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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-54151
 
HICKS ACQUISITION COMPANY II, INC.
(Exact name of registrant as specified in its charter)
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  80-0611167
(I.R.S. Employer
Identification No.)
100 Crescent Court, Suite 1200, Dallas, Texas 75201
(214) 615-2300
(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive offices)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ       No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o       No þ
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ   Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
As of November 3, 2011, the registrant had 17,142,857 shares of its common stock, par value $0.0001 per share, outstanding.
 
 

 

 


 

HICKS ACQUISITION COMPANY II, INC.

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 EX-31.1
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 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

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PART I — FINANCIAL INFORMATION
ITEM 1.  
FINANCIAL STATEMENTS
HICKS ACQUISITION COMPANY II, INC.
(A Development Stage Company)

 
CONDENSED BALANCE SHEETS
                 
    September 30,        
    2011     December 31,  
    (unaudited)     2010  
Assets
 
Current assets:
               
Cash and cash equivalents
  $ 1,204,808     $ 1,547,684  
Cash equivalents held in trust
    149,374,902       149,303,023  
Other assets
    65,429       170,255  
 
           
Total assets
  $ 150,645,139     $ 151,020,962  
 
           
 
               
Liabilities and Stockholders’ Equity
Current liabilities:
               
Accounts payable and accrued expenses
  $ 407,546     $ 291,243  
Accounts payable and accrued expenses — related party
    2,592       5,712  
Deferred underwriters’ commission
    4,500,000       4,500,000  
 
           
Total current liabilities
    4,910,138       4,796,955  
Common stock, subject to possible redemption (at fair value): 14,302,337 shares at September 30, 2011 and 14,544,181 shares at December 31, 2010
    140,734,996       141,223,998  
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock, $0.0001 par value. Authorized 1,000,000 shares; none issued or outstanding at September 30, 2011 or December 31, 2010
           
Common stock, $0.0001 par value. Authorized 500,000,000 shares, 17,142,857 shares issued and outstanding (less 14,302,337 shares subject to possible redemption) at September 30, 2011 and 17,464,286 shares issued and outstanding (less 14,544,181 shares subject to possible redemption) at December 31, 2010
    284       292  
Additional paid-in capital
    5,769,129       5,280,120  
Deficit accumulated during the development stage
    (769,408 )     (280,403 )
 
           
Total stockholders’ equity
    5,000,005       5,000,009  
 
           
Total liabilities and stockholders’ equity
  $ 150,645,139     $ 151,020,962  
 
           
See accompanying notes to condensed financial statements.

 

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HICKS ACQUISITION COMPANY II, INC.
(A Development Stage Company)
Condensed Statements of Operations
(unaudited)
                                         
                    Nine Months     June 15, 2010     June 15, 2010  
    Three Months Ended     Ended     (inception) to     (inception) to  
    September 30,     September 30,     September 30,     September 30,     September 30,  
    2011     2010     2011     2010     2011  
Formation and operating costs
  $     $     $     $ 5,000     $ 8,852  
Professional fees
    48,428       26,280       205,879       84,360       395,581  
Other general and administrative expenses
    95,869       2,613       284,472       2,677       375,473  
 
                             
Loss from operations before other income (expense) and income tax expense
    (144,297 )     (28,893 )     (490,351 )     (92,037 )     (779,906 )
Other income (expense):
                                       
Interest income
    38,958       34       137,042       61       190,918  
State taxes, other than income taxes
    (45,000 )           (135,696 )           (180,420 )
 
                             
Total other income (expense)
    (6,042 )     34       1,346       61       10,498  
 
                             
Loss before income tax expense
    (150,339 )     (28,859 )     (489,005 )     (91,976 )     (769,408 )
Income tax expense
                             
 
                             
Net loss
  $ (150,339 )   $ (28,859 )   $ (489,005 )   $ (91,976 )   $ (769,408 )
 
                             
 
                                       
Loss per common share:
                                       
Basic and diluted
  $ (0.01 )   $ (0.01 )   $ (0.03 )   $ (0.03 )   $ (0.06 )
 
                             
 
                                       
Average common shares outstanding:
                                       
Basic and diluted
    17,142,857       3,285,714       17,219,388       3,285,714       13,685,442  
 
                             
See accompanying notes to condensed financial statements.

