, technology or intellectual property is identified, licensed or otherwise procured, and integrated.
Our business would be disrupted if any data, technology and intellectual property we license from others or functional equivalents of this software were either no longer available to us or no longer offered to us on commercially reasonable terms. In either case, we would be required either to attempt to redesign our products to function with data, technology and intellectual property available from other parties or to develop these components ourselves, which would result in increased costs and could result in delays in product sales and the release of new product offerings. Alternatively, we might be forced to limit the features available in affected products. Any of these results could harm our business, results of operations and financial condition.
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Our success depends upon the real estate and title insurance industries continuing to adopt new products at their current pace and the continued growth and acceptance of data science and machine intelligence-driven products and services as effective alternatives to traditional manual products and services.
We provide our title and escrow products through our platform that competes with traditional manual counterparts. We believe that the continued growth and acceptance of instant experiences generally will depend, to a large extent, on the continued growth in commercial use of the internet and the continued migration of traditional offline markets and industries online.
The title and escrow process may not migrate to new technologies as quickly as (or at the levels that) we expect, and existing or future federal and state laws may prevent us from offering certain of our title and escrow products. For example, although 29 states have enacted permanent remote online notarization, and others have issued emergency measures in response to COVID-19, states such as California do not allow remote notarization, and others may not enact permanent authorization for remote notarization, which may impact our ability to introduce our products in certain markets.
Furthermore, although consumers have a legal right to select their own title insurance provider, as well as all of their settlement service vendors, consumers regularly use the providers recommended by their advisor, which may be their real estate, loan officer or attorney. If consumer awareness of their right to select their own title insurance provider or settlement service vendors and/or if demand for online title and escrow products does not increase, our business, results of operations and financial condition could be adversely affected.
Moreover, if, for any reason, an unfavorable perception develops that data automation, machine intelligence and/or bots are less efficacious than in-person closings or traditional offline methods of preparing closing disclosures, purchasing title insurance, underwriting, claims processing, and other functions that use data automation, machine intelligence and/or bots, our business, results of operations and financial condition could be adversely affected.
Our proprietary data science and machine intelligence algorithms may not operate properly or as we expect them to, which may expose us to adverse financial, business or reputational impacts. Moreover, our proprietary machine intelligence algorithms may lead to unintentional bias and discrimination.
We use proprietary data science and machine intelligence algorithms in a variety of ways. For example, our Doma Intelligence platform uses data science and machine intelligence algorithms when determining whether to underwrite a real estate transaction and when preparing a closing disclosure. The failure of any of these algorithms to function effectively may expose us to adverse financial, business, or reputational impacts.
The continuous development, maintenance and operation of our data analytics engine is expensive and complex, and may involve unforeseen difficulties including material performance problems or undetected defects or errors. We may encounter technical obstacles, and it is possible that we may discover additional problems that prevent our proprietary machine intelligence algorithms from operating properly. These deficiencies could undermine the decisions, predictions or analysis our data science and machine intelligence algorithms produce, which could subject us to competitive harm, legal or regulatory liability and brand or reputational harm. As a result of any actual or perceived deficiency with our proprietary data science and machine intelligence algorithms, we could lose any of our S&EA partners through which we generate a meaningful amount of business. Additionally, our proprietary machine intelligence algorithms may lead to unintentional bias and discrimination in the underwriting process, which could subject us to competitive harm, legal or regulatory liability and brand or reputational harm.
We expect to expand the use of our data science and machine intelligence algorithms from use in underwriting title insurance policies for residential real estate refinancing transactions, to use in underwriting title insurance policies for residential resale transactions. While we follow best practices in data science and machine intelligence development, resale transactions have different risks than refinancing transactions do, and we may experience unexpected performance that could subject us to increased claims, adverse changes in revenue and profitability, and reduced business growth.
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Any of these eventualities could result in a material and adverse effect on our business, results of operations and financial condition.
We rely extensively on models in managing many aspects of our business, and if they are not accurate or are misinterpreted, it could have a material adverse effect on our business and results of operations.
We rely extensively on models in managing many aspects of our business, including title insurance underwriting, fee balancing, document quality control, customer communications handling, liquidity and capital planning (including stress testing), and reserving. The models may prove in practice to be less predictive than we expect for a variety of reasons, including as a result of errors in constructing, interpreting or using the models or the use of inaccurate assumptions (including failures to update assumptions appropriately or in a timely manner). Our assumptions may be inaccurate for many reasons, including that they often involve matters that are inherently difficult to predict and beyond our control (e.g., macroeconomic conditions and their impact on S&EA partner, third-party agent and consumer behaviors and the ratio of title insurance claims to premiums collected), and they often involve complex interactions between a number of dependent and independent variables, factors and other assumptions. For example, while our ratio of claims paid to premiums collected for transactions running through Doma Intelligence has been 0% to date, we expect that as our claims history increases, such ratio will be in the low single digits to high single digits for refinance transactions, based on, among other things, the state of the U.S. macroeconomy during any given period. The errors or inaccuracies in our models may be material, and could lead us to make wrong or sub-optimal decisions in managing our business, and this could have a material adverse effect on our business, results of operations and financial condition.
We must comply with extensive government regulations. These regulations could adversely affect our ability to increase our revenues and operating results.
We must comply with extensive federal and state government laws and regulations. We are also subject to various licensing requirements by individual state insurance departments and other regulators in the states in which we transact business. These laws, regulations and license requirements are complex and subject to change. Changes may sometimes lead to additional expenses, increased legal exposure, increased required reserves or capital and surplus, and additional limits on our ability to grow or to achieve targeted profitability. Regulations to which we are subject include, but are not limited to:
prior approval of transactions resulting in a change of “control”;
approval of policy forms and premiums;
restrictions on the sharing of insurance commissions and payment of referral fees;
privacy regulation and data security;
regulation of corporate governance and risk management; and
periodic examinations of operations, finances, market conduct and claims practices; and required periodic financial reporting;
statutory and risk-based capital solvency requirements, including the minimum capital and surplus our insurance subsidiary must maintain;
establishing minimum reserves that insurance carriers like our insurance subsidiary must hold to pay projected insurance claims;
required participation by our regulated insurance subsidiary in state guaranty funds;
restrictions on the type and concentration of our insurance subsidiary’s investments;
restrictions on the advertising and marketing of insurance by our insurance subsidiary;
restrictions on the adjustment and settlement of insurance claims by our insurance subsidiary;
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restrictions on our insurance subsidiary’s use of rebates to induce a policyholder to purchase insurance;
restrictions on our insurance subsidiary’s sale, solicitation and negotiation of insurance;
prohibitions on the underwriting of insurance on the basis of race, sex, religion and other protected classes;
restrictions on the ability of our insurance subsidiary to pay dividends to us or enter into certain related party transactions without prior regulatory approval; and
rules requiring our insurance subsidiary’s maintenance of statutory deposits for the benefit of policyholders.
Our ability to retain state licenses depends on our ability to meet licensing requirements established by the NAIC and adopted by each state, subject to variations across states. If we are unable to satisfy the applicable licensing requirements of any particular state, we could lose our license to do business in that state, which would result in the temporary or permanent cessation of our operations in that state. Alternatively, if we are unable to satisfy applicable state licensing requirements, we may be subject to additional regulatory oversight, have our license suspended, or be subject to the seizure of assets. Any such event could adversely affect our business, results of operations or financial condition. See “The Business of Doma—Government Regulation—State Licensing Requirements” for additional information.
Also, given our short operating history to date and rapid rate of growth, we are vulnerable to regulators identifying errors in certain of our operations, including those related to rates and fees charged to consumers, correct and timely policy issuance, and accurate and secure disbursement of funds. As a result of such noncompliance, regulators could impose fines, rebates or other penalties, including cease-and-desist orders with respect to our operations in an individual state, or all states, until the identified noncompliance is rectified.
In addition, several states have adopted legislation prohibiting unfair methods of competition and unfair or deceptive acts and practices in the business of insurance as well as unfair claims practices. Prohibited practices include, but are not limited to, misrepresentations, false advertising, coercion, disparaging other insurers, unfair claims settlement procedures, and discrimination in the business of insurance. Noncompliance with any of such state statutes may subject us to regulatory action by the relevant state insurance regulator, and possibly private litigation. States also regulate various aspects of the contractual relationships between insurers and third-party agents.
Although state insurance regulators have primary responsibility for administering and enforcing insurance regulations in the United States, such laws and regulations are further administered and enforced by a number of additional governmental authorities, each of which exercises a degree of interpretive latitude, including state securities administrators, state attorneys general as well as federal agencies including the Federal Reserve Board, the Federal Insurance Office and the U.S. Department of Justice. Consequently, compliance with any particular regulator’s or enforcement authority’s interpretation of a legal issue may not result in compliance with another’s interpretation of the same issue, particularly when compliance is judged in hindsight. Such regulations or enforcement actions are often responsive to current consumer and political sensitivities, which may arise after a major event. Such rules and regulations may result in rate suppression, limit our ability to manage our exposure to unprofitable or volatile risks, or lead to fines, premium refunds or other adverse consequences. The federal government also may regulate aspects of our businesses, such as the protection of consumer confidential information. Failure to comply with federal requirements could subject us to regulatory fines and other sanctions.
In addition, there is risk that any particular regulator’s or enforcement authority’s interpretation of a legal issue or the scope of a regulator’s authority may change over time to our detriment. There is also a risk that changes in the overall legal environment may cause us to change our views regarding the actions we need to take from a legal risk management perspective. This would necessitate changes to our practices that may adversely impact our business. Furthermore, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. State insurance laws and regulations are generally intended to protect the interests of purchasers or users of insurance products, rather than the holders of securities that we issue. For example, state insurance laws are generally prescriptive with respect to the content and timeliness of notices we must provide policyholders. Failure to comply with state insurance laws and regulations could have a material adverse effect on our business, operating results and financial condition. As another example, the federal
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government could pass a law expanding its authority to regulate the insurance industry, which could expand federal regulation over our business to our detriment. These laws and regulations may limit our ability to grow, to raise additional capital or to improve the profitability of our business.
Litigation and legal proceedings filed by or against us and our subsidiaries could have a material adverse effect on our business, results of operations and financial condition.
From time to time, we are subject to allegations, and may be party to litigation and legal proceedings relating to our business operations. Litigation and other proceedings may include complaints from or litigation by customers or reinsurers related to alleged breaches of contract or otherwise. We expect that as our market share increases, competitors may pursue litigation to require us to change our business practices or offerings and limit our ability to compete effectively.
As is typical in the insurance industry, we continually face risks associated with litigation of various types arising in the normal course of our business operations, including disputes relating to insurance claims under our title insurance policies as well as other general commercial and corporate litigation. Although we are not currently involved in any material litigation with consumers, members of the insurance industry are periodically the target of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts, and the outcomes of which are unpredictable. This litigation is based on a variety of issues, including sale of insurance and claim settlement practices. In addition, because we employ a technology platform that collects consumer data, it is possible that customers or consumer groups could bring individual or class action claims alleging that our methods of collecting data and pricing risk are impermissibly discriminatory. We cannot predict with any certainty whether we will be involved in such litigation in the future or what impact such litigation would have on our business. If we were to be involved in litigation and it was determined adversely, it could require us to pay significant damages or to change aspects of our operations, either of which could have a material adverse effect on our financial results. Even claims without merit can be time-consuming and costly to defend, and may divert management’s attention and resources away from our business and adversely affect our business, results of operations and financial condition. Additionally, routine lawsuits over claims that are not individually material could in the future become material if aggregated with a substantial number of similar lawsuits. In addition to increasing costs, a significant volume of customer complaints or litigation could also adversely affect our brand and reputation, regardless of whether such allegations have merit or whether we are liable. We cannot predict with certainty the costs of defense, the costs of prosecution, insurance coverage or the ultimate outcome of litigation or other proceedings filed by or against us, including remedies or damage awards, and adverse results in such litigation, and other proceedings may harm our business and financial condition.
In March 2021, Doma received notice that our subsidiary, North American Title Company, Inc., was named a defendant in a legacy ongoing class action lawsuit styled “Carolyn Cortina, et al. v. North American Title Company, et al” (the “Cortina Litigation”) pending against Lennar Title Group, LLC (formerly known as CalAtlantic Title Group, LLC, and before that as North American Title Group, LLC) (“Lennar Title”) and certain of its subsidiaries, entities wholly owned indirectly by Lennar Corporation that were not acquired by Doma in the North American Title acquisition. We further learned that a proposed judgment in the principal amount of approximately $20.4 million and prejudgment interest of approximately $20.4 million against North American Title Company, Inc. and Lennar Title and certain of its subsidiaries is pending before the trial court.
In August 2020, plaintiffs in the Cortina Litigation filed a motion to amend the complaint to add North American Title Company, Inc. to the complaint, to have the amended pleading deemed filed and served as of the date of the order granting leave, and to have the existing defendants’ answer filed in October 2010 deemed filed as if on behalf of North American Title Company, Inc. notwithstanding that no Doma entities had previously been parties to the dispute or served with any pleadings in the litigation. Plaintiffs alleged that the originally named defendant, North American Title Company, is also known as North American Title Company, Inc. and CalAtlantic Title, Inc. and that the transfer of assets of North American Title Company to Doma in the North American Title acquisition, which carved out the liability for the Cortina Litigation, was a fraudulent transfer designed to leave plaintiffs without a source of recovery. On March 2, 2021, the trial court issued a minute order granting the motion.
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When we acquired certain North American Title entities and assets in the North American Title acquisition, liabilities arising from the Cortina Litigation were expressly deemed excluded liabilities that would be retained by Lennar Title following the acquisition. Consistent therewith, since the acquisition, Lennar Title has continued to control the defense, without our involvement, of the Cortina Litigation. Accordingly, on March 12, 2021, in light of plaintiffs’ request for entry of the proposed judgment, we delivered a demand to Lennar Title to confirm Lennar Title’s indemnification for all damages we may incur in connection with the Cortina Litigation and that Lennar Title intends to control the defense related to the Cortina Litigation on behalf of all Doma indemnified parties. On March 13, 2021, Lennar Title, a wholly owned subsidiary of Lennar Corporation, delivered notice confirming that it would indemnify us for damages incurred by Doma indemnified parties arising out of the Cortina Litigation and stating that it elected to control the defense, at its expense, for such matter, and, on March 18, 2021, we entered into a Joint Defense Agreement with Lennar Title with respect to such litigation. At this time, based on the foregoing, Doma does not believe that there is a reasonable possibility that the final outcome of the Cortina Litigation will have an adverse effect on Doma’s future financial results.
Our exposure to regulation and residential real estate transaction activity may be greater in California, where we source a significant proportion of our premiums.
A large portion of our premiums for the year ended December 31, 2020 and the three months ended March 31, 2021 originated from residential real estate transactions in California. As compared to our competitors who operate on a wider geographic scale or whose business is less concentrated in California, any adverse changes in the regulatory environment affecting title insurance and real estate settlement in California which could include reductions in the maximum rates permitted to be charged, inadequate rate increases or more fundamental changes in the design or implementation of the California title insurance regulatory framework, may expose us to more significant risks and our business, financial condition and result of operations could be materially adversely affected.