 

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HICKS ACQUISITION COMPANY II, INC.
(A Development Stage Company)
Condensed Statement of Stockholders’ Equity
                                         
                            Deficit        
                            accumulated        
                    Additional     during the        
    Common Stock     paid-in     development     Stockholders  
    Shares     Amount     capital     stage     ’equity  
Initial capital from founding stockholders for cash
    3,285,714     $ 329     $ 24,671     $     $ 25,000  
Surrender of founding stockholder shares
    (821,428 )     (82 )     82              
Sale of 15,000,000 units, net of underwriters’ commissions and offering costs
    15,000,000       1,500       141,477,910             141,479,410  
Proceeds from issuance of sponsor warrants
                5,000,000             5,000,000  
Common stock subject to possible redemption of 14,544,181 shares (at fair market value)
          (1,455 )     (141,222,543 )           (141,223,998 )
Net loss
                      (280,403 )     (280,403 )
 
                             
Balance at December 31, 2010
    17,464,286       292       5,280,120       (280,403 )     5,000,009  
 
                             
 
                                       
Surrender of founding stockholder shares
    (321,429 )     (32 )     32              
Net loss
                      (489,005 )     (489,005 )
Change in shares subject to possible redemption to 14,302,337 shares (at fair market value)
          24       488,977             489,001  
 
                             
Balance at September 30, 2011 (unaudited)
    17,142,857     $ 284     $ 5,769,129     $ (769,408 )   $ 5,000,005  
 
                             
See accompanying notes to condensed financial statements.

 

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HICKS ACQUISITION COMPANY II, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(unaudited)
                         
            June 15, 2010     June 15, 2010  
    Nine Months Ended     (inception) to     (inception) to  
    September 30, 2011     September 30, 2010     September 30, 2011  
Cash flows from operating activities:
                       
Net loss
  $ (489,005 )   $ (91,976 )   $ (769,408 )
Change in operating assets and liabilities:
                       
Accounts payable and accrued expenses
    113,183       22,000       207,145  
Other current assets
    104,825       (18,379 )     (65,431 )
 
                 
 
                       
Net cash used in operating activities
    (270,997 )     (88,355 )     (627,694 )
 
                       
Cash flows from investing activities:
                       
Purchase of cash equivalents held in trust
                (149,250,000 )
Proceeds from sale of cash equivalents held in trust
    63,132             63,132  
Interest earned on cash equivalents held in trust
    (135,011 )           (188,033 )
 
                 
 
                       
Net cash used in investing activities
    (71,879 )           (149,374,901 )
 
                       
Cash flows from financing activities:
                       
Proceeds from note payable — related party
          225,000       225,000  
Payment on note payable — related party
                (225,000 )
Proceeds from the sale of common stock to founders
          25,000       25,000  
Proceeds from the sale of sponsor warrants
                5,000,000  
Proceeds from initial public offering, net of underwriters’ commission and offering costs paid
          (89,199 )     146,182,403  
 
                 
Net cash provided by financing activities
          160,801       151,207,403  
 
                 
(Decrease)/Increase in cash and cash equivalents
    (342,876 )     72,446       1,204,808  
Cash and cash equivalents at beginning of period
    1,547,684              
 
                 
Cash and cash equivalents at end of period
  $ 1,204,808     $ 72,446     $ 1,204,808  
 
                 
Supplemental disclosure of noncash activities:
                       
Accrual of deferred underwriters’ commission
  $     $     $ 4,500,000  
Cash paid during the period for:
                       
Interest
  $     $     $  
Income taxes
  $     $     $  
See accompanying notes to condensed financial statements.

 

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HICKS ACQUISITION COMPANY II, INC.
(a Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Interim Financial Information
These unaudited condensed financial statements as of September 30, 2011, the results of operations for the three months ended September 30, 2011 and 2010, the nine months ended September 30, 2011, the period from June 15, 2010 (inception) to September 30, 2010 and the period from June 15, 2010 (inception) through September 30, 2011, and cash flows for the nine months ended September 30, 2011, the period from June 15, 2010 (inception) to September 30, 2010 and the period from June 15, 2010 (inception) through September 30, 2011, have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements of Hicks Acquisition Company II, Inc. (the “Company”). In the opinion of management, all adjustments necessary for a fair presentation have been included and are of a normal recurring nature. Interim results are not necessarily indicative of the results that may be expected for the year.
These unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2011.
Note 2 — Organization and Nature of Business Operations
The Company is a blank check company formed in Delaware on June 15, 2010 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
The Company’s sponsor is HH-HACII, L.P. (the “Sponsor”). Through September 30, 2011, the Company’s efforts have been limited to activities relating to the organization of the Company, the Offering (as defined below), identifying and evaluating prospective acquisition candidates and general corporate matters. The Company has not generated any revenues, other than interest income earned on the proceeds held in the trust account established in connection with the Offering. The Company has selected December 31 as its fiscal year-end.
The registration statement for the Company’s initial public offering (the “Offering”) was declared effective October 8, 2010. The Company consummated the Offering on October 14, 2010 and received proceeds of approximately $145.25 million, net of the underwriters’ commissions of $3.00 million and offering costs and other expenses of $1.75 million. In the Offering, the Company sold to the public 15,000,000 Units (as defined below in Note 4) at a price of $10.00 per Unit. Simultaneously with the consummation of the Offering, the Company consummated the private sale of 6,666,667 warrants (“Sponsor Warrants”) to the Sponsor at a price of $0.75 per Sponsor Warrant, generating gross proceeds, before expenses, of $5.00 million (the “Private Placement”). Net proceeds received by the Company from the consummation of both the Offering and Private Placement totaled approximately $150.25 million, net of underwriters’ commissions and offering costs. $149.25 million of the net proceeds were placed in a trust account at JPMorgan Chase Bank, N.A. with Continental Stock Transfer & Trust Company acting as trustee. The remaining $1.00 million of net proceeds were held outside of the trust and were placed in a money market account with JPMorgan Chase Bank, N.A.
Except for a portion of the interest income earned on the trust account balance that may be released to the Company to pay any income and franchise taxes and to fund the Company’s working capital requirements, and any amounts necessary to purchase up to 15% of the Company’s shares of common stock issued as part of the Units described in Note 4 (the “Public Shares”) if the Company seeks stockholder approval for its initial business combination, none of the funds held in the trust account will be released until the earlier of the completion of the Company’s initial business combination and the redemption of 100% of the Public Shares if the Company is unable to consummate a business combination by July 14, 2012 (subject to the requirements of law). The proceeds deposited in the trust account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the holders of Public Shares (the “Public Stockholders”).

 

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The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering, although substantially all of the net proceeds of the Offering are intended to be generally applied toward effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company’s efforts in identifying prospective target businesses are not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating an initial business combination. Instead, the Company is focusing on various industries and target businesses that may provide significant opportunities for growth.
The Company will provide its stockholders with the opportunity to redeem their Public Shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, less franchise and income taxes payable, upon the consummation of the Company’s initial business combination, subject to the limitations described herein. There will be no redemption rights with respect to outstanding warrants, which will expire worthless in the event the Company does not consummate a business combination. Unlike many other blank check companies that hold stockholder votes and conduct proxy solicitations in conjunction with their initial business combinations and provide for related redemptions of public shares for cash upon consummation of such initial business combinations even when a vote is not required by law, the Company intends to consummate its initial business combination and conduct the redemptions without a stockholder vote pursuant to Rule 13e-4 and Regulation 14E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which regulate issuer tender offers, and the Company will file tender offer documents with the SEC. The tender offer documents will contain substantially the same financial and other information about the Company’s initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. In the event the Company conducts redemptions pursuant to the tender offer rules, its offer to redeem shares shall remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act. If, however, a stockholder vote is required by law, or the Company decides to hold a stockholder vote for business or other legal reasons, the Company will, like other blank check companies, conduct the redemptions pursuant to the proxy rules and not pursuant to the tender offer rules. If accepting all properly submitted redemption requests would cause the net tangible assets of the Company to be less than $5,000,001 or such greater amount necessary to satisfy a closing condition for the relevant business combination, the Company would not proceed with such redemption and the related business combination and may instead search for an alternate business combination. If the Company’s initial business combination is not completed, then Public Stockholders exercising their redemption rights will not be entitled to receive redemption payments. If the Company holds a vote to approve its initial business combination, a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 10% of the shares sold in the Offering.
If the Company seeks stockholder approval, the Company will consummate its initial business combination only if a majority of the outstanding shares of common stock voted are voted in favor of the business combination. In such case, the Initial Stockholders (as defined below in Note 6) have agreed to vote their Founder Shares (as defined below in Note 6) in accordance with the majority of the votes cast by the Public Stockholders and to vote any Public Shares purchased during or after the Offering in favor of the Company’s initial business combination. In addition, the Initial Stockholders have agreed to waive their redemption rights with respect to their Founder Shares and any Public Shares they may hold in connection with the consummation by the Company of a business combination.
If the Company does not effect a business combination by July 14, 2012, the Company will:
   