In addition, to the extent residential real estate transaction volume in California changes significantly, whether due to changes in real estate values that differ from the overall U.S. real estate market, changes in the local economy relative to the U.S. economy, or natural disasters that disproportionately impact residential real estate activity in California, we could experience lower premiums and growth than historically observed or projected.
Our expansion within the United States will subject us to additional costs and risks, and our plans may not be successful.
Our success depends in part on our ability to expand into additional markets in the United States. As of March 31, 2021, NATIC was licensed and operates in 39 states and the District of Columbia, and our title and escrow agency operations were licensed in 29 states of the United States with operations in 19 of those states overall with our S&EA channel operational in 18 states. We plan to have a presence in all states that offer title insurance products, but cannot guarantee that we will be able to provide nationwide title and escrow services on that timeline or at all. Moreover, one or more states could revoke our license to operate, or implement additional regulatory hurdles that could preclude or inhibit our ability to obtain or maintain our license in such states.
As we seek to expand in the United States, we may incur significant operating expenses, although our expansion may not be successful for a variety of reasons, including because of:
barriers to obtaining the required government approvals, licenses or other authorizations;
failures in identifying and entering into joint ventures with strategic partners, or entering into joint ventures that do not produce the desired results;
challenges in, and the cost of, complying with various laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax and local regulatory restrictions;
difficulty in recruiting and retaining licensed, talented and capable employees;
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competition from local incumbents that already own market share, better understand the local market, may market and operate more effectively and may enjoy greater local affinity or awareness;
the availability of accurate and comprehensive data sources which we need to operate aspects of the Doma Intelligence platform;
unfavorable economic terms due to government-regulated insurance rates and premiums; and
differing market demand, which may make our product offerings less successful.
Expansion into new markets in the United States will also require additional investments by us both in marketing and with respect to securing applicable regulatory approvals. These incremental costs may result from hiring additional personnel, from engaging third-party service providers and from incurring other research and development costs. If we invest substantial time and resources to expand our operations while our revenues from those additional operations do not exceed the expense of establishing and maintaining them, or if we are unable to manage these risks effectively, our business, results of operations and financial condition could be adversely affected.
If we fail to grow our geographic footprint or geographic growth occurs at a slower rate than expected, our business, results of operations and financial condition could be materially and adversely affected.
Regulators may limit our ability to develop or implement our proprietary data science and machine intelligence algorithms and/or may eliminate or restrict the confidentiality of our proprietary technology, which could have a material adverse effect on our financial condition and results of operations.
Our future success depends on our ability to continue to develop and implement our proprietary data science and machine intelligence algorithms, and to maintain the confidentiality of this technology. Changes to existing regulations, their interpretation or implementation, or new regulations could impede our use of this technology, or require that we disclose our proprietary technology to our competitors, which could impair our competitive position and result in a material adverse effect on our business, results of operations, and financial condition.
We rely on highly skilled and experienced personnel and if we are unable to attract, retain or motivate key personnel or hire qualified personnel, our business may be seriously harmed. In addition, the loss of key senior management personnel could harm our business and future prospects.
Our performance largely depends on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled and experienced personnel and, if we are unable to hire and train a sufficient number of qualified employees for any reason, we may not be able to maintain or implement our current initiatives or grow, or our business may contract and we may lose market share. Moreover, certain of our competitors or other insurance or technology businesses may seek to hire our employees. We cannot assure you that our equity incentives and other compensation will provide adequate incentives to attract, retain and motivate employees in the future, particularly if the market price of New Doma Common Stock does not increase or declines. If we do not succeed in attracting, retaining and motivating highly qualified personnel, our business may be seriously harmed.
We depend on our senior management, including Max Simkoff, our founder and Chief Executive Officer, Noaman Ahmad, our Chief Financial Officer, Christopher Morrison, our Chief Operating Officer, and Hasan Rizvi, our Chief Technology Officer, as well as other key personnel. We may not be able to retain the services of any of our senior management or other key personnel, as their employment is at-will and they could leave at any time. If we lose the services of one or more of our senior management or other key personnel, including as a result of the COVID-19 pandemic, we may not be able to successfully manage our business, meet competitive challenges or achieve our growth objectives. Further, to the extent that our business grows, we will need to attract and retain additional qualified management personnel in a timely manner, and we may not be able to do so. Our future success depends on our continuing ability to identify, hire, develop, motivate, retain and integrate highly skilled personnel in all areas of our organization.
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Failure of our enterprise-wide risk management processes could result in unexpected monetary losses, damage to our reputation, additional costs or impairment of our ability to conduct business effectively.
Our risk management framework is designed to identify, monitor and mitigate risks that could have a negative impact on our financial condition or reputation. This framework includes departments or groups dedicated to enterprise risk management, information security, disaster recovery and other information technology-related risks, business continuity, legal and compliance, compensation structures and other human resources matters, vendor management and internal audit, among others. Many of the processes overseen by these departments function at the enterprise level, but many also function through, or rely to a certain degree upon, risk mitigation efforts in local operating groups.
Similarly, with respect to the risks we assume in the ordinary course of its business through the issuance of title insurance policies and the provision of related products and services, we employ localized as well as centralized risk mitigation efforts. These efforts include the implementation of underwriting policies and procedures and other mechanisms for assessing risk. Manual underwriting of title insurance policies and making risk-assumption decisions frequently involve judgment. We maintain a tiered system of underwriting authority, wherein title officers at the state level have limited underwriting authority, third-party title agents are subject to authorization levels above which they must consult with the underwriting counsel of our insurance subsidiary, and underwriting counsel at the regional level, reporting to the Chief Underwriting Counsel, have authority to approve or deny a transaction at any level of financial exposure. While we believe these tiers of authority reduce the likelihood that we will make materially adverse risk determinations, if our risk mitigation efforts prove inadequate, our business, financial position and results of operation could be adversely affected.
As a private company, we were not required to document and test our internal controls over financial reporting nor was management required to certify the effectiveness of our internal controls or have our auditors opine on the effectiveness of our internal control over financial reporting. Failure to maintain effective internal control over financial reporting could result in material weaknesses, which could lead to errors in our financial reporting.
We were not required to document and test our internal controls over financial reporting nor was management required to certify the effectiveness of internal controls or have our auditors opine on the effectiveness of our internal control over financial reporting. Similarly, as an “emerging growth company,” Capitol Investment Corp. V was exempt from certain of the internal control financial reporting requirements. We will continue to be an emerging growth company immediately following the Business Combination, which among other things will exempt us from the requirement Section 404(b) of the Sarbanes-Oxley Act that our independent auditor attest to our internal control over financial reporting on an annual basis until we lose our emerging growth company status. We may lose our emerging growth company status and become subject to the SEC’s internal control over financial reporting management and auditor attestation requirements under certain circumstances, including if (i) we have more than $1.07 billion in annual revenue in any fiscal year, (ii) we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year or (iii) we issue more than $1.0 billion of non-convertible debt over a three-year period.
Regardless of our emerging growth status, we will become subject to the management attestation and reporting requirements of Section 404(a) of the Sarbanes-Oxley Act with respect to our annual report for the year ending December 31, 2022. However, we will not be required to include an attestation report on internal control over financial reporting issued by our independent auditor for so long as we remain an emerging growth company. In addition, our current controls and any new controls that we develop may become inadequate because of poor design and changes in our business, including increased complexity resulting from increased transaction volume or business expansion. If we are unable to certify the effectiveness of our internal control over financial reporting, or if we have a material weakness in our internal control over financial reporting, we may not detect errors timely, our consolidated financial statements could be misstated, or we could be subject to regulatory scrutiny or a loss of confidence by stakeholders, any of which could harm our business and adversely affect the market price of New Doma Common Stock.
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Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a diversified portfolio of investments in accordance with our investment policy. In addition, our insurance subsidiary, as domiciled in South Carolina, complies with South Carolina and related states’ regulations on investments and restrictions. However, our investments are subject to general economic and market risks as well as risks inherent to particular securities.
Our primary market risk exposures are to changes in interest rates. See the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Doma—Quantitative and Qualitative Disclosures about Market Risks.” Our results of operations are directly exposed to changes in interest rates, among other macroeconomic conditions. Fluctuations in interest rates may also impact the interest income earned on floating-rate investments and the fair value of our fixed-rate investments. An increase in interest rates decreases the market value of fixed-rate investments. Conversely, a decrease in interest rates increases the fair market value of fixed-rate investments. Our exposure to interest rate risk correlates to our portfolio of fixed income securities. In recent years, interest rates have been at or near historic lows. A protracted low interest rate environment would continue to place pressure on our net investment income, particularly as it relates to fixed income securities and short-term investments, which, in turn, may adversely affect our operating results. Future increases in interest rates could cause the values of our fixed income securities portfolios to decline, with the magnitude of the decline depending on the maturity of the securities included in our portfolio and the amount by which interest rates increase.
The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Downgrades in the credit ratings of fixed maturities also have a significant negative effect on the market valuation of such securities.
Such factors could reduce our net investment income and result in realized investment losses. Our investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur.
Risks for all types of securities are managed through the application of our investment policy. The maximum percentage and types of securities we may invest in are subject to the insurance laws regulations, which may change. Failure to comply with these laws and regulations would cause nonconforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in certain circumstances, we would be required to dispose of such investments.
Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time. In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.
Failures at financial institutions at which we deposit funds could adversely affect us.
We deposit substantial funds in financial institutions. These funds include amounts owned by third parties, such as escrow deposits. Should one or more of the financial institutions at which deposits are maintained fail, there is no guarantee that we would recover the funds deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise. In the event of any such failure, we also could be held liable for the funds owned by third parties.
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Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
Our financial condition and results of operations depend on our ability to accurately price risk and assess potential losses and loss adjustment expenses under the terms of the title insurance policies we underwrite. Our loss and loss adjustment expense reserves are subject to significant variability due to our limited use of reinsurance as well as the inherent risks of writing title insurance policies, which include their long duration and sensitivity to future changes in economic conditions. For the title insurance industry overall, approximately 75% of ultimate claim amounts are reported within the first seven years of the policy life.
There are two types of reserve accounts that reflect the amount of claims and/or events that have transpired: “known claim reserves” and “incurred but not reported” (“IBNR”). Known claim reserves do not represent an exact calculation of liability. Rather, these reserves represent an estimate of what the expected ultimate settlement and administration of claims will cost, and the ultimate liability may be greater or less than the current estimate. In our industry, there is always the risk that reserves may prove inadequate since we may underestimate the cost of claims and claims administration. The factors that are considered in establishing known claim reserves include but are not limited to, claim severity, facts that are uncovered or determined during the course of the claim, analysis and applicability of judicial theories of liability and defenses, procedural posture of the claim and other factors. Known claim reserves are adjusted regularly as the facts are discovered and coverage under the policy is analyzed and determined. As of March 31, 2021, known claim reserves for our title insurance underwriting subsidiary was $5.0 million.
We base our loss and loss adjustment expense reserve estimates on our assessment of current economic and business trends, as well as estimates of future trends in claim volume, claim severity, and other factors. These variables are affected by both internal and external events that could increase our exposure to losses, including changes in actuarial projections, claims handling procedures, variation in state-by-state claims experience, inflation, a decline in real estate prices, rise in interest rates or increase in mortgage defaults and foreclosures, other macroeconomic and judicial trends and legislative and regulatory changes.
Our IBNR reserves generally relate to the five most recent policy years. For policy years at the early stage of development (generally the last five years), IBNR is generally estimated using a combination of expected loss rate and multiplicative loss development factor calculations. For more mature policy years, IBNR generally is estimated using multiplicative loss development factor calculations. The expected loss rate method estimates IBNR by applying an expected loss rate to total title insurance premiums and escrow fees, and adjusting for policy year maturity using estimated loss development patterns. Multiplicative loss development factor calculations estimate IBNR by applying factors derived from loss development patterns to losses realized to date. The expected loss rate and loss development patterns are based on historical experience. Due to our long claim exposure, our provision for claims periodically includes amounts of adverse or positive claims development on policies issued in prior years, when claims on such policies are higher or lower than initially expected. As of March 31, 2021, the reserve for known and IBNR title insurance losses was $70.7 million and included in the amount of liability for loss and loss adjustment expenses.
We estimate the loss provision rate at the beginning of each year and reassess the rate at midyear as of July 31 of every year to ensure that the resulting sum of the known claim reserves, IBNR loss, and loss adjustment expense reserves included in our balance sheet together reflect our best estimate of the total costs required to settle all IBNR and known claims. However, our estimates could prove to be inadequate. Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. A material change in expected ultimate losses and corresponding loss rates for older policy years is also possible, particularly for policy years with loss rates exceeding historical norms. Our estimates could ultimately prove to be materially different from actual claims experience, which may adversely affect our result of operations and financial conditions.
If any of our insurance reserves should prove to be inadequate for the reasons discussed above, or for any other reason, we will be required to increase reserves, resulting in a reduction in Doma’s net income and stockholders’ equity in the period in which the deficiency is identified. Future loss experience substantially in excess of
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established reserves could also have a material adverse effect on future earnings and liquidity and financial rating, which would affect our ability to attract new business or to retain existing S&EA partners and third-party agents.
There are risks associated with our indebtedness that is expected to remain outstanding following the Business Combination.
In December 2020, we entered into a credit agreement with Hudson Structured Capital Management Ltd. (“HSCM”) for a $150.0 million Senior First Lien Note (“Senior Debt”), which was fully funded by the lenders, which are affiliates of HSCM, at its principal face value on January 29, 2021 (the “Funding Date”) and matures on the fifth anniversary of the Funding Date. We used a portion of the net proceeds from the Senior Debt to repay all amounts outstanding and owed under the note payable to Lennar Title Group, LLC, including approximately $65.5 million in aggregate principal amount outstanding and accrued interest.
The provisions of our Senior Debt and any additional indebtedness we or Doma incurs will limit our ability and the ability of our subsidiaries to, among other things, incur or assume debt, incur certain liens or permit them to exist, undergo certain changes in business, management, control or business locations, dispose of assets, make certain investments, merge with other companies, pay dividends and enter into certain transactions with affiliates. We are also required to comply with certain financial covenants set forth in our Senior Debt.
In addition, a failure to comply with the provisions of our current and any additional indebtedness, including our Senior Debt, could result in a default or an event of default that could enable our lenders to declare the outstanding principal of that debt, together with accrued and unpaid interest plus the amount of any applicable prepayment premium, to be immediately due and payable. If we were unable to repay those amounts, the lenders under our Senior Debt and any other future secured debt agreement could proceed against the collateral granted to them to secure that indebtedness.
The Senior Debt is secured by a first-priority pledge and security interest in substantially all assets of Doma and its existing and future domestic subsidiaries and is guaranteed by all of the Doma’s domestic subsidiaries (in each case, subject to customary exclusions, including the exclusion of regulated insurance company subsidiaries). Any of these events could materially adversely affect our liquidity and financial condition.