cease all operations except for the purpose of winding up;
   
as promptly as reasonably possible, redeem 100% of 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 but net of franchise and income taxes payable and less up to $100,000 of such net interest that may be released to the Company from the trust account to pay dissolution expenses, divided by the number of then outstanding Public Shares, together with the contingent right to receive, following the Company’s dissolution, a pro rata share of the balance of the Company’s net assets that would otherwise be payable to holders of the Company’s common stock under Delaware law, if any; and
   
as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate;

 

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subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
The Initial Stockholders have agreed to waive their redemption rights with respect to their Founder Shares if the Company fails to consummate a business combination within the 21-month time period, although the Initial Stockholders will be entitled to redemption with respect to any Public Shares they hold if the Company fails to consummate a business combination within such time period. In the event of a liquidation, it is likely that the per-share value of the residual assets remaining available for distribution (including trust account assets) will be less than the initial public offering price per share in the Offering.
Note 3 — Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At times, cash and cash equivalents may be in excess of the Federal Deposit Insurance Corporation insurance limit. The Company maintains its accounts with financial institutions with high credit ratings.
(b) Cash Equivalents Held in Trust
Cash equivalents held in trust are with JPMorgan Chase Bank, N.A., and Continental Stock Transfer & Trust Company serves as the trustee. The cash equivalents held in trust at September 30, 2011 and December 31, 2010 are invested in the JPMorgan Liquid Assets Money Market Fund, which meets the requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended.
(c) Fair Value of Financial Instruments
Unless otherwise disclosed, the fair values of financial instruments, including cash and cash equivalents and the cash equivalents held in trust, approximate their carrying amount due primarily to their short-term nature.
Common Stock, Subject to Possible Redemption, is stated at fair market value at September 30, 2011 and December 31, 2010. The fair market value is different from the per Public Share amount held in the trust account.
(d) Loss per Common Share
Loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. The weighted average common shares issued and outstanding of 17,142,857 for the three months ended September 30, 2011 takes into effect the 17,142,857 shares outstanding at the beginning of such three month period. The weighted average common shares issued and outstanding of 3,285,714 for the three months ended September 30, 2010 takes into effect the 3,285,714 shares outstanding at the beginning of such three month period. The weighted average common shares issued and outstanding of 17,219,388 for the nine months ended September 30, 2011 takes into effect the 17,464,286 shares outstanding at the beginning of the period and the surrender of 321,429 of such shares by the Initial Stockholders to the Company for cancellation on March 7, 2011 in connection with the underwriters’ election to not exercise their over-allotment option. The weighted average common shares issued and outstanding of 3,285,714 for the period from June 15, 2010 (inception) to September 30, 2010 takes into effect the 3,285,714 shares originally issued at inception. The weighted average common shares issued and outstanding of 13,685,442 for the period from June 15, 2010 (inception) through September 30, 2011 takes into effect the 3,285,714 shares originally outstanding, the surrender of 821,428 of such shares on October 8, 2010 by the Initial Stockholders due to the reduction in the size of the Offering, the 15,000,000 shares sold in the Offering and outstanding since October 14, 2010 and the surrender of 321,429 shares of common stock by the Initial Stockholders to the Company for cancellation on March 7, 2011 in connection with the underwriters’ election to not exercise their over-allotment option.

 

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The 21,666,667 warrants issued in the Offering and the Private Placement are contingently issuable shares and are excluded from the calculation of diluted earnings per share because they are anti-dilutive.
(e) Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(f) Income Taxes
Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company evaluates the uncertainty in tax positions taken or expected to be taken in the course of preparing the Company’s financial statements to determine whether the tax positions are “more likely than not” of being sustained by the applicable tax authority. Tax positions deemed not to meet the “more likely than not” threshold would be recorded as a tax expense in the current period. The Company has no uncertain tax positions at September 30, 2011.
(g) Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
Note 4 — Initial Public Offering
On October 14, 2010, the Company sold to the public 15,000,000 units (“Units”) at a price of $10.00 per Unit. Each Unit consists of one share of the Company’s common stock, par value $0.0001 per share, and one warrant. Each warrant entitles the holder to purchase one share of the Company’s common stock at a price of $12.00 per share, subject to adjustment. The warrants will become exercisable on the later of 30 days after the completion of the Company’s initial business combination or October 14, 2011, provided in each case that the Company has an effective registration statement under the Securities Act of 1933, as amended, covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available, and will expire five years after the completion of the Company’s initial business combination, or earlier upon redemption or liquidation. Once the warrants become exercisable, the Company may redeem the outstanding warrants, in whole and not in part, at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, only in the event that the last sales price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within the 30-trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders.
The underwriters were granted a 45-day option to purchase up to an additional 2,250,000 Units to cover over-allotment, if any. The option expired on November 22, 2010 and was not exercised.
Note 5 — Related Party Transactions
(a) Note Payable — Related Party
The Company issued an aggregate of $225,000 in an unsecured promissory note to Thomas O. Hicks, the Company’s founder and chairman of the board, on June 15, 2010. The note was non-interest bearing and was paid in full on October 14, 2010.

 

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(b) Services Agreement
The Company has agreed to pay $10,000 a month for office space, administrative services and secretarial support to Hicks Holdings Operating LLC, an affiliate of the Company’s founder and chairman of the board, Mr. Hicks. Services commenced on October 14, 2010 and will terminate upon the earlier of the consummation by the Company of an initial business combination and the liquidation of the Company.
(c) Sponsor Warrants
On October 14, 2010, the Sponsor purchased an aggregate of 6,666,667 warrants at price of $0.75 per warrant (for a total purchase price of $5.00 million) from the Company in the Private Placement. Mr. Hicks, the Company’s founder and chairman of the board, is the sole member of HH-HACII GP, LLC, which is the general partner of the Sponsor. In addition, all of the Company’s executive officers are limited partners of the Sponsor. The Sponsor will be permitted to transfer the Sponsor Warrants held by it to the Company’s officers, directors, and other persons or entities affiliated with the Sponsor and in certain other limited circumstances, but the transferees receiving such securities will be subject to the same agreements with respect to such securities as the Sponsor. Otherwise, the Sponsor Warrants will not be transferable, assignable or salable by the Sponsor until 30 days after the completion of the Company’s initial business combination. The Sponsor Warrants will be non-redeemable so long as they are held by the Sponsor or the Sponsor’s permitted transferees. The Sponsor Warrants may be exercised for cash or on a cashless basis. Otherwise, the Sponsor Warrants have terms and provisions that are identical to those of the warrants being sold as part of the Units in the Offering.
(d) Accounts Payable and Accrued Expenses
Related party accounts payable and accrued expenses of $2,592 and $5,712 at September 30, 2011 and December 31, 2010, respectively, relate primarily to travel costs.
Note 6 — Founder Shares
On June 15, 2010, the Sponsor purchased 3,285,714 shares of common stock (“Founder Shares”) for an aggregate purchase price of $25,000, or $0.0076 per share. On July 30, 2010, the Sponsor transferred an aggregate of 32,856 Founder Shares to William A. Montgomery and William F. Quinn, each of whom serve on the Company’s board of directors. The Sponsor, together with Messrs. Montgomery and Quinn, are referred to as the “Initial Stockholders.” On October 8, 2010, in connection with the decrease in the size of the Offering on that date, the Initial Stockholders returned to the Company, for no consideration, 821,428 Founder Shares for cancellation so that the Initial Stockholders would collectively own 12.5% of the Company’s issued and outstanding shares after the Offering.
The Founder Shares are identical to the shares of common stock included in the Units sold in the Offering except that:
   
the Founder Shares are subject to certain transfer restrictions, as described in more detail below; and
   