Our outstanding indebtedness and any additional indebtedness we or New Doma incurs may have significant consequences, including, without limitation, the following:
Doma’s ability to pay interest and repay the principal for its indebtedness is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt. Doma may be required to use a significant portion of our cash flow from operations and other available cash to service this indebtedness, thereby reducing the amount of cash available for other purposes, including capital expenditures, acquisitions and strategic investments;
our indebtedness and leverage may increase our vulnerability to downturns in our business, to competitive pressures, and to adverse changes in general economic and industry conditions;
Doma’s ability to obtain additional financing for working capital, capital expenditures, acquisitions, share repurchases, or other general corporate and other purposes may be limited; and
our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.
Changes in tax law could adversely affect our business and financial conditions.
The Tax Cuts and Jobs Act (the “TCJA”), enacted on December 22, 2017, significantly affected U.S. tax law, including by changing how the U.S. imposes tax on certain types of income of corporations and by reducing the U.S. federal corporate income tax rate to 21%. It also imposed new limitations on several tax benefits, including deductions for business interest, use of net operating loss carryforwards, taxation of foreign income, and the foreign tax credit, among others. In response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, enacted on March 18, 2020, and the CARES Act, enacted on March 27, 2020, further amended the U.S. federal tax code, including in respect of certain changes that were made by the TCJA, generally on a temporary
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basis. There can be no assurance that future tax law changes will not increase the rate of the corporate income tax significantly, impose new limitations on deductions, credits or other tax benefits, or make other changes that may adversely affect our business, cash flows or financial performance. In addition, the IRS has yet to issue guidance on a few important issues regarding the changes made by the TCJA and the CARES Act. In the absence of such guidance, we will take positions with respect to several unsettled issues. There is no assurance that the IRS or a court will agree with the positions taken by us, in which case tax penalties and interest may be imposed that could adversely affect our business, cash flows or financial performance.
Other future changes in tax laws or regulations, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities could adversely affect us. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes could affect our financial position and overall or effective tax rates in the future, reduce after-tax returns to our stockholders, and increase the complexity, burden and cost of tax compliance. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Our effective income tax rate can vary significantly between periods due to a few complex factors including, but not limited to, projected levels of taxable income, tax audits conducted and settled by tax authorities, and adjustments to income taxes upon finalization of income tax returns.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2020, we had federal income tax net operating losses (“NOLs”) of approximately $40.8 million available to offset our future taxable income, if any, prior to consideration of annual limitations that may be imposed under Section 382 of the Code, or otherwise. Of our NOLs, $0.2 million of losses will begin to expire in 2037 and $40.6 million of losses can be carried forward indefinitely.
We may be unable to fully use our NOLs, if at all. Under Section 382 of the Code, if a corporation undergoes an “ownership change” (very generally defined as a greater than 50% change, by value, in the corporation’s equity ownership by certain shareholders, or groups of shareholders, who own at least 5% of a company's stock over a rolling three-year period), the corporation’s ability to use its pre-ownership change NOLs to offset its post-ownership change income may be limited. We may have experienced ownership changes in the past, and we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, including this offering, some of which may be outside of our control. If we undergo an ownership change, we may be prevented from fully utilizing our NOLs existing at the time of the ownership change prior to their expiration. Future regulatory changes could also limit our ability to utilize our NOLs. To the extent we are not able to offset future taxable income with our NOLs, our net income and cash flows may be adversely affected.
The TCJA, as modified by the CARES Act, among other things, includes changes to U.S. federal tax rates and the rules governing NOL carryforwards. For federal NOLs arising in tax years beginning after December 31, 2017, the TCJA as modified by the CARES Act limits a taxpayer’s ability to utilize NOL carryforwards in taxable years beginning after December 31, 2020 to 80% of taxable income. In addition, federal NOLs arising in tax years beginning after December 31, 2017 can be carried forward indefinitely, but carryback of NOLs are generally permitted to the prior five taxable years only for NOLs arising in taxable years beginning before 2021 and after 2017. Deferred tax assets for NOLs will need to be measured at the applicable tax rate in effect when the NOLs are expected to be utilized. The new limitation on use of NOLs may significantly impact our ability to utilize our NOLs to offset taxable income in the future. In addition, for state income tax purposes, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. For example, California recently imposed limits on the usability of California state net operating losses to offset taxable income in tax years beginning after 2019 and before 2023, including no two year carryback beginning in 2019 and no carryforward for tax years 2020 through 2022. The NOLs can be computed but not utilized in these periods. Additionally, the state NOLs generally have a definite life carryforward that can affect the ability to utilize all of the state NOLs.
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Unfavorable economic or other business conditions could cause us to record an impairment of all or a portion of our goodwill, other intangible assets and other long-lived assets.
We annually perform impairment tests of the carrying values of our goodwill, other indefinite-lived intangible assets and other long-lived assets. We may also perform an evaluation whenever events may indicate an impairment has occurred. In assessing whether an impairment has occurred, we consider various factors including our long-term prospects, unexpected declines in our market capitalization, negative macroeconomic trends or negative industry and company-specific trends. If we conclude that the carrying values of these assets exceed the fair value, we may be required to record an impairment of these assets. Any substantial impairment that may be required in the future could have a material adverse effect on our results of operations or financial condition.
If our customers were to claim that the title insurance policies they purchased failed to provide adequate or appropriate coverage, we could face claims that could harm our business, results of operations and financial condition.
Although we aim to extend the benefits of coverage provided under each of our title insurance policies, customers could purchase policies that prove to be inadequate or inappropriate. If such customers were to bring a claim or claims alleging that we failed in our responsibilities to provide them with the type or amount of coverage that they sought to purchase, we could be found liable for amounts significantly in excess of the policy limit, resulting in an adverse effect on our business, results of operations and financial condition. While we maintain agents errors and omissions insurance coverage to protect us against such liability, such coverage may be insufficient or inadequate.
Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations.
There can be no assurances that specifically negotiated loss limitations or exclusions in our policies will be enforceable in the manner we intend, or at all. As industry practices and legal, judicial, social and other conditions change, unexpected and unintended issues related to claims and coverage may emerge. While these limitations and exclusions help us assess and mitigate our loss exposure, it is possible that a court or regulatory authority could nullify or void a limitation or exclusion, or legislation could be enacted modifying or barring the use of such limitations or exclusions. These types of governmental actions and court decisions, if issued post-policy, could result in higher than anticipated losses and loss adjustment expenses, which could have a material adverse effect on our financial condition or results of operations by either broadening coverage beyond our underwriting intent or by increasing the frequency or severity of claims. In addition, court decisions, such as the 1995 Montrose decision in California, could read policy exclusions narrowly so as to expand coverage, thereby requiring insurers to create and write new exclusions. Under the insurance laws, the insurer typically has the burden of proving an exclusion applies, and any ambiguities in the terms of a loss limitation or exclusion provision are typically construed against the insurer. These issues may adversely affect our business by either broadening coverage beyond our underwriting intent or by increasing the frequency or severity of claims. In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.
State regulation of the rates we charge for title insurance could adversely affect our results of operations.
Our title insurance subsidiary is subject to extensive rate regulation by the applicable state agencies in the jurisdictions in which they operate. Title insurance rates are regulated differently in various states, with some states requiring the subsidiary to file and receive approval of rates before such rates become effective and some states promulgating the rates that can be charged. In general, premium rates are determined on the basis of historical data for claim frequency and severity as well as related production costs and other expenses. In all states in which our title subsidiary operates, our rates must not be excessive, inadequate or unfairly discriminatory. Premium rates are likely to prove insufficient when ultimate claims and expenses exceed historically projected levels. Premium rate inadequacy may not become evident quickly and may take time to correct, and could adversely affect our business operating results and financial conditions.
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Denial of claims or our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects.
Under the terms of our policies and subject to specific state regulations and on unfair claims settlement practices, we are required to accurately and timely evaluate and pay claims. Our ability to do so depends on a number of factors, including the efficacy of our claims processing, the training and experience of our claims adjusters and our ability to develop or select and implement appropriate procedures and systems to support our claims functions.
An increase in the average time to process claims could lead to customer and partner dissatisfaction and undermine our reputation and position in the title insurance market. If our claims adjusters are unable to effectively process our volume of claims, our ability to grow our business while maintaining high levels of customer and partner satisfaction could be compromised, which in turn, could adversely affect our operating margins. Any failure to pay claims appropriately or timely under the provisions of the policy could also lead to regulatory and administrative actions or other legal proceedings and litigation against us, or result in damage to our reputation, any one of which could materially and adversely affect our business, financial condition, results of operations, and prospects.
Unexpected increases in the volume or severity of claims may adversely affect our results of operations and financial condition.
Our business may experience volatility in claim volume from time to time, and short-term trends may not continue over the longer term. The volume of title insurance claims is subject to cyclical influences from both the real estate and mortgage markets, and changes in claim volume may result from changes in a mix of business, macroeconomic or other factors.
A large portion of our title insurance volume stems from title policies issued to lenders. These policies insure lenders against losses on mortgage loans due to title defects in the collateral property. Even if an underlying title defect exists that could result in a claim, often, the lender must realize an actual loss, or at least be likely to realize an actual loss, for a title insurance liability to exist. As a result, title insurance claims exposure is sensitive to lenders’ losses on mortgage loans and is affected in turn by external factors that affect mortgage loan losses, particularly macroeconomic factors. A general decline in real estate prices can expose lenders to a greater risk of losses on mortgage loans, as loan-to-value ratios increase, and defaults and foreclosures increase. A significant increase in claim volume or the severity of those claims could have an adverse effect on our results of operations and financial condition.
Changes in claim severity are typically driven by limited financing alternatives, declining real estate values and the increase in foreclosures that often results therefrom. While actuarial models for pricing and reserving typically include an expected level of inflation, unanticipated increases in claim severity can arise from events that are inherently difficult to predict. Although we pursue various loss management initiatives to mitigate future increases in claim severity, there can be no assurances that these initiatives will successfully identify or reduce the effect of future increases in claim severity. Moreover, as our business model is nascent, we have limited claims data to evaluate the efficacy of these loss mitigation initiatives.
Our use of third-party agents could adversely impact the frequency and severity of title claims.
We underwrite title insurance policies referred through two principal channels: our Distribution agents (which includes all S&EA partner referrals and affiliated agents) and third-party agents. For the title insurance policies we underwrite for third-party agents, these agents may perform the title search and examination function or the agent may utilize our title and escrow products. In either case, the third-party agent is responsible for ensuring that the search and examination is completed. The third-party agent thus retains the majority of the title premium collected, with the balance remitted to our title underwriter for bearing the risk of loss in the event that a claim is made under the title insurance policy. Our relationship with each third-party agent is governed by an agency agreement defining how the third-party agent issues a title insurance policy on our behalf. The agency agreement also sets forth the third-party agent’s liability to us for policy losses attributable to the third-party agent’s errors. For each third-party agent with whom we enter into an agency agreement, financial and loss experience records are maintained. Periodic
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audits of our agents are also conducted and the number of third-party agents with whom we transact business is strategically managed in an effort to reduce future expenses and manage risks. Despite efforts to monitor the third-party agents with which we transact business, there is no guarantee that a third-party agent will comply with its contractual obligations to us. Furthermore, we cannot be certain that, due to changes in the regulatory environment and litigation trends, we will not be held liable for errors and omissions by third-party agents. Accordingly, our use of third-party agents could adversely impact the frequency and severity of title claims and could expose us to potential liability.
Reinsurance may be unavailable at current levels and prices, which may limit our ability to underwrite new policies. Furthermore, reinsurance subjects us to counterparty risk and may not be adequate to protect us against losses, which could have a material effect on our results of operations and financial condition.
Reinsurance is a contract by which an insurer, which may be referred to as the ceding insurer, agrees with a second insurer, called a reinsurer, that the reinsurer will cover a portion of the losses incurred by the ceding insurer in the event a claim is made under a policy issued by the ceding insurer, in exchange for a premium. Our regulated insurance subsidiary obtains reinsurance to help manage its exposure to title insurance risks. Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured. As a result, reinsurance does not eliminate the obligation of our regulated insurance subsidiary to pay all claims, and we are subject to the risk that one or more of our reinsurers will be unable or unwilling to honor their obligations, that the reinsurers will not pay in a timely fashion, or that our losses are so large that they exceed the limits inherent in our reinsurance treaties, limiting recovery. We are also subject to the risk that, under applicable insurance laws and regulations, we may not be able to take credit for the reinsurance on our financial statements and instead would be required to hold separate admitted assets as reserves to cover claims on the risks that we have ceded to the reinsurer. Our reinsurers may become financially unsound by the time that they are called upon to pay amounts due, which may not occur for many years, in which case we may have no legal ability to recover what is due to us under our agreement with such reinsurer. Any disputes with our reinsurers regarding coverage under reinsurance treatises could be time-consuming, costly and uncertain of success.
Market conditions beyond our control impact the availability and cost of the reinsurance we purchase. No assurances can be made that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as is currently available, as such availability depends in part on factors outside of our control. A new contract may not provide sufficient reinsurance protection. Market forces and external factors, such as significant losses from adverse changes to the real estate market, such as a decline in real estate prices, rise in interest rates or increase in mortgage defaults and foreclosures, or an increase in capital and surplus requirements, impact the availability and cost of the reinsurance we purchase. If we were unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient at acceptable prices, we would have to either accept an increase in our catastrophe exposure, reduce our insurance underwritings, or develop or seek other alternatives.
The unavailability of acceptable reinsurance protection would have a materially adverse impact on our business model, which depends on reinsurance companies to absorb any unfavorable variance from the level of losses anticipated at underwriting. If we are unable to obtain adequate reinsurance at reasonable rates, we would have to increase our risk exposure or reduce the level of our underwriting commitments, each of which could have a material adverse effect upon our business volume and profitability. Alternatively, we could elect to pay higher than reasonable rates for reinsurance coverage, which could have a material adverse effect upon our profitability unless policy premium rates could be raised, in most cases subject to approval by state regulators, to offset this additional cost.
Starting in late February 2021, we reduced the level of reinsurance of policies underwritten using our machine intelligence system from 100% to 25%, which may impact our overall risk profile and financial and capital condition. To the extent we experience higher claim activity than our projections of claim losses and financial impacts thereof, our financial situation and our business may be adversely affected. To the extent we seek to increase our reinsurance coverage in response to such an event, we may be unable to secure additional coverage at acceptable rates and terms or at all. This may have an adverse effect on our financial condition.
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We may be unable to prevent, monitor or detect fraudulent activity, including policy acquisitions or payments of claims that are fraudulent in nature.
If we fail to maintain adequate systems and processes to prevent, monitor and detect fraud, including fraudulent policy acquisitions or claims activity, or if inadvertent errors occur with such prevention, monitoring and detection systems due to human or computer error, our business could be materially adversely impacted. While we believe past incidents of fraudulent activity have been relatively isolated, we cannot be certain that our systems and processes will always be adequate in the face of increasingly sophisticated and ever-changing fraud schemes. We use a variety of tools to protect against fraud, but these tools may not always be successful at preventing such fraud. Instances of fraud may result in increased costs, including possible settlement and litigation expenses, and could have a material adverse effect on our business and reputation.
A downgrade by the ratings agency, reductions in statutory capital and surplus maintained by our title insurance underwriters or a deterioration in other measures of financial strength could adversely affect us.
Certain of our S&EA partners and third-party agencies use measurements of the financial strength of our title insurance underwriters, including, among others, the rating provided by the rating agency Demotech, Inc. and levels of statutory capital and surplus maintained by those underwriters, in determining the amount of a policy they will accept and the amount of reinsurance required. Our title insurance underwriter’s financial strength rating is A’ (A Prime) by Demotech, Inc. The rating provides the agency’s perspectives on the financial strength, operating performance and cash-generating ability of those operations. The agency continually reviews this rating and the rating is subject to change. Statutory capital and surplus, or the amount by which statutory assets exceed statutory liabilities, is also a measure of financial strength. Our title insurance underwriter maintained $49.2 million of total statutory capital and surplus as of March 31, 2021. Accordingly, if the rating or statutory capital and surplus of these title insurance underwriters are reduced from their current levels, or if there is a deterioration in other measures of financial strength, our results of operations, competitive position and liquidity could be adversely affected.
Failure to maintain our risk-based capital at the required levels could adversely affect our ability to maintain regulatory authority to conduct our business.
Our insurance subsidiary is subject to risk-based capital standards, including requirements, prohibitions and limitations applicable to investments, promulgated by South Carolina, its state of domicile, and by New York, where we are not domiciled but expect to be held subject to the risk-based capital regime upon our admission to insure transactions in the state. These laws are based on the risk-based capital regime adopted by the National Association of Insurance Commissioners, or NAIC, and require our regulated subsidiaries to report their results of risk-based capital calculations and investment practices to the departments of insurance. Failure to maintain the minimum risk-based standards could subject our regulated subsidiary to corrective action, including the required submission of a remediation plan, the imposition by the state of a deadline for remediation, or designation by the state that the insurer is in a "hazardous financial condition" and related issuance of an order to nonadmit, limit, dispose of, withdraw from, or discontinue an investment or investment practice. Our insurance subsidiary is currently in compliance with the risk-based capital requirements.
Risks Related to Doma’s Intellectual Property
Our intellectual property rights are valuable, and any inability to obtain, maintain, protect or enforce our intellectual property could reduce the value of our products, services and brand.
Our trade secrets, trademarks, copyrights and other intellectual property rights are important assets for us. We rely on, and expect to continue to rely on, patent, trademark, trade dress, domain name, copyright, and trade secret laws, to protect our brand and other intellectual property rights. In addition, we seek to enter into various agreements with our employees, independent contractors, consultants and third parties with whom we have relationships, pursuant to which such individuals assign intellectual property rights they develop to us and agree to maintain confidentiality of our confidential information. However, we may fail to enter into such agreements with all relevant individuals, such assignments may not be self-executing, and such agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property or technology and or provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property
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or technology. In addition, we may fail to consistently obtain, police and enforce such agreements. Additionally, various factors outside our control pose a threat to our intellectual property rights, as well as to our products, services and technologies. The efforts we have taken to protect our intellectual property rights may not be sufficient or effective, and any of our intellectual property rights, including our issued patents, have in the past and may in the future be challenged in courts or patent offices. The issuance of a patent is not conclusive as to its scope, validity or enforceability and challenges to our intellectual property, including issued patents, could result in their being narrowed in scope or declared invalid or unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology, or limit the duration of the patent protection of our technology platform. As a result, despite our efforts to protect our proprietary rights, there can be no assurance that our patent portfolio and other intellectual property rights will be sufficient to protect against others offering products or services that are substantially similar to ours and compete with our business or that unauthorized parties may attempt to copy aspects of our technology and use information that we consider proprietary.
We have filed, and may continue in the future to file, applications to protect certain of our innovations and intellectual property. We do not know whether any of our applications will result in the issuance of a patent, trademark or copyright, as applicable, or whether the examination process will require us to narrow our claims or otherwise limit the scope of such intellectual property. In addition, we may not receive competitive advantages from the rights granted under our intellectual property. Our existing intellectual property, and any intellectual property granted to us or that we otherwise acquire in the future, may be contested, circumvented or invalidated, and we may not be able to prevent third parties from infringing, misappropriation or otherwise violating our rights to our intellectual property. Therefore, the exact effect of the protection of this intellectual property cannot be predicted with certainty. Because obtaining patent protection requires disclosing our inventions to the public, such disclosure may facilitate our competitors’ developing improvements to our innovations. In addition, given the costs, effort, risks and downside of obtaining patent protection, including the requirement to ultimately disclose the invention to the public, we may choose not to seek patent protection for certain innovations. Any failure to adequately obtain such patent protection, or other intellectual property protection, could later prove to adversely impact our business.
We currently hold various domain names relating to our brand. Failure to protect our domain names could adversely affect our reputation and brand and make it more difficult for users to find our website and our mobile app. We may be unable, without significant cost or at all, to prevent third parties from acquiring domain names that are similar to, infringe upon, or otherwise decrease the value of our trademarks and other proprietary rights.
We may be required to spend significant resources in order to monitor and protect our intellectual property rights, and some violations may be difficult or impossible to detect. Litigation to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could impair the functionality of our products, delay introductions of enhancements to our products, result in our substituting inferior or more costly technologies into our products or harm our reputation or brand. In addition, we may be required to license additional technology from third parties to develop and market new offerings or product features, which may not be on commercially reasonable terms, or at all, and could adversely affect our ability to compete.
Although we take measures to protect our intellectual property, if we are unable to prevent the unauthorized use or exploitation of our intellectual property, the value of our brand, content, and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to current and prospective homeowners, lenders, title agents and real estate professionals may become confused, and our ability to attract customers and partners may be adversely affected. Any inability or failure to protect our intellectual property could adversely impact our business, results of operations and financial condition. While we take precautions designed to protect our intellectual property, it may still be possible for competitors and other unauthorized third parties to copy our technology and use our proprietary brand, content and information to create or enhance competing solutions and services, which could adversely affect our competitive position in our rapidly evolving and highly competitive industry. Some license provisions that protect against unauthorized use, copying, transfer and disclosure of our technology may be unenforceable under the laws of
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certain jurisdictions and foreign countries. While we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with our third-party providers and strategic partners, we cannot assure you that these agreements will be effective in controlling access to, and use and distribution of, our products and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our offerings.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to registered intellectual property rights, such as trademark registrations, we rely on non-registered proprietary information and technology, such as trade secrets, confidential information, know-how and technical information. Certain information or technology that we endeavor to protect as trade secrets may not be eligible for trade secret protection in all jurisdictions, or the measures we undertake to establish and maintain such trade secret protection may be inadequate. In order to protect our proprietary information and technology, we rely in part on agreements with our employees, investors, independent contractors and other third parties that place restrictions on the use and disclosure of this intellectual property. These agreements may not adequately protect our trade secrets, these agreements may be breached, or this intellectual property, including trade secrets, may otherwise be disclosed or become known to our competitors, which could cause us to lose any competitive advantage resulting from this intellectual property. To the extent that our employees, independent contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Current or future legal requirements may require us to disclose certain proprietary information or technology, such as our proprietary data science and machine intelligence algorithms, to regulators or other third parties, including our competitors, which could impair or result in the loss of trade secret protection for such information or technology. The loss of trade secret protection could make it easier for third parties to compete with our products and services by copying functionality. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations and competitive position.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed.
The registered or unregistered trademarks or trade names that we own may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with potential members. In addition, third parties may file, for registration of trademarks similar or identical to our trademarks, thereby impeding our ability to build brand identity and possibly leading to market confusion. If they succeed in registering or developing common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to develop brand recognition of our technologies, products or services. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively, which could adversely impact our business, financial condition and results of operations.
Third parties may allege that we infringe, misappropriate or otherwise violate their intellectual property rights, and we may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business.
We are from time to time subject to intellectual property disputes. Our success depends, in part, on our ability to develop and commercialize our products and services without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. However, we may not be aware that our products or services are infringing, misappropriating or otherwise violating third-party intellectual property rights, and such third parties may bring claims alleging such infringement, misappropriation or violation. For example, there may be issued patents of
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which we are not aware, held by third parties that, if found to be valid and enforceable, could be alleged to be infringed by our current or future technologies or products. There also may be pending patent applications of which we are not aware that may result in issued patents, which could be alleged to be infringed by our current or future technologies or products. Because patent applications can take years to issue and are often afforded confidentiality for some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover our current or future technologies or products.
Lawsuits can be time-consuming and expensive to resolve and can divert management’s time and attention. The industry in which we operate is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights. Companies in the software industry are often required to defend against litigation claims based on allegations of infringement, misappropriation or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims against their use. In addition, many companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them, than we can. In a patent infringement claim against us, we may assert, as a defense, that we do not infringe the relevant patent claims, that the patent is invalid, or both. The strength of our defenses may depend on the patents asserted, the interpretation of these patents, or our ability to invalidate the asserted patents. However, we could be unsuccessful in advancing non-infringement and/or invalidity arguments in our defense. In the United States, issued patents enjoy a presumption of validity, and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden of proof. Conversely, the patent owner need only prove infringement by a preponderance of the evidence, which is a lower burden of proof. We do not currently have a large patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. Any litigation may also involve patent holding companies or other adverse patent owners that have no relevant product revenue, and therefore, our patents may provide little or no deterrence as we would not be able to assert them against such entities or individuals.
An adverse result in any infringement or misappropriation proceeding could subject us to significant damages, injunctions and reputational harm. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we may be forced to limit or stop sales of our relevant products and technology capabilities or cease business activities related to such intellectual property. We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial condition or results of operations. Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:
cease selling or using products or services that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate;
make substantial payments for legal fees, settlement payments or other costs or damages;
obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology;
redesign the allegedly infringing products to avoid infringement, misappropriation or violation, which could be costly, time-consuming or impossible
rebrand our products and services and/or be prevented from selling some of our products or services if third parties successfully oppose or challenge our trademarks or successfully claim that we infringe, misappropriate or otherwise violate their trademarks or other intellectual property rights, and/or
limit the manner in which we use our brands.
Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results. Moreover, there could be public announcements of the results of hearings, motions or other
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interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of New Doma Common Stock. The occurrence of infringement and misappropriation claims may grow as the market for our platform and products grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. Any of the foregoing could adversely impact our business, financial condition and results of operations.
We employ third-party licensed software for use in our business, and the inability to maintain these licenses, errors in the software we license or the terms of open source licenses could result in increased costs or reduced service levels, which would adversely affect our business.
Our business relies on certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of new third-party software may require significant work and require substantial investment of our time and resources. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties, which may not be available on commercially reasonable terms or at all. Many of the risks associated with the use of third-party software cannot be eliminated, and these risks could negatively affect our business.
If we fail to comply with any of the obligations under our license agreements, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor would cause us to lose valuable rights, and could prevent us from selling our products and services, or inhibit our ability to commercialize future products and services. Our business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed intellectual property rights against infringing third parties, if licensed intellectual property is found to be invalid or unenforceable or if we are unable to enter into necessary licenses on acceptable terms. In addition, our rights to certain technologies, are licensed to us on a non-exclusive basis. The owners of these non-exclusively licensed technologies are therefore free to license them to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage. In addition, the agreements under which we license intellectual property or technology from third parties are generally complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Any of the foregoing could adversely impact our business, financial condition and results of operations.
Additionally, the software powering our technology systems incorporates software covered by open source licenses. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to operate our systems. In the event that portions of our proprietary software are determined to be subject to certain open source licenses, we could be required to publicly release the affected portions of our source code or re-engineer all or a portion of our technology systems, each of which could reduce or eliminate the value of our technology systems. Moreover, we cannot ensure that we have not incorporated additional open source software in our products in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. Such risk could be difficult or impossible to eliminate and could adversely affect our business, financial condition, and results of operations.
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INFORMATION ABOUT THE PARTIES TO THE BUSINESS COMBINATION
Capitol
Capitol is a blank check company whose business purpose is to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. For more information regarding Capitol, see the section “Other Information Related to Capitol” beginning on page 151.
Merger Sub
Merger Sub is a wholly owned subsidiary of Capitol formed solely for the purpose of effecting the Business Combination. Merger Sub was incorporated under the laws of Delaware on February 26, 2021. Merger Sub owns no material assets and does not operate any business.
Doma
Doma Holdings, Inc., formerly known as States Title Holding, Inc., was founded in 2016 to focus top tier data scientists, product managers, and engineers on building game-changing technology to completely reimagine the residential real estate closing process. Doma’s approach to the title and escrow process is driven by its innovative full stack platform, Doma Intelligence. Doma Intelligence is the result of significant investment in research and development over more than four years across a team of more than 100 people, creating a revolutionary new end-to-end closing platform that seeks to eliminate all of the latent, manual tasks involved in underwriting title insurance, performing core escrow functions, generating closing documentation and getting documents signed and recorded. The platform harnesses the power of data analytics, machine learning and natural language processing, which will enable Doma to deliver a cheaper and faster closing transaction with a seamless customer experience at every point in the process. Doma’s machine intelligence algorithms are being trained and optimized on 30 years of historical anonymized closing transaction data to make underwriting decisions in less than a minute and significantly reduce the time, effort and cost of the entire process.
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THE SPECIAL MEETING
Overview
This proxy statement/prospectus is being provided to Capitol Stockholders as part of a solicitation of proxies by the board of directors of Capitol for use at the Special Meeting to be convened on                   , 2021 and at any adjournments or postponements of such meeting. This proxy statement/prospectus is being furnished to Capitol Stockholders on or about                   , 2021. In addition, this proxy statement/prospectus constitutes a prospectus for New Doma in connection with the issuance by New Doma of common stock to be delivered to Doma Stockholders in connection with the Business Combination.
Date, Time and Place of the Special Meeting
The Special Meeting will be a virtual meeting conducted exclusively via live webcast starting at         a.m., New York City time, on                   , 2021, or at such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the proposals. Stockholders may attend the special meeting online, vote, view the list of stockholders entitled to vote at the special meeting and submit your questions during the special meeting by visiting https://www.cstproxy.com/capinvestmentcorpv/sm2021 and entering your 12-digit control number, which is either included on the proxy card you received or obtained through Continental Stock Transfer & Trust Company. You may also attend the meeting telephonically by dialing 1-877-770-3647 (toll-free within the United States and Canada) or +1 312-780-0854 (outside of the United States and Canada, standard rates apply). The passcode for telephone access is 67815312#, but please note that you will not be able to vote or ask questions if you choose to participate telephonically. Because the special meeting is completely virtual and being conducted via live webcast, stockholders will not be able to attend the meeting in person.
Proposals
At the Special Meeting, Capitol Stockholders will vote upon:
the Business Combination Proposal;
the Charter Proposal;
the Advisory Charter Proposals;
the Stock Issuance Proposal;
the Incentive Plan Proposal;
the ESPP Proposal;
the Director Election Proposal; and
the Adjournment Proposal.
THE CAPITOL BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE BUSINESS COMBINATION PROPOSAL AND THE OTHER PROPOSALS TO BE PRESENTED AT THE SPECIAL MEETING ARE IN THE BEST INTERESTS OF AND ADVISABLE TO THE CAPITOL STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE PROPOSALS DESCRIBED ABOVE.