the Initial Stockholders have agreed to waive their redemption rights with respect to their Founder Shares and Public Shares in connection with the consummation of the Company’s initial business combination and to waive their redemption rights with respect to their Founder Shares if the Company fails to consummate its initial business combination within 21 months from the closing of the Offering, although they will be entitled to redemption rights with respect to any Public Shares they hold if the Company fails to consummate its initial business combination within such time period.
If the Company submits its initial business combination to the Public Stockholders for a vote, the Initial Stockholders have agreed to vote their Founder Shares in accordance with the majority of the votes cast by the Public Stockholders and to vote any Public Shares purchased during or after the Offering in favor of the Company’s initial business combination.
With certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company’s officers and directors and other persons or entities affiliated with the Initial Stockholders, each of whom will be subject to the same transfer restrictions) until the earlier of one year after the completion of the Company’s initial business combination or earlier if, subsequent to the Company’s business combination, the last sales price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s initial business combination and the date on which the Company 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.

 

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Simultaneously with the closing of the Offering, the Initial Stockholders agreed to forfeit up to 321,429 Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters, as described in Note 4. The over-allotment option was not exercised and the shares were forfeited on March 7, 2011. In addition, a portion of the Founder Shares in an amount equal to 2.5% of the Company’s issued and outstanding shares immediately after the Offering will be subject to forfeiture by the Initial Stockholders in the event the last sales price of the Company’s stock does not equal or exceed $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period within 24 months following the closing of the Company’s initial business combination.
Note 7 — Stockholders’ Equity
(a) Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of preferred stock, par value $0.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. No preferred shares were issued or outstanding at September 30, 2011 and December 31, 2010.
(b) Common Stock
The authorized common stock of the Company includes up to 500,000,000 shares. Holders of shares of common stock are entitled to one vote for each share of common stock. In addition, holders of shares of common stock are entitled to receive dividends when, as and if declared by the Company’s board of directors. The Company had 17,142,857 shares issued and outstanding at September 30, 2011 and 17,464,286 shares issued and outstanding at December 31, 2010.
ITEM 2.  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to the “Company,” “us” or “we” refer to Hicks Acquisition Company II, Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this report, including, without limitation, statements regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the Securities and Exchange Commission (the “SEC”). All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

 

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Overview
We are a blank check company formed on June 15, 2010 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We are not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating an initial business combination, except that we will not effect a business combination with another blank check company or a similar type of company with nominal operations or with an entity that is affiliated with HH-HACII, L.P. (the “Sponsor”) and engaged in the business of owning or operating a professional sports team as its principal business.
Results of Operations
Through September 30, 2011, our efforts have been limited to activities relating to the organization of the Company, our initial public offering, identifying and evaluating prospective acquisition candidates and general corporate matters. We have not generated any revenues, other than interest income earned on the proceeds held in the trust account established in connection with our initial public offering. As of September 30, 2011, approximately $149.37 million was held in the trust account (including $4.50 million of deferred underwriting discounts and commissions, $5.00 million from the sale of the Sponsor Warrants and approximately $188,000 in interest earned less approximately $63,000 withdrawn to pay Delaware taxes) and we had cash outside of trust of approximately $1.2 million and approximately $410,000 in accounts payable and accrued expenses. Up to $2.25 million in interest income on the balance of the trust account (net of franchise and income taxes payable) may be available to us to fund our working capital requirements. Other than the deferred underwriting discounts and commissions, no amounts are payable to the underwriters of our initial public offering in the event of a business combination.
Liquidity and Capital Resources
On October 14, 2010, we consummated our initial public offering of 15,000,000 units at a price of $10.00 per unit and received net proceeds of approximately $145.25 million, net of the underwriters’ commissions of $3.00 million and offering costs and other expenses of $1.75 million. Simultaneously with the consummation of our initial public offering, we consummated the private sale of 6,666,667 warrants (the “Sponsor Warrants”) to the Sponsor at a price of $0.75 per warrant, generating gross proceeds, before expenses, of $5.00 million. Net proceeds received by the Company from the consummation of both our initial public offering and private placement of the Sponsor Warrants totaled approximately $150.25 million, net of underwriters’ commissions and offering costs. $149.25 million of the net proceeds were placed in a trust account at JPMorgan Chase Bank, N.A. with Continental Stock Transfer & Trust Company acting as trustee. All of our funds in the trust account are invested in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”). The remaining $1.00 million of net proceeds were held outside of the trust and were placed in a money market account with JPMorgan Chase Bank, N.A. For a description of the proceeds generated in our initial public offering and private placement of the Sponsor Warrants and a discussion of the use of such proceeds, we refer you to Part II, Item 2 of this report and Note 2 and Note 4 of the unaudited condensed financial statements included in Part I, Item 1 of this report.
For the nine months ended September 30, 2011, we disbursed an aggregate of approximately $355,000 out of the proceeds of our initial public offering not held in trust for the following purposes:
   