Record Date; Outstanding Shares; Shares Entitled to Vote
Capitol has fixed the close of business on June 8, 2021 as the “record date” for determining Capitol Stockholders entitled to notice of and to attend and vote at the Special Meeting. As of the close of business on June 8, 2021, there were 43,125,000 shares of Capitol Common Stock outstanding and entitled to vote. Each share of Capitol Common Stock is entitled to one vote per share at the Special Meeting.
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Quorum
A quorum of Capitol Stockholders is necessary to hold a valid meeting. A quorum will exist at the Special Meeting with respect to each matter to be considered at the Special Meeting if the holders of a majority of shares of Capitol Common Stock are present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting. All shares represented by proxy are counted as present for purposes of establishing a quorum.
Vote Required and Capitol Board Recommendation
The Business Combination Proposal
Capitol Stockholders are being asked to consider and vote on a proposal to adopt the Merger Agreement and thereby approve the Business Combination. You should carefully read this proxy statement/prospectus in its entirety for more detailed information concerning the Business Combination. In particular, your attention is directed to the full text of the Merger Agreement and Amendment No. 1 to the Merger Agreement, which are attached as Annex A-1 and Annex A-2, respectively, to this proxy statement/prospectus.
Approval of the Business Combination Proposal requires the affirmative vote of a majority of the votes cast by Capitol Stockholders present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting and entitled to vote thereon. Abstentions and broker non-votes have no effect on the outcome of the proposal. The Business Combination cannot be completed unless the Business Combination Proposal is adopted by the affirmative vote of a majority of the votes cast by Capitol Stockholders present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting and entitled to vote thereon. Capitol Stockholders of the Class A Common Stock and Stockholders of the Class B Common Stock will vote together as a single class on all matters submitted to a vote of our stockholders, except as required by law.
THE CAPITOL BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE BUSINESS COMBINATION PROPOSAL.
The Charter Proposal
Approval of the Charter Proposal requires the affirmative vote of a majority of the outstanding shares of Capitol Common Stock, voting together as a single class. Abstentions and broker non-votes have the same effect as a vote “AGAINST” the proposal.
THE CAPITOL BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE CHARTER PROPOSAL.
The Advisory Charter Proposals
Approval of each of the Advisory Charter Proposals, each of which is a non-binding vote, requires the affirmative vote of a majority of the votes cast by Capitol Stockholders present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting and entitled to vote thereon. Abstentions and broker non-votes have no effect on the outcome of the proposal.
THE CAPITOL BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY CHARTER PROPOSALS.
The Stock Issuance Proposal
Approval of the Stock Issuance Proposal requires the affirmative vote of a majority of the votes cast by Capitol Stockholders present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting and entitled to vote thereon. Broker non-votes have no effect on the outcome of the proposal but, for purposes of NYSE rules, abstentions will have the same effect as votes “AGAINST” this proposal.
THE CAPITOL BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE STOCK ISSUANCE PROPOSAL.
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The Incentive Plan Proposal
Approval of the Incentive Plan Proposal requires the affirmative vote of a majority of the votes cast by Capitol Stockholders present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting and entitled to vote thereon. Broker non-votes have no effect on the outcome of the proposal but, for purposes of NYSE rules, abstentions will have the same effect as votes “AGAINST” this proposal.
THE CAPITOL BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE INCENTIVE PLAN PROPOSAL.
The ESPP Proposal
Approval of the ESPP Proposal requires the affirmative vote of a majority of the votes cast by Capitol Stockholders present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting and entitled to vote thereon. Broker non-votes have no effect on the outcome of the proposal but, for purposes of NYSE rules, abstentions will have the same effect as votes “AGAINST” this proposal.
THE CAPITOL BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ESPP PROPOSAL.
Adjournment Proposal
If the chairman of the Special Meeting does not adjourn the Special Meeting, Capitol Stockholders may be asked to vote on a proposal to adjourn the Special Meeting, or any postponement thereof, to another time or place if necessary or appropriate (i) due to the absence of a quorum at the Special Meeting, (ii) to prevent a violation of applicable law, (iii) to provide to Capitol Stockholders any supplement or amendment to this proxy statement/prospectus and/or (iv) to solicit additional proxies if Capitol reasonably determines that it is advisable or necessary to do so in order to obtain Capitol stockholder approval for the Merger Agreement and thereby approval of the Business Combination.
Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by Capitol Stockholders present in person (which would include presence at the virtual Special Meeting) or represented by proxy at the Special Meeting and entitled to vote thereon. Abstentions and broker non-votes have no effect on the outcome of the proposal.
THE CAPITOL BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ADJOURNMENT PROPOSAL.
Voting Your Shares
Capitol Stockholders may vote electronically at the Special Meeting by visiting https://www.cstproxy.com/capinvestmentcorpv/sm2021 or by proxy. Capitol recommends that you submit your proxy even if you plan to attend the Special Meeting. If you vote by proxy, you may change your vote by submitting a later dated proxy before the deadline or by voting electronically at the Special Meeting.
If your Capitol Common Stock are owned directly in your name with our transfer agent, Continental Stock Transfer & Trust Company, you are considered, with respect to those shares, the “stockholder of record.” If your shares are held in a stock brokerage account or by a bank or other nominee or intermediary, you are considered the beneficial owner of shares held in “street name” and are considered a “non-record (beneficial) stockholder.”
If you are a Capitol Stockholder of record you may use the enclosed proxy card to tell the persons named as proxies how to vote your shares. If you properly complete, sign and date your proxy card, your shares will be voted in accordance with your instructions. The named proxies will vote all shares at the meeting for which proxies have been properly submitted and not revoked. If you sign and return your proxy card but do not mark your card to tell the proxies how to vote, your shares will be voted “FOR” the proposals to adopt the Merger Agreement and the other proposals presented at the Special Meeting.
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Your shares will be counted for purposes of determining a quorum if you vote:
by submitting a properly executed proxy card or voting instruction form by mail; or
electronically at the Special Meeting.
Abstentions will be counted for determining whether a quorum is present for the Special Meeting.
Voting instructions are printed on the proxy card or voting information form you received. Either method of submitting a proxy will enable your shares to be represented and voted at the Special Meeting.
Voting Shares Held in Street Name
If your Capitol Common Stock are held in an account through a broker, bank or other nominee or intermediary, you must instruct the broker, bank or other nominee how to vote your shares by following the instructions that the broker, bank or other nominee provides you along with this proxy statement/prospectus. Your broker, bank or other nominee may have an earlier deadline by which you must provide instructions to it as to how to vote your Capitol Common Stock, so you should read carefully the materials provided to you by your broker, bank or other nominee or intermediary.
If you do not provide voting instructions to your bank, broker or other nominee or intermediary, your shares will not be voted on any proposal on which your bank, broker or other nominee does not have discretionary authority to vote. In these cases, the bank, broker or other nominee or intermediary will not be able to vote your shares on those matters for which specific authorization is required. Brokers do not generally have discretionary authority to vote on any of the proposals.
Broker non-votes are shares held by a broker, bank or other nominee or intermediary that are present or represented by proxy at the Special Meeting, but with respect to which the broker, bank or other nominee or intermediary is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the broker does not generally have voting power on such proposal. Because brokers, banks and other nominees or intermediaries do not generally have discretionary voting with respect to any of the proposals, if a beneficial owner of Capitol Common Stock held in “street name” does not give voting instructions to the broker, bank or other nominee for any proposal, then those shares will not be present or represented by proxy at the Special Meeting.
Revoking Your Proxy
If you are a Capitol Stockholder of record, you may revoke your proxy at any time before it is voted at the Special Meeting by:
timely delivering a written revocation letter to the Corporate Secretary of Capitol;
signing and returning by mail a proxy card with a later date so that it is received prior to the Special Meeting; or
attending the Special Meeting and voting electronically by visiting the website established for that purpose at https://www.cstproxy.com/capinvestmentcorpv/sm2021 and entering the 12-digit control number found on your proxy card, voting instruction form or notice you previously received. Attendance at the Special Meeting will not, in and of itself, revoke a proxy.
If you are a non-record (beneficial) Capitol Stockholder, you should follow the instructions of your bank, broker or other nominee regarding the revocation of proxies.
Share Ownership and Voting by Capitol’s Officers and Directors
As of the record date, the Capitol directors and officers and their affiliates had the right to vote 8,625,000 shares of Capitol Common Stock, representing approximately 20% of the shares of Capitol Common Stock then outstanding and entitled to vote at the meeting. Capitol’s Sponsors and its executive officers directors at the time of its initial public offering have entered into a letter agreement with us to vote “FOR” the approval of the Business
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Combination Proposal, and we expect them to vote “FOR” the approval of the Charter Proposal, “FOR” the approval, on an advisory basis, of each of the Advisory Charter Proposals, “FOR” the approval of the Stock Issuance Proposal, “FOR” the approval of the Incentive Plan Proposal and “FOR” the approval of the Adjournment Proposal.
Redemption Rights
Public stockholders may seek to redeem the public shares that they hold, regardless of whether they vote for or against the proposed Business Combination or do not vote at the Special Meeting. Any public stockholder may request redemption of their public shares for a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, calculated as of two business days prior to the consummation of the Business Combination, including interest earned on the funds held in the Trust Account and not previously released to us to fund our working capital requirements (subject to an aggregate limit of $100,000) and/or to pay our taxes, divided by the number of then issued and outstanding public shares. If a holder properly seeks redemption as described in this section and the Business Combination is consummated, the holder will no longer own these shares following the Business Combination.
Notwithstanding the foregoing, a public stockholder, together with any affiliate of such holder or any other person with whom such holder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking redemption rights with respect to 20% or more of the shares of the public shares. Accordingly, if a public stockholder, alone or acting in concert or as a group, seeks to redeem more than 20% of the public shares, then any such shares in excess of that 20% limit would not be redeemed for cash.
Capitol’s Sponsors will not have redemption rights with respect to any shares of Capitol Common Stock owned by them, directly or indirectly.
You will be entitled to receive cash for any public shares to be redeemed only if you:
hold public shares or hold public shares through units and you elect to separate your units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares; and
prior to 12:00 p.m., New York City time, on                  , 2021, (a) submit a written request, including the legal name, phone number and address of the beneficial owner of the shares for which redemption is requested, to the transfer agent that Capitol redeem your public shares for cash and (b) deliver your public shares to the transfer agent, physically or electronically through DTC.
If you hold the shares in street name, you will have to coordinate with your broker to have your shares certificated or delivered electronically. Public shares that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash. There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the tendering broker $80 and it would be up to the broker whether or not to pass this cost on to the redeeming public stockholder. In the event the proposed Business Combination is not consummated this may result in an additional cost to stockholders for the return of their public shares.
Holders of units must elect to separate the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If holders hold their units in an account at a brokerage firm or bank, holders must notify their broker or bank that they elect to separate the units into the underlying public shares and public warrants, or if a holder holds units registered in its own name, the holder must contact the transfer agent, directly and instruct them to do so.
Any request to redeem public shares, once made, may be withdrawn at any time until the deadline for submitting redemption requests and thereafter, with Capitol’s consent, until the Closing. Furthermore, if a holder of a public share delivers its certificate in connection with an election of its redemption and subsequently decides prior to the deadline for submitting redemption requests not to elect to exercise such rights, it may simply request that Capitol instruct the transfer agent to return the certificate (physically or electronically). The holder can make such request by contacting the transfer agent, at the address or email address listed in this proxy statement/prospectus.
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If the Business Combination is not approved or completed for any reason, then public stockholders who elected to exercise their redemption rights will not be entitled to redeem their shares. In such case, Capitol will promptly return any public shares previously delivered by public holders.
For illustrative purposes, the cash held in the Trust Account on March 31, 2021 was $345.0 million, or $10.00 per public share. Prior to exercising redemption rights, public stockholders should verify the market price of shares of Capitol Common Stock as they may receive higher proceeds from the sale of their shares of Capitol Common Stock in the public market than from exercising their redemption rights if the market price per share is higher than the redemption price. Capitol cannot assure its stockholders that they will be able to sell their shares of Capitol Common Stock in the open market, even if the market price per share is higher than the redemption price stated above, as there may not be sufficient liquidity in its securities when its stockholders wish to sell their shares.
If a public stockholder exercises its redemption rights, then it will be exchanging its redeemed public shares for cash and will no longer own those public shares. You will be entitled to receive cash for your public shares only if you properly exercise your right to redeem your public shares and deliver your Capitol Common Stock (either physically or electronically) to the transfer agent, in each case prior to           p.m., New York City time, on                   , 2021, the deadline for submitting redemption requests, and the Business Combination is consummated.
Immediately following the Closing, New Doma will pay public stockholders who properly exercised their redemption rights in respect of their public shares.
Appraisal Rights
Neither Capitol Stockholders nor Capitol warrant holders have appraisal rights in connection with the Business Combination under the DGCL.
Potential Purchases of Shares and/or Public Warrants
At any time prior to the Special Meeting, during a period when they are not then aware of any material nonpublic information regarding Capitol or its securities, the Sponsors, New Doma and/or its affiliates and may purchase shares and/or warrants from investors, or they may enter into transactions with such investors and others to provide them with incentives to acquire shares of Capitol Common Stock or vote their shares of Capitol Common Stock in favor of the Business Combination Proposal. The purpose of such share purchases and other transactions would be to increase the likelihood that (i) the proposals presented for approval at the Special Meeting are approved and/or (ii) Capitol satisfies the Minimum Proceeds Condition. Any such stock purchases and other transactions may thereby increase the likelihood of obtaining stockholder approval of the Business Combination. This may result in the completion of our Business Combination in a way that may not otherwise have been possible. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting of put options and the transfer to such investors or holders of shares or rights owned by the Sponsors for nominal value.
Costs of Solicitation
Capitol will bear the cost of soliciting proxies from Capitol Stockholders.
Capitol will solicit proxies by mail. In addition, the directors, officers and employees of Capitol may solicit proxies from Capitol Stockholders by telephone, electronic communication, or in person, but will not receive any additional compensation for their services. Capitol will make arrangements with brokerage houses and other custodians, nominees, and fiduciaries for forwarding proxy solicitation material to the beneficial owners of shares of Capitol Common Stock held of record by those persons and will reimburse them for their reasonable out-of-pocket expenses incurred in forwarding such proxy solicitation materials.
Capitol has engaged a professional proxy solicitation firm, Morrow Sodali LLC, to assist in soliciting proxies for the Special Meeting. Capitol has agreed to pay Morrow Sodali LLC a fee of $32,500, plus disbursements. Capitol will reimburse Morrow Sodali LLC for reasonable out-of-pocket expenses and will indemnify Morrow Sodali LLC
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and its affiliates against certain claims, liabilities, losses, damages and expenses. Capitol will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of Capitol Common Stock for their expenses in forwarding soliciting materials to beneficial owners of Capitol Common Stock and in obtaining voting instructions from those owners. Capitol’s management team may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.
Other Business
Capitol is not aware of any other business to be acted upon at the Special Meeting. If, however, other matters are properly brought before the Special Meeting, the proxies will have discretion to vote or act on those matters according to their best judgment and they intend to vote the shares as the Capitol Board of Directors may recommend.