$90,000 to Hicks Holdings Operating LLC, an entity owned and controlled by Thomas O. Hicks, our founder and chairman of the board, for office space, administrative services and secretarial support;
   
$31,000 of expenses for travel related costs; and
   
$234,000 of expenses in legal, accounting and filing fees relating to our SEC reporting obligations, general corporate matters, and miscellaneous expenses.

 

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We believe we will have sufficient available funds outside of the trust account to operate through July 14, 2012, which is the date that is 21 months after the closing of our initial public offering, assuming that a business combination is not consummated during that time. However, we cannot assure you this will be the case. Over this time period, we currently anticipate incurring expenses for the following purposes:
   
due diligence and investigation of prospective target businesses;
   
legal and accounting fees relating to our SEC reporting obligations and general corporate matters;
   
structuring and negotiating a business combination, including the making of any down payment or the payment of any exclusivity or similar fees and expenses; and
   
other miscellaneous expenses.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities or entered into any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than a monthly fee of $10,000 for office space and general and administrative services payable to Hicks Holdings Operating LLC, an affiliate of our founder and chairman of the board. We began incurring this fee on October 14, 2010, and will continue to incur this fee monthly until the completion of our initial business combination.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Cash Held in Trust
A total of $149.25 million, including approximately $139.75 million of the net proceeds from our initial public offering, $5.00 million from the sale of the Sponsor Warrants and $4.50 million of deferred underwriting discounts and commissions, was placed in a trust account at JPMorgan Chase Bank, N.A., with Continental Stock Transfer & Trust Company serving as trustee. The trust proceeds are invested in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act. As of September 30, 2011, the balance in the trust account was approximately $149.37 million, which includes approximately $188,000 of interest earned since the inception of the trust less $63,000 withdrawn to pay Delaware taxes.

 

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Loss per Common Share
Loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. The weighted average common shares issued and outstanding of 17,142,857 for the three months ended September 30, 2011 takes into effect the 17,142,857 shares outstanding at the beginning of such three month period. The weighted average common shares issued and outstanding of 3,285,714 for the three months ended September 30, 2010 takes into effect the 3,285,714 shares outstanding at the beginning of such three month period. The weighted average common shares issued and outstanding of 17,219,388 for the nine months ended September 30, 2011 takes into effect the 17,464,286 shares outstanding at the beginning of the period and the surrender of an aggregate of 321,429 of such shares by the Sponsor, William A. Montgomery and William F. Quinn (collectively, the “Initial Stockholders”) to the Company for cancellation on March 7, 2011 in connection with the underwriters’ election to not exercise their over-allotment option. The weighted average common shares issued and outstanding of 3,285,714 for the period from June 15, 2010 (inception) to September 30, 2010 takes into effect the 3,285,714 shares originally issued at inception. The weighted average common shares issued and outstanding of 13,685,442 for the period from June 15, 2010 (inception) through September 30, 2011 takes into effect the 3,285,714 shares originally outstanding, the surrender of 821,428 of such shares on October 8, 2010 by the Initial Stockholders due to the reduction in the size of our initial public offering, the 15,000,000 shares sold in our initial public offering and outstanding since October 14, 2010 and the surrender of 321,429 shares of common stock by the Initial Stockholders to the Company for cancellation on March 7, 2011 in connection with the underwriters’ election to not exercise their over-allotment option.
The 21,666,667 warrants issued in our initial public offering and the private placement of the Sponsor Warrants are contingently issuable shares and are excluded from the calculation of diluted earnings per share because they are anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
ITEM 3.  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices and other market driven rates or prices. We are not presently engaged in and, if we do not consummate a suitable business combination prior to the prescribed liquidation date of the trust account, we may not engage in, any substantive commercial business. Accordingly, we are not and, until such time as we consummate a business combination, we will not be, exposed to risks associated with foreign exchange rates, commodity prices, equity prices or other market driven rates or prices. The net proceeds of our initial public offering held in the trust account may be invested by the trustee only in U.S. governmental treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act. Given our limited risk in our exposure to government securities and money market funds, we do not view the interest rate risk to be significant.
ITEM 4.  
CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

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As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1.  
LEGAL PROCEEDINGS
None.
ITEM 1A.  
RISK FACTORS
Factors that could cause our actual results to differ materially from those in this report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on March 11, 2011. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
As of November 3, 2011, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 11, 2011, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
ITEM 2.  
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Initial Public Offering
On October 14, 2010, we consummated our initial public offering of 15,000,000 units, with each unit consisting of one share of our common stock and one warrant to purchase one share of our common stock at an exercise of $12.00 per share. The warrants will become exercisable on the later of (i) 30 days after the completion of our initial business combination and (ii) 12 months from the closing of our initial public offering. The warrants expire five years after the completion of our initial business combination or earlier upon redemption or liquidation. Once the warrants become exercisable, the warrants will be redeemable in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days’ notice if, and only if, the last sale prices of our common stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading day period ending on the third business day before we send the notice of redemption. The units in the public offering were sold at an offering price of $10.00 per unit, generating total gross proceeds of $150,000,000. Citigroup Global Markets Inc. acted as sole bookrunning manager and as representative of Deutsche Bank Securities Inc. The securities sold in the offering were registered under the Securities Act of 1933, as amended (the “Securities Act”), on a registration statement on Form S-1 (No. 333-167809). The SEC declared the registration statement effective on October 8, 2010.

 

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We paid a total of $3.00 million in underwriting discounts and commissions and approximately $1.75 million in other costs and expenses related to the offering. In addition, the underwriters agreed to defer $4.50 million in underwriting discounts and commissions, which amount will be payable upon the consummation of our initial business combination if consummated. We repaid Mr. Hicks, our founder and chairman of the board, $225,000 in satisfaction of an outstanding promissory note after the closing of our initial public offering.
We also consummated the simultaneous private sale of the Sponsor Warrants at a price of $0.75 per warrant (for an aggregate purchase price of $5,000,000). The Sponsor Warrants (including the common stock issuable upon exercise of the Sponsor Warrants) will not be transferable, assignable or salable until 30 days after the completion of our initial business combination (except, among certain other limited exceptions, to our officers and directors and other persons or entities affiliated with the Sponsor) and they will not be redeemable by the Company so long as they are held by our Sponsor or its permitted transferees. Otherwise, the Sponsor Warrants have terms and provisions that are identical to those of the warrants sold as part of the units in our initial public offering, except that the Sponsor Warrants may be exercised by the holders on a cashless basis. The sale of the Sponsor Warrants was made pursuant to the exemption from registration contained in Section 4(2) of the Securities Act.
After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds from our initial public offering were $150.25 million and $149.25 million (or approximately $9.95 per unit sold in the initial public offering) was placed in a trust account.
ITEM 3.  
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.  
REMOVED AND RESERVED
ITEM 5.  
OTHER INFORMATION
None.
ITEM 6.  
EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
         
Exhibit    
Number   Description
  3.1    
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-54151), filed with the Securities and Exchange Commission on October 15, 2010).
       
 
  3.2    
Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 000-54151), filed with the Securities and Exchange Commission on October 15, 2010).
       
 
  4.1    
Specimen Unit Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-167809), filed with the Securities and Exchange Commission on August 4, 2010).
       
 
  4.2    
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-167809), filed with the Securities and Exchange Commission on August 4, 2010).
       
 
  4.3    
Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-167809), filed with the Securities and Exchange Commission on August 4, 2010).
       
 
  4.4    
Warrant Agreement, dated as of October 8, 2010, by and between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 000-54151), filed with the Securities and Exchange Commission on October 15, 2010).
       
 
  31.1  
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
       
 
  31.2  
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
       
 
  32.1  
Certification of the Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
 
     
*  
Filed herewith.

 

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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
Date: November 3, 2011   HICKS ACQUISITION COMPANY II, INC.
 
 
     /s/ Christina Weaver Vest  
    Name:   Christina Weaver Vest   
    Title:   President, Chief Executive Officer and Chief Financial Officer