Attendance
Only Capitol Stockholders on the record date or persons holding a written proxy for any stockholder or account of Capitol as of the record date may attend the Special Meeting. The Special Meeting will be held in a virtual meeting format only. You will not be able to attend the Special Meeting physically. If you hold your shares of Capitol Common Stock in your name as a stockholder of record and you wish to attend the Special Meeting, please visit https://www.cstproxy.com/capinvestmentcorpv/sm2021 and enter the 12-digit control number found on your proxy card. If your shares of Capitol Common Stock are held in “street name” in a stock brokerage account or by a bank, broker or other holder of record and you wish to attend the Special Meeting, you must obtain a legal proxy from the bank, broker or other holder of record in order to vote your shares electronically at the Special Meeting. You may also attend the meeting telephonically by dialing 1-877-770-3647 (toll-free within the United States and Canada) or +1 312-780-0854 (outside of the United States and Canada, standard rates apply). The passcode for telephone access is 67815312#, but please note that you will not be able to vote or ask questions if you choose to participate telephonically.
Assistance
If you need assistance in completing your proxy card or have questions regarding the Special Meeting, please contact Morrow Sodali LLC, the proxy solicitation agent for Capitol, by calling (800) 662-5200, or banks and brokers can call collect at (203) 658-9400, or by emailing CAP.info@investor.morrowsodali.com, or contact L. Dyson Dryden, Capitol’s President and Chief Financial Officer at (202) 654-7060.
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PROPOSAL NO. 1 – THE BUSINESS COMBINATION PROPOSAL
The discussion in this proxy statement/prospectus of the Business Combination and the principal terms of the Merger Agreement is subject to, and is qualified in its entirety by reference to, the Merger Agreement. Copies of the Merger Agreement and Amendment No. 1 to the Merger Agreement are attached as Annex A-1 and Annex A-2, respectively, to this proxy statement/prospectus.
General
Structure of the Transactions
Pursuant to the Merger Agreement, Merger Sub will merge with and into Doma, with Doma surviving the Business Combination. Upon consummation of the foregoing transactions, Doma will be the wholly owned subsidiary of New Doma. In addition, New Doma will amend and restate its Current Certificate of Incorporation to be the Proposed Certificate of Incorporation and amend and restate its Current Bylaws to be the Proposed Bylaws.
Consideration to Doma Stockholders
Under the Merger Agreement, Capitol has agreed to acquire all of the outstanding equity interests of Doma (A) at a Per Share Merger Consideration Value equal to $2.917 billion, divided by the aggregate number of shares of Doma Common Stock, Doma Preferred Stock, vested options to acquire Doma Common Stock (on a net exercise basis) and warrants to acquire Doma Capital Stock (on a net exercise basis), plus (B) the contingent right to receive certain Earnout Shares.
Subject to the cash elections described below, at the Effective Time, each outstanding share of Doma Common Stock (and each share of Doma Preferred Stock, which will automatically convert into shares of Doma Common Stock immediately prior to the Effective Time) will be converted into the right to receive (A) shares of New Doma Common Stock equal to the exchange ratio and (B) the contingent right to receive certain Earnout Shares.
Certain Doma Stockholders and option holders will have the right to elect to receive a portion of their consideration in the form of cash in lieu of shares of common stock of New Doma Common Stock or options to acquire New Doma Common Stock, as the case may be, subject to proration if the aggregate cash consideration to satisfy all cash elections exceeds or is less than the Secondary Available Cash Consideration (as defined in the Merger Agreement). If the eligible Doma Stockholders and option holders elect to receive an aggregate amount of cash that is greater than the Secondary Available Cash Consideration, the amount of cash to be paid to each Doma Stockholder or option holder that elected to receive cash will be adjusted downward on a pro rata basis and each such Doma Stockholder or option holder will receive a proportionate number of additional shares of New Doma Common Stock so that such stockholder or option holder receives their respective appropriate total aggregate merger consideration.
At the Effective Time of the Business Combination, each outstanding Doma Option that is outstanding and unexercised and that is not converted into cash pursuant to a cash election as described above, whether or not then vested or exercisable, will be assumed by New Doma and will be converted into (A) an option to acquire New Doma Common Stock with the same terms and conditions as applied to the Doma Option immediately prior to the effective time provided that the number of shares underlying such New Doma Option will be determined by multiplying the number of shares of Doma Common Stock subject to such option immediately prior to the Effective Time, by the exchange ratio, which product shall be rounded down to the nearest whole number of shares, and the per share exercise price of such New Doma option will be determined by dividing the per share exercise price immediately prior to the Effective Time by the exchange ratio, which quotient shall be rounded down to the nearest whole cent and (B) the contingent right to receive certain Option Earnout Shares; provided that unvested Doma Options shall be entitled to the Option Earnout Shares only to the extent that the corresponding converted option is not forfeited prior to the issuance of the applicable Option Earnout Shares; provided, further that certain holders of Doma Options will have the option to elect to receive the amount of cash consideration received by Doma Stockholders described above (subject to the limitations as described in the Merger Agreement).
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At the Effective Time, each outstanding share of restricted Doma Common Stock will be converted into (i) an award with respect to a number of restricted shares of New Doma Common Stock, which shall continue to have, and shall be subject to, the same terms and conditions as applied to the award of such restricted share of Doma Common Stock immediately prior to the Effective Time (but taking into account any changes thereto provided for in the Doma 2019 Equity Incentive Plan) equal to the number of Doma Restricted Shares subject to award immediately prior to the Effective Time multiplied by the exchange ratio and (ii) the contingent right to receive certain Restricted Stock Earnout Shares; provided that holders of restricted Doma Common Stock shall be entitled to the Restricted Stock Earnout Shares only to the extent that the corresponding shares of restricted Doma common stock are not forfeited prior to the issuance of the applicable Restricted Stock Earnout Shares.
Prior to the Effective Time, Doma Warrants to purchase approximately 4.8 million shares of Doma Capital Stock are expected to be exercised for cash, and will receive, at the Effective Time, the same consideration per share as holders of Doma Common Stock. At the Effective Time, Doma Warrants to purchase approximately 0.7 million shares of Doma Capital Stock are expected to be converted into the right to receive a number of shares of New Doma Common Stock determined by multiplying the number of shares of Doma Common Stock subject to such Doma Warrants immediately prior to the effective time, by the exchange ratio, plus the right to receive a certain portion of Earnout Shares. At the Effective Time, Doma Warrants to purchase approximately 0.1 million shares of Doma Capital Stock are expected to be converted into warrants exercisable for shares of New Doma Common Stock on the same terms and conditions as applied to the existing Doma Warrants, plus the right to receive a certain portion of Earnout Shares.
As of June 4, 2021, Doma had outstanding (i) 11,010,181 shares of Doma Common Stock, which includes 204,985 shares subject to vesting, (ii) 35,368,122 shares of Doma Preferred Stock, (iii) warrants to purchase 838,456 shares of Doma Capital Stock at a weighted average exercise price of approximately $1.34 per share, and (iv) 4,572,528 options to acquire Doma Common Stock, of which 1,365,817 were vested, with a weighted average exercise price of approximately $2.65 per share, and 3,206,711 were unvested, with a weighted average exercise price of approximately $3.72 per share.
Consideration to Capitol Holders
Upon consummation of the Transactions, (i) each outstanding share of Class A Common Stock of Capitol will automatically convert into one share of New Doma Common Stock, (ii) the outstanding warrants to purchase common shares of Capitol will automatically convert into warrants to purchase shares of Capitol Common Stock and (iii) each outstanding share of Class B Common Stock of Capitol will automatically convert into one share of New Doma Common Stock.
Pro Forma Ownership of Capitol Holders
At the closing of the Transactions, current public Capitol Stockholders are expected to hold approximately 10% of the issued and outstanding common stock of New Doma (assuming no holder of public shares exercises redemption rights) and the Sponsors are expected to hold approximately 2% of the issued and outstanding common stock of New Doma.
After consideration of the factors identified and discussed in the section “The Business Combination Proposal—The Capitol Board of Directors’ Reasons for Approval of the Transactions,” the Capitol Board of Directors concluded that the Transactions met all of the requirements disclosed in the prospectus for its initial public offering, including that such business had a fair market value of at least 80% of the balance of the funds in the Trust Account at the time of execution of the Merger Agreement (excluding the deferred underwriting commissions). See the section “The Business Combination Proposal—General” for more information.
Earnout Shares
Additional shares of New Doma Common Stock will be payable to each holder of Doma Common Stock (after giving effect to the Conversion and including Doma Restricted Shares), Doma Options (whether vested or unvested)
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or Doma Warrants, in each case, as of immediately prior to the Effective Time with an Earnout Pro Rata Portion in excess of zero (each such holder, an “Earnout Participant”), as follows:
First Share Price Milestone. If the closing share price of New Doma Common Stock equals or exceeds $15.00 per share for any 20 trading days within any consecutive 30-trading day period beginning on or after the Closing Date and ending on or before to the five-year anniversary of the Closing Date (the “First Share Price Milestone”), New Doma will issue to each Earnout Participant a number of shares of New Doma Common Stock equal to such participant’s Earnout Pro Rata Portion of 2.5% of the Earnout Fully Diluted Shares (as defined below) (the “First Earnout Shares”).
Second Share Price Milestone. If the closing share price of New Doma Common Stock equals or exceeds $17.50 per share for any 20 trading days within any consecutive 30-trading day period beginning on or after the Closing Date and ending on or before the five-year anniversary of the Closing Date (the “Second Share Price Milestone” and, together with the First Share Price Milestone, the “Earnout Milestones”), New Doma will issue to each Earnout Participant a number of shares of New Doma Common Stock equal to such participant’s Earnout Pro Rata Portion of 2.5% of the Earnout Fully Diluted Shares (the “Second Earnout Shares” and, together with the First Earnout Shares, the “Earnout Shares”).
In the event that within the five-year anniversary of the Closing Date, there is an Earnout Strategic Transaction (as defined in the Merger Agreement) (or a definitive agreement providing for an Earnout Strategic Transaction that has been entered into), then (i) if the per share value of consideration to be received by holders of the New Doma Common Stock in such Earnout Strategic Transaction equals or exceeds $15.00 per share and the First Share Price Milestone has not been previously achieved, then the First Share Price Milestone will be deemed to have been achieved and (ii) if the per share value of the consideration to be received in such Earnout Strategic Transaction equals or exceeds $17.50 per share and the Second Share Price Milestone has not been previously achieved, then the Second Share Price Milestone will be deemed to have been achieved; and if the First Share Price Milestone or Second Share Price is deemed achieved pursuant to clauses (i) and (ii), as applicable, the Earnout Shares will be issued immediately prior to the consummation of the Earnout Strategic Transaction.
The following terms will have the meaning ascribed to it below:
“Earnout Pro Rata Portion” means, with respect to:
a.each holder of outstanding shares of Doma Common Stock (after giving effect to the Conversion but excluding Company Restricted Shares) as of immediately prior to the Effective Time, a fraction expressed as a percentage equal to (i) the amount of New Doma stock consideration that such holder would be eligible to receive if such holder made a stock election for all of such holder’s shares of Doma Capital Stock divided by (ii) the sum of (w) the amount of New Doma stock consideration that all holders of Doma Capital Stock as of immediately prior to the Effective Time would be eligible to receive if all such holders made a stock election for all of such holder’s shares of Doma Capital Stock, plus (x) the total number of shares of New Doma Common Stock issued or issuable upon the exercise of the Doma Options as of immediately following the Effective Time (whether vested or unvested, and on a cash exercise basis and determined as if all holders of Doma Options made a stock election for all of such holders’ cash eligible options), plus (y) the total number of shares of New Doma Common Stock represented by Exchanged Restricted Stock as of immediately following the Effective Time; and plus (z) the total number of shares of New Doma Common Stock issued or issuable upon the exercise of the New Doma Warrants as of immediately following the Effective Time (on a cash exercise basis) (this clause (ii), the “Earnout Denominator”);
b.each holder of Doma Options (whether vested or unvested) as of immediately prior to the Effective Time, a fraction expressed as a percentage equal to (i) the number of shares of Doma Common Stock issued or issuable upon exercise of such holder’s New Doma Options as of immediately following the Effective Time (on a cash exercise basis and determined as if all holders of Doma Options made a stock election for all of such holders’ cash eligible options), divided by (ii) the Earnout Denominator;
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c.each holder of Exchanged Restricted Stock as of immediately following the Effective Time, a fraction expressed as a percentage equal to (i) the number of shares of Exchanged Restricted Stock as of immediately following the Effective Time, divided by (ii) the Earnout Denominator; and
d.each holder of New Doma Warrants as of immediately following the Effective Time, a fraction expressed as a percentage equal to (i) the number of shares of New Doma Common Stock issued or issuable upon the exercise of such holder’s New Doma Warrant as of immediately following the Effective Time (on a cash exercise basis), divided by (ii) the Earnout Denominator.
“Earnout Fully Diluted Shares” means the sum of (i) the aggregate number of outstanding shares of New Doma Common Stock (including Exchanged Restricted Stock, but excluding Sponsor Covered Shares), plus (ii) the maximum number of shares underlying New Doma Options that are vested (calculated on a net exercise basis and assuming, for this purpose, a price per share of New Doma Common Stock of $10.00) and the maximum number of shares underlying New Doma Warrants (calculated on a net exercise basis and assuming, for this purpose, a price per share of New Doma Common Stock of $10.00), in each case of these clauses (i) and (ii), as of immediately following Closing and, for the avoidance of doubt, after giving effect to all redemptions and any forfeiture pursuant to the Sponsor Support Agreement.
Sale Restrictions
In connection with the initial public offering, the holders of Capitol’s initial shares entered into a lock-up agreement pursuant to which they agreed not to transfer the initial shares (subject to limited exceptions) until one year after the consummation of an initial business combination or earlier if, subsequent to the consummation of an initial business combination, (i) the last sales price of Capitol’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial business combination or (ii) Capitol (or any successor entity) consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
The Private Placement
Capitol entered into the Subscription Agreements with the PIPE Investors, pursuant to which, among other things, Capitol agreed to issue and sell in private placements an aggregate of 30,000,000 shares of New Doma Common Stock to the PIPE Investors for $10.00 per share. The Private Placement is expected to close substantially concurrently with the consummation of the Business Combination.
Background of the Transactions
Capitol was originally formed as a Cayman Islands exempted company on May 1, 2017. In May 2019, Capitol was redomesticated from the Cayman Islands to the state of Delaware. Capitol was formed for the purpose of effecting a merger, stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities. The business combination with Doma is the result of an extensive search for a potential transaction utilizing the global network and investing and transaction experience of our management team and board of directors. The terms of the Merger Agreement are the result of arm’s-length negotiations between representatives of Capitol and Doma. The following is a brief discussion of the background of these negotiations, the Merger Agreement and Transactions.
On December 4, 2020, Capitol completed its initial public offering of 34,500,000 units, with each unit consisting of one share of Class A Common Stock and one-third of one redeemable warrant, generating total gross proceeds of $345,000,000. Prior to the consummation of Capitol’s initial public offering, the Sponsors purchased 8,625,000 founder shares (after various adjustments) for an aggregate purchase price of $25,000, or approximately $0.003 per share. Simultaneously with the consummation of Capitol’s initial public offering, Capitol consummated the private sale of 5,833,333 private placement warrants to the Sponsors at a price of $1.50 per warrant, generating gross proceeds of approximately $8,750,000. Prior to the consummation of Capitol’s initial public offering, neither
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Capitol, nor anyone on its behalf, had any substantive discussions, formal or otherwise, with respect to a transaction with Capitol.
From the date of Capitol’s initial public offering through the signing of the Merger Agreement with Doma on March 2, 2021, representatives of Capitol contacted and were contacted by a number of individuals and entities with respect to business combination opportunities and engaged with several possible target businesses in discussions with respect to potential transactions. During that period, Mark D. Ein, the Chairman and Chief Executive Officer of Capitol, L. Dyson Dryden, President and Chief Financial Officer of Capitol, Alfheidur Saemundsson, Executive Vice President and Secretary of Capitol, Preston Parnell, Vice President of Capitol, and Greg Lofink, consultant to Capitol:
identified and evaluated approximately 130 potential target businesses from a wide range of industry segments including, among others, technology, media, telecommunications, consumer growth, financial, healthcare, real estate and industrial;
entered into substantial discussions with seven target businesses, including discussions regarding the type and amount of consideration to be provided relative to a potential transaction; and
provided a preliminary non-binding letter of intent to four target businesses.
The decision not to pursue the alternative target businesses that Capitol analyzed was generally the result of one or more of (i) Capitol’s determination that each business did not represent as attractive a target as Doma due to a combination of business prospects, strategy, management teams, structure and valuation, (ii) a difference in valuation expectations between Capitol, on the one hand, and the target and/or its owners, on the other hand, (iii) a potential target’s unwillingness to engage with Capitol given the timing and uncertainty of closing due to the requirement for Capitol stockholder approval or (iv) a potential target’s unwillingness to engage with Capitol given conflicting business objectives on the target’s side.
On December 8, 2020, a representative of Citigroup Global Markets Inc. (“Citi”) contacted Mr. Ein via telephone to present several potential target businesses for Capitol, including Doma. In response, Mr. Ein indicated an interest in having a further discussion with representatives at Citi.
On January 4, Mr. Dryden held a call with a representative of Greenspring Associates to discuss the SPAC market and Doma was referenced as a potential future opportunity.
On January 7, 2021, a representative of Citi contacted Mr. Parnell via telephone and discussed several potential target businesses for Capitol, including Doma. Mr. Parnell indicated a continued interest in learning more about Doma and highlighted Capitol’s successful first SPAC transaction with Two Harbors, a mortgage REIT in the residential real estate sector and Mr. Ein’s background in real estate at the beginning of his career with Goldman Sachs.
On January 13, 2021, the Capitol team had a call with representatives of Citi to review several Proptech and Fintech-related companies who could potentially be targets for Capitol, including Doma.
On January 20, 2021, Mr. Ein had a call with a representative of Citi to further discuss Citi’s ideas for potential target businesses for Capitol, including Doma. On this call, Mr. Ein also outlined the advantages of a merger with Capitol. The representative of Citi subsequently sent Mr. Ein preliminary information on Doma as well as a non-disclosure agreement.
On January 21, 2021, Capitol executed a non-disclosure agreement with Doma.
On January 22, 2021, Citi granted the Capitol team access to a virtual data room in order to facilitate Capitol’s initial due diligence on Doma. During the afternoon of January 22, 2021, Mr. Ein, Mr. Dryden, Mr. Parnell and Mr. Lofink met with members of Doma’s management team, including Max Simkoff, the founder and Chief Executive Officer of Doma, and Noaman Ahmad, the Chief Financial Officer of Doma, and representatives of Citi via videoconference. The parties discussed the background of Doma, its growth plan and goals in a potential transaction, including its potential use of proceeds. The Doma team also noted its desire to raise additional equity proceeds in the
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form of a private placement transaction in connection with a potential merger with Capitol. Mr. Ein and Mr. Dryden also reviewed the advantages of a merger with Capitol as a means for Doma to enter the public equity markets.
On January 23, 2021, Mr. Ein, Mr. Dryden, Mr. Parnell and Mr. Lofink met with Mr. Ahmad and Michael Bellicose, Doma’s Financial Planning & Analysis Director via videoconference to review Doma’s historical and projected financials. Several representatives of Citi also participated.
From January 22 through January 27, 2021, the Capitol team reviewed materials provided by Doma to better understand its business model and positioning in the industry.
On January 26, 2021, the Capitol team had an update videoconference with the board of directors of Capitol. During the videoconference, the board of directors of Capitol discussed several transactions, including a potential transaction with Doma.
On January 27, 2021, the Capitol team had a telephonic meeting with representatives of Citi to discuss Citi’s benchmarking methodology and potential comparable companies to be referenced in the transaction. Citi’s list of suggested comparable companies included all of the companies ultimately selected in the comparable companies analysis reviewed by the Capitol Board of Directors, as well as certain companies in the business-to-business Fintech industry sector, which were ultimately determined not to be comparable to Doma for valuation purposes based on of Doma’s consumer-centric approach, different business model and focus on the real estate sector and insurance. Representatives of Citi also provided an overview of the expected transaction process and the timeline under which Doma was planning to select a SPAC partner.
On January 29, 2021, the Capitol team had a meeting with a representative of J.P. Morgan Securities LLC’s (“JP Morgan”) financial technology investment banking group, as well as several other representatives of JP Morgan, to discuss Doma, the potential valuation framework and a potential engagement of JP Morgan as Capitol’s financial advisor. An engagement letter with JP Morgan was subsequently executed on March 2, 2021.
Later on January 29, 2021, the Capitol team had a video conference call with representatives of Citi. During the call, Capitol further inquired about the metrics utilized to provide Citi’s valuation of Doma, Doma’s business model and the financial projections Doma had provided. The Capitol team also reviewed the due diligence request list they had sent to Doma and the remaining outstanding items.
On February 1, 2021, the Capitol team had a call with representatives of Latham & Watkins LLP (“Latham & Watkins”), Capitol’s legal advisors on the transaction, to review the draft term sheet that had been provided to Capitol to use in submitting preliminary, non-binding indications of interest.
Also on February 1, 2021, members of the Capitol team, including Mr. Ein and Mr. Dryden, had a call with representatives of JP Morgan to further explore valuation metrics and certain proposed terms in the non-binding letter of intent (“LOI”) for the transaction.
On February 2, 2021, Capitol submitted its LOI to Doma. The LOI, among other things, provided for a $2.9 billion pre-money equity value for the Company and proposed that Capitol would raise $150 million in a private placement, in addition to the up to $345 million available from Capitol’s Trust Account.
On February 3, 2021, representatives of Citi provided feedback to Capitol on the LOI, including, among other things, Doma’s request for a $280 million private placement and an earnout in favor of Doma’s existing stockholders. The Capitol team subsequently had telephonic meetings with representatives of Latham & Watkins and representatives of JP Morgan on potential updates to the LOI based on the feedback from Doma.
On February 4, 2021, Capitol submitted a revised LOI. Capitol also indicated its interest in a charitable donation of $5 million of Capitol sponsor shares to causes that support Doma’s philanthropic goals. Representatives of Citi subsequently informed Mr. Ein that Doma had selected Capitol to present to Doma’s board of directors on Sunday, February 7.
On February 6, 2021 in advance of the meeting with Doma’s board of directors on February 7, Capitol provided materials to Doma outlining its SPAC experience and track record on its four prior SPAC investments.
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On February 7, 2021, Mr. Ein and Mr. Dryden presented to the board of directors of Doma on the merits of partnering with Capitol, including its track record with four prior successful SPAC business combinations, particularly Two Harbors, which operates in the residential mortgage sector. Shortly after the conclusion of Doma’s meeting of its board of directors, representatives of Citi informed Mr. Ein that Doma had selected Capitol to continue negotiations regarding a potential transaction. Later on February 7, Capitol and Doma executed a non-binding LOI on substantially the same terms as the LOI that Capitol had delivered to Doma on February 4.
On February 11, 2021, Capitol engaged Citi and JP Morgan as its private placement agents for the PIPE Financing, with such engagement letter subsequently amended to add JMP Securities LLC, Oppenheimer & Co. Inc. and D.A. Davidson & Co. as co-placement agents.
From February 8 to March 2, 2021, representatives of Capitol, Doma, Citi, JP Morgan and Latham & Watkins conducted a series of conference calls and meetings to continue addressing Capitol’s due diligence requirements, prepare for upcoming investor discussions and work on definitive documentation for the transaction. During this period, Capitol and its advisors conducted business, financial, legal, tax, insurance and accounting diligence.
From February 11 to February 25, 2021, Mr. Simkoff, Mr. Ahmad, Mr. Ein and Mr. Dryden held telephonic meetings with several potential private placement investors on a confidential basis to discuss their interest in making an equity investment in connection with the potential transaction. During these meetings, Messrs. Ein, Dryden, Simkoff and Ahmad reviewed with potential investors certain information regarding Doma and the post-combination company.
On February 16, 2021, Capitol received an initial draft of the Merger Agreement from Doma’s counsel, Davis Polk & Wardwell LLP (“Davis Polk”).
Between February 16, 2021 and March 2, 2021, representatives of Capitol, Doma, Latham & Watkins and Davis Polk negotiated the terms of the Merger Agreement and other related agreements, including the vesting and forfeiture restrictions on equity securities held by the Sponsors, the terms of the earnout applicable to Doma’s existing stockholders, the duration and scope of the post-transaction lock-up applicable to Doma’s existing stockholders and the amount of cash consideration offered to Doma’s existing stockholders in the transaction.
On February 24, 2021, the Capitol Board of Directors held a meeting via videoconference. The board of directors, among other things, discussed the status of the potential transaction with Doma, received information from representatives of JP Morgan on Doma’s business and the title insurance market and reviewed a presentation from representatives of Doma regarding the same.
On February 26, 2021, based on preliminary indications of interest received from private placement investors, the parties determined to increase the amount of the private placement from $280 million to $300 million.
From February 26 to March 2, 2021, Latham & Watkins negotiated the terms of the subscription agreements with prospective investors in the private placement investment.
On March 1, 2021, the audit committee of the Capitol Board of Directors met for a regularly scheduled meeting to approve Capitol’s 10-K filing. Following the audit committee meeting, the Capitol Board of Directors met and Mr. Ein and Mr. Dryden provided an update on the progress of the transaction.
On March 2, 2021, the Capitol Board of Directors held a meeting via video teleconference. Also participating by invitation were Ms. Saemundsson, Mr. Parnell, Mr. Lofink and representatives of JP Morgan and Latham & Watkins. Messrs. Ein and Dryden presented about the proposed business combination, including the proposed terms of the transaction, the investors in the private placement and the timing of the transaction. The board of directors of Capitol thereafter unanimously determined to approve the transactions and to recommend the approval of the transaction to Capitol’s stockholders. The board of directors of Capitol also concluded that the fair market value of Doma was equal to at least 80% of the funds held in Capitol’s Trust Account. In making this determination, the board of directors considered, among other things, the factors set forth below under “—The Capitol Board of Directors’ Reasons for Approval of the Transactions.”
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After market close on March 2, 2021, the parties executed the Merger Agreement, other definitive transaction documentation and the subscription agreements relating to the private placement investment.
After executing the agreements March 2, 2021, Capitol and Doma jointly issued a press release announcing the signing of the Merger Agreement and Capitol filed a Current Report on Form 8-K announcing the execution of the Merger Agreement.
From March 13 to March 14, 2021, the parties discussed the calculation of the Earnout Shares and reached an agreement to revise the definition of diluted shares as it relates to the calculation of the Earnout Shares.
On March 14, 2021, Davis Polk sent Latham & Watkins an initial draft of Amendment No. 1 to the Merger Agreement, reflecting the agreed upon changes. On March 15, 2021, Latham & Watkins sent Davis Polk a revised draft of Amendment No. 1 to the Merger Agreement. Davis Polk and Latham & Watkins also had conversations and email exchanges in relation to draft Amendment No. 1 to the Merger Agreement and finalized it.
On March 18, 2021, the parties executed Amendment No. 1 to the Merger Agreement.
The Capitol Board of Directors’ Reasons for Approval of the Transactions
On March 2, 2021, the Capitol Board of Directors unanimously (i) approved the Merger Agreement and related transaction agreements and the Transactions contemplated thereby, (ii) determined that the terms and conditions of the Merger Agreement, including the proposed Business Combination, are advisable, fair to and in the best interests of Capitol and its stockholders and (iii) recommended that Capitol’s stockholders approve the Merger Agreement and approve the Transactions contemplated therein. In evaluating the Business Combination and making these determinations and this recommendation, the Capitol Board of Directors consulted with Capitol’s management and legal and financial advisors and considered a range of factors, including, but not limited to, the factors discussed below.
The Capitol Board of Directors and management also considered the general criteria and guidelines that Capitol believed would be important in evaluating prospective target businesses as described in the prospectus for Capitol’s initial public offering. The Capitol Board of Directors also considered that they could enter into a business combination with a target business that does not meet those criteria and guidelines. In the prospectus for its initial public offering, Capitol stated that it intended to seek to acquire companies that it believes:
will experience substantial growth post-acquisition;
have developed leading positions within industries that exhibit strong fundamentals;
exhibit unseen value or other characteristics that have been disregarded by the marketplace;
will offer an attractive risk-adjusted return on investment for our stockholders; and
are led by exceptionally talented, experienced and highly competent management teams.
In considering the Business Combination, the Capitol Board of Directors determined that the Business Combination was an attractive business opportunity that met the vast majority of the criteria and guidelines above, although not weighted or in any order of significance.
In light of the number and wide variety of factors, the Capitol Board of Directors did not consider it practicable to and did not attempt to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its determination. The Capitol Board of Directors viewed its position as being based on all of the information available and the factors presented to and considered by it. In addition, individual directors may have given different weight to different factors. The Capitol Board of Directors considered this information as a whole and overall considered the information and factors to be favorable to, and in support of, its determinations and recommendations. This explanation of Capitol’s reasons for approval of the Business Combination and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Note Regarding Forward-Looking Statements.”
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In approving the Transactions, the Capitol Board of Directors determined not to obtain a fairness opinion. The officers and directors of Capitol have substantial experience with mergers and acquisitions and in evaluating the operating and financial merits of companies from a wide range of industries and concluded that their experience and backgrounds, together with the experience and sector expertise of Capitol’s financial advisor, J.P. Morgan Securities LLC, enabled them to make the necessary analyses and determinations regarding the Business Combination with Doma.
In particular, in considering the Business Combination, the Capitol Board of Directors considered the following factors:
Technology-First Player in Large, Antiquated Market Ripe for Disruption. Doma is architecting the future of residential real estate transactions by overhauling the current system and building one based on what today’s consumers expect: a simple, digital and frictionless experience. The market incumbents’ products are largely commoditized, not differentiated by technology and still require a very manual, time-consuming process.
Established Technology Platform with Significant Embedded Investment. Doma’s proprietary platform, Doma Intelligence, uses data analytics, machine learning and natural language processing to replace large portions of the manual real estate closing process with technology solutions. Doma’s technology platform is being trained on 30 years of historical data and has been built with a significant research and development investment over four years.
Large Market Opportunity with Expansion Potential. Doma operates today in the estimated $23 billion title, escrow and closing market, which is based on Doma’s internal estimates and 2020 estimates from the Mortgage Bankers Association. Doma currently has an estimated market share of less than 1% of total market orders, which is based on Doma’s 2020 direct closed orders divided by the Mortgage Bankers Association’s estimate of the total number of U.S. mortgage originations in 2020. Doma believes its machine intelligence-centric approach has the potential to create value across the broader $318 billion home ownership services market, with the appraisal and warranty segments representing an $11 billion near-term market opportunity.
Strong Value Propositions. Doma Intelligence reduces the time, effort and cost of the closing process with achievements to date including providing clear-to-close decisions on over 80% of title insurance orders for refinance transactions driven through Doma Intelligence in one minute or less, enabling up to 50% fewer “touches” for one of our largest, longest tenured customers, delivering 15% to 25% faster closings than the traditionally manual title and escrow process and achieving over 20% higher close rates for orders. These efficiencies increase revenue and profit potential for Doma and its lender and real estate partners and provide cost savings for the homeowner.
Tailwinds for Technology-Enabled and Digital Services in the Real Estate Market. The residential real estate market is still largely analog, but consumers, including millennials who represent the next wave of first-time homebuyers, increasingly expect instant, digital experiences.
Strong Market Traction and Marquee Clients. Doma’s technology platform is being utilized by large national mortgage originators and lenders, including Wells Fargo & Company, Chase Home Lending, PennyMac and Homepoint, after commercial launch in 2018. Doma estimates it has a less than 10% share of wallet with its existing S&EA partners, indicating a meaningful expansion opportunity.
Clear Path to Sustained Growth of Core Business. Doma expects to meaningfully grow its current market share by adding new S&EA partners, increasing wallet share with existing customers and partners, leveraging Doma’s existing geographic presence in local markets and expanding into new ones.
Attractive Financial Profile. Doma’s adjusted gross profit margin as a percentage of retained premiums and fees in 2020 was approximately 48%. Reductions in direct fulfillment costs enabled by Doma Intelligence and enhanced scale of the business are expected to drive continued improvement in adjusted gross profit margin as a percentage of retained premiums and fees.
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Accretive M&A Opportunities. Doma believes there is a significant opportunity to accelerate growth through the acquisition of strategically targeted title agencies, as well as in other adjacencies in the closing experience and within the broader Proptech sector. Doma believes these acquisitions will be accretive due to a combination of attractive valuation multiples and cost savings achieved by migrating transaction volume onto the Doma platform.
Strong Tech-First Management Team. Doma’s management team combines both technical and operational expertise. Max Simkoff, Chief Executive Officer, founded Doma in 2016 and has led Doma from a start-up focused on developing a technology solution to a fully operational title agency and escrow business with a captive insurance underwriter and over 1,000 employees. Christopher Morrison, Chief Operating Officer, was previously an associate partner in the insurance practice at McKinsey & Company. Noaman Ahmad, Chief Financial Officer, brings experience from a variety of finance functions at Aon plc and The Warranty Group. Hasan Rizvi, Chief Technology Officer, was previously with Oracle where he managed approximately one-third of the company’s product and technology organization.
Supported by World Class Board of Directors and Advisors. Doma has assembled a board of directors that includes former U.S. Treasury Secretary Larry Summers, tech industry veteran Karen Richardson, former COO of JPMorgan Chase and former President of Cerberus Capital Management Matt Zames and Lennar founder and Executive Chairman Stuart Miller. Doma also has an exceptional team of industry advisors, including Nextdoor CEO Sarah Friar and Carlyle Group Vice Chairman John Kanas, among others.
Commitment of Current Stockholders. The existing stockholders of Doma are, in the aggregate, retaining at least 97% of their equity interests in the transaction, which the Capitol Board of Directors believes reflects their belief in and commitment to the continued growth prospects of the combined company.
Top Tier Sponsorship from PIPE Investors. Top-tier investors anchoring the PIPE Financing include both existing Capitol Stockholders and existing Doma Stockholders.
Strong Capitalization to Execute on Growth Opportunity. The transaction will provide up to $501 million of cash proceeds to Doma’s balance sheet and will enable Doma to continue to invest in growth, market expansion, acquisitions and new products that extend the strategic advantage of its machine intelligence driven platform.
Attractive Valuation. The Capitol Board of Directors believes Doma’s implied valuation following the Business Combination relative to the current valuations of comparable publicly traded companies in the Insurtech and Proptech sectors is favorable to Capitol.
The Capitol Board of Directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the Business Combination, including, but not limited to, the following:
Macroeconomic Risks. Macroeconomic uncertainty, including as it relates to COVID-19, could negatively affect the combined company’s results of operations.
Benefits Not Achieved.
The potential benefits of the Transactions may not be fully achieved or may not be achieved within the expected timeframe.
Doma might not achieve its projected financial results.
Limitations of Review. Capitol did not obtain a third-party valuation or fairness opinion in connection with the Business Combination, or any formal reports or presentations regarding Doma from any of its third-party financial advisors. In addition, Capitol’s senior management and outside counsel reviewed only certain materials in connection with their due diligence review of Doma.
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Harm to Doma’s Business.
There is a potential for diversion of management and employee attention during the period prior to completion of the Business Combination, which could result in potential negative effects on Doma’s business.
Despite the efforts of Capitol and Doma prior to the consummation of the Business Combination, Doma may lose key personnel, which could result in potential negative effects on Doma’s business.
Minority Ownership. Capitol’s public stockholders will hold a minority share position in the post-merger company.
Litigation. Litigation challenging the Business Combination could occur, or there could be an adverse judgment granting permanent injunctive relief that could enjoin consummation of the Business Combination.
Fees and Expenses. There are substantial fees and expenses associated with completing the Business Combination.
Potential Inability to Complete the Transactions.
The Merger Agreement prohibits Capitol from soliciting or engaging in discussions regarding alternative transactions during the pendency of the Business Combination.
Capitol Stockholders may object to and challenge the Business Combination and take actions that may prevent or delay the consummation of the Business Combination, including to vote down the proposals at the special meeting or exercise their redemption rights.
Capitol may not obtain the proceeds of the PIPE Financing, resulting in Capitol being unable to retain sufficient cash in the Trust Account to meet the requirements of the Merger Agreement.
The Transactions are conditioned on the satisfaction of certain closing conditions that are not within Capitol’s control.
There are risks and costs to Capitol if the Business Combination is not completed, including the risk of liquidation.
Post-Business Combination Corporate Governance. The parties have not entered into any agreement in respect of the composition of the board of directors of New Doma after the Closing, except for the parties’ respective rights to designate the initial director nominees. See “The Merger Agreement” for detailed discussions of the terms and conditions of the Merger Agreement. Furthermore, because the Doma Stockholders will collectively control shares representing a majority of New Doma’s total outstanding shares of common stock upon completion of the Business Combination, and because the board of directors of New Doma will be classified following the Closing pursuant to the terms of the Proposed Organizational Documents, the Doma Stockholders may be able to elect future directors and make other decisions (including approving certain transactions involving New Doma and other corporate actions) without the consent or approval of any of Capitol’s current stockholders, directors or management team. See “Charter Proposal” for detailed discussions of the terms and conditions of the Proposed Organizational Documents.
Interests of Capitol’s Sponsors, Directors and Officers. Capitol’s Sponsors, directors and officers may have interests in the Business Combination as individuals that are in addition to, and may be different from, the interests of Capitol’s stockholders. See “—Interests of Capitol’s Sponsors, Directors and Officers in the Business Combination.”
Other Risks. Various other risks associated with the business of Doma, as described in the section “Risk Factors” appearing elsewhere in this proxy statement/prospectus.
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The foregoing discussion of material factors considered by the Capitol Board of Directors is not intended to be exhaustive but does sets forth the principal factors considered by the Capitol Board of Directors.
The Capitol Board of Directors concluded that the potential benefits that it expected Capitol and its stockholders to achieve as a result of the Transactions outweighed the potentially negative factors associated with the Transactions. Accordingly, the Capitol Board of Directors unanimously determined that the Merger Agreement and the Transactions contemplated therein were advisable, fair to and in the best interests of the Capitol and its stockholders. The Capitol Board of Directors realized that there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons.
Certain Forecasted Financial Information for Doma
Doma provided Capitol with its internally prepared financial forecasts for each of the years in the three-year period ending December 31, 2023, which did not reflect the investment of proceeds from the Transactions. Doma also provided its internally prepared forecast for the year ending December 31, 2025, which incorporated the investment of proceeds from the transaction to accelerate growth. Neither Capitol nor Doma as a matter of course make public projections as to future sales, earnings or other results. However, in connection with the Business Combination, the management of Doma has prepared the prospective financial information set forth below to present the key elements of the forecasts provided to Capitol.
The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC regarding projections, the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information or GAAP, but, in the view of Doma’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments and presents, to the best knowledge and belief of Doma’s management, the expected course of action and the expected future financial performance of Doma. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the prospective financial information. Neither Capitol’s nor Doma’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. Forecasts may be materially different than actual results.
The accompanying prospective financial information includes financial measures that were not calculated in accordance with GAAP. Non-GAAP measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP results.
The financial forecasts reflect numerous assumptions including assumptions with respect to general business, economic, market, regulatory and financial conditions and various other factors, all of which are difficult to predict and many of which are beyond Doma’s control, such as the risks and uncertainties contained in the sections of this proxy statement/prospectus “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” In developing the projected financial information, numerous material assumptions were made, in addition to the assumptions described above, with respect to Doma’s business for the periods covered by the financial projections, including assumptions regarding:
continued growth through customer additions and wallet share gains in the strategic and enterprise channel, based on the value proposition of Doma Intelligence and market traction with existing customers;
continued growth in the local channel by expanding into new geographies and leveraging Doma’s value proposition to gain share in existing markets;
increased market share from less than 1% in 2020 to less than 5% in 2023 based on Doma’s internal estimates of total direct closed orders divided by forecasts for the total number of U.S. mortgages originated according to the Mortgage Bankers Association’s November 2020 forecast;
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continued reduction in labor costs per order on the Doma Intelligence platform, driving improved margins for Doma; and
in the case of the 2025 forecast that includes the impact of the investment of the proceeds from the Transactions, Doma’s ability to generate a return on incremental sales and marketing investment and ability to acquire traditional title agencies and improve their margins by shifting their operations to Doma’s machine-learning platform and centralized operations team.
Although the assumptions and estimates on which the financial forecasts for revenue and costs are based are believed by Doma’s management to be reasonable and based on the best then-currently available information, the financial forecasts are forward-looking statements that are based on assumptions that are inherently subject to significant uncertainties and contingencies, many of which are beyond Doma’s control. While all forecasts are necessarily speculative, Doma believes that the prospective financial information covering periods beyond 12 months from its date of preparation carries increasingly higher levels of uncertainty and should be read in that context. There will be differences between actual and forecasted results, and actual results may be materially greater or materially less than those contained in the forecasts. The inclusion of the forecasted financial information in this proxy statement/prospectus should not be regarded as an indication that Capitol, Doma or any of their respective representatives considered or consider the forecasts to be a reliable prediction of future events.
The forecasts were requested by, and disclosed to, Capitol for use as a component in its overall evaluation of Doma and are included in this proxy statement/prospectus on that account. Doma has not warranted the accuracy, reliability, appropriateness or completeness of the forecasts to anyone, including to Capitol. Neither Capitol nor Doma, nor any of their respective management or representatives has made or makes any representation to any person regarding the ultimate performance of Doma or New Doma compared to the information contained in the forecasts, and none of them intends to or undertakes any obligation to update or otherwise revise the forecasts to reflect circumstances existing after the date when made or to reflect the occurrence of future events in the event that any or all of the assumptions underlying the forecasts are shown to be in error. Accordingly, they should not be looked upon as “guidance” of any sort. New Doma will not refer back to these forecasts in its future periodic reports filed under the Exchange Act.
The key elements of the financial forecasts provided to Capitol are summarized below. The financial forecasts for each of the years in the three-year period ending December 31, 2023 do not reflect the investment of proceeds from the Transactions. The financial forecast for the year ending December 31, 2025 reflects the investment of proceeds from the Transactions to accelerate growth. For a historical reconciliation of each of the measures described below to the most directly comparable measure as calculated under GAAP, please see the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Doma.”
Fiscal Year Ending December 31,
($ in millions) 2021E 2022E 2023E
Retained premiums and fees(1)
$ 226  $ 319  $ 464 
Adjusted gross profit(2)
89  171  307 
Adjusted EBITDA(3)
(67) (10) 89 
Fiscal Year Ending December 31,
($ in millions) 2025E
Retained premiums and fees(1)
$1,000 – 1,500
Long-term adjusted EBITDA divided by retained premiums and fees target 35%
____________
(1)Doma defines retained premiums and fees as total revenue under GAAP, minus premiums retained by third-party agents.
(2)Doma defines adjusted Gross Profit as gross profit (loss) under GAAP, adjusted to exclude the impact of depreciation and amortization.
(3)Doma defines adjusted EBITDA as net income (loss) before interest, income taxes and depreciation and amortization, and further adjusted to exclude the impact of stock-based compensation, change in fair market value of convertible notes, transaction-related costs and COVID-related severance costs.
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Comparable Company Analysis
Capitol’s management primarily relied upon a comparable company analysis to assess the value that the public markets would likely ascribe to Doma following a business combination with Capitol, and this analysis was presented to the Capitol Board of Directors. The relative valuation analysis was based on publicly traded companies in the Insurtech and Proptech sectors, which were determined to be most comparable. The comparable companies the Capitol Board of Directors reviewed within the Insurtech sector were Lemonade, Inc. (“Lemonade”), Metromile, Inc. (“Metromile”) and Root, Inc. (“Root”). Within the Proptech sector, the Capitol Board of Directors reviewed Opendoor Technologies Inc. (“Opendoor”) and Redfin Corporation (“Redfin”). These companies were selected by Capitol as the publicly traded companies having businesses and growth prospects most similar to the combined company’s business in the broader Insurtech and Proptech sectors in the United States. However, the Capitol Board of Directors realized that no company was identical in nature to Doma. There are no publicly traded companies within the narrower industry of companies with a full stack technology platform serving the title insurance and escrow services sectors in the United States.
The Capitol Board of Directors reviewed, among other things, the enterprise values of the selected companies, enterprise values as a multiple of estimated gross profit for calendar years 2022 and 2023, projected gross profit margin for calendar year 2022 and projected gross profit growth rates for calendar year 2022.
The enterprise values, multiples, growth rates and margins for New Doma and the selected comparable companies are summarized in the table below:
Company ($ in millions)
Enterprise Value
EV/CY 2022 Gross Profit
EV/CY 2023
Gross Profit
2022 Gross Profit Margin
2022 Gross Profit Growth %
Lemonade
$ 7,387 
78.5x
56.9x
54%
71%
Metromile
1,545 
24.4x
10.7x
40%
99%
Root
3,202 
21.9x
8.3x