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CERTAIN TERMS
Unless otherwise stated in this Annual Report on Form 10-K or unless the context otherwise requires:
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Annual Report on Form 10-K constitute “forward-looking statements” for purposes of federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about our:
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The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” elsewhere in this report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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Item 1. Business
Introduction
We are a blank check company formed under the laws of the State of Delaware on August 20, 2018 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses, which we refer to in this report as our initial business combination.
In September 2018, we issued an aggregate of 5,750,000 founder shares to our founders for an aggregate purchase price of $25,000 in cash, or approximately $0.004 per share. Our sponsor and Cowen Investments purchased 5,390,625 and 359,375 founder shares, respectively. In November 2018, our sponsor transferred to our independent directors an aggregate of 45,000 founder shares. On November 19, 2018, our founders forfeited for no consideration, an aggregate of 1,437,500 founder shares, of which our sponsor forfeited 1,347,656 founder shares and Cowen Investments forfeited 89,844 founder shares. As a result, our initial stockholders now hold 4,312,500 founder shares, of which our sponsor holds 3,997,969 founder shares and Cowen Investments holds 269,531 founder shares.
The registration statement on Form S-1 (File No. 333-228470) for our initial public offering was declared effective by the Securities and Exchange Commission (the “SEC”) on February 6, 2019. On February 11, 2019, we consummated our initial public offering of 17,250,000 units, including the issuance of 2,250,000 units as a result of the underwriters’ full exercise of their over-allotment option, with each unit consisting of one share of common stock and one redeemable warrant. Each warrant entitles the holder thereof to purchase one share of common stock at an exercise price of $11.50 per share. The units in our initial public offering were sold at an offering price of $10.00 per unit, generating total gross proceeds of $172,500,000.
Simultaneously with the consummation of our initial public offering and the full over-allotment option, we consummated the private placement of an aggregate of 717,500 private units to our founders at a price of $10.00 per private unit, generating total gross proceeds of $7,175,000 (the “private placement”). Our sponsor and Cowen Investments purchased 591,334 and 126,166 private units, respectively, in the private placement.
A total of $174,225,000 (or $10.10 per unit sold in our initial public offering) of the net proceeds from our initial public offering and the private placement was placed in a trust account established for the benefit of our public stockholders (the “trust account”), with Continental Stock Transfer & Trust Company acting as trustee, and has been invested only in U.S. “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations, until the earlier of: (i) the completion of our initial business combination within the required time period and (ii) the distribution of the trust account, as described below, except that interest earned on the trust account can be released to pay our franchise and income taxes payable and for dissolution or liquidation expenses up to $100,000, as applicable.
Transaction costs amounted to $4,014,101, consisting of $3,450,000 of underwriting fees and $564,101 of other costs. As of December 31, 2019, we had $319,399 in our operating bank accounts and $176,625,548 in cash and marketable securities held in the trust account. Interest income on the balance in the trust account will be used by us to pay franchise and income taxes. Through December 31, 2019, we have withdrawn $764,269 of interest earned on the trust account to pay franchise and income tax obligations.
Our units began trading on February 7, 2019 on the Nasdaq Capital Market under the symbol “MNCLU.” Commencing on February 28, 2019, the common stock and warrants comprising the units began separate trading on the Nasdaq Capital Market under the symbols “MNCL” and “MNCLW,” respectively. Those units not separated continue to trade on the Nasdaq Capital Market under the symbol “MNCLU.”
Proposed Business Combination
On December 8, 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Monocle Holdings Inc., a Delaware corporation and wholly-owned direct subsidiary of our company (“NewCo”), Monocle Merger Sub 1 Inc., a Delaware corporation and wholly-owned direct subsidiary of NewCo (“Merger Sub 1”), Monocle Merger Sub 2 LLC, a Delaware limited liability company and wholly-owned indirect subsidiary of NewCo (“Merger Sub 2”), AerSale Corp., a Delaware corporation (“AerSale”), and solely in its capacity as the initial Holder Representative (as defined in the Merger Agreement), Leonard Green & Partners, L.P., a Delaware limited partnership (“LGP”).
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Pursuant to the Merger Agreement, (a) Merger Sub 1 will be merged with and into our company, with our company surviving the merger as a wholly-owned direct subsidiary of NewCo (the “First Merger”), and (b) Merger Sub 2 will be merged with and into AerSale, with AerSale surviving the merger as a wholly-owned indirect subsidiary of NewCo (the “Second Merger”). The First Merger, the Second Merger and the other transactions contemplated in the Merger Agreement are referred to in this report as the proposed “Business Combination.” In connection with the proposed Business Combination, our company and AerSale will become direct or indirect wholly-owned subsidiaries of NewCo, the new public company after the closing of the proposed Business Combination (the “Closing”).
Under the Merger Agreement and pursuant to the First Merger, (i) all of the issued and outstanding shares of our common stock will be exchanged on a one-for-one basis for shares of common stock of NewCo, par value $0.0001 per share (“NewCo Common Stock”), (ii) each outstanding and unexercised warrant to purchase our common stock will be exchanged on a one-for-one basis for a warrant to purchase NewCo Common Stock, in the same form and on the same terms and conditions as such warrants to purchase our common stock, and (iii) each issued and outstanding share of common stock of Merger Sub 1 will be canceled and converted into and become, on a one-for-one basis, a share of our common stock.
Under the Merger Agreement and pursuant to the Second Merger, NewCo will acquire AerSale for aggregate consideration equal to $400 million, consisting of (i) $250 million payable in cash (the “Aggregate Cash Consideration”) (subject to adjustment as described below) and (ii) 15,000,000 shares of NewCo Common Stock, valued at $10 per share (i.e., $150 million in the aggregate) (“Aggregate Common Stock Consideration”). Holders of AerSale common stock, par value $0.01 per share (“AerSale Common Stock”), and AerSale in-the-money stock appreciation rights (“SARs”) will also receive as consideration a contingent right to receive up to 2,500,000 additional shares of NewCo Common Stock in the aggregate, half of which will be issued at such time as the NewCo Common Stock price is greater than $12.50 per share for any period of twenty (20) trading days out of thirty (30) consecutive trading days on or prior to the fifth anniversary of the date of the Closing (the “Closing Date”) and the other half of which will be issued at such time as the NewCo Common Stock price is greater than $14.00 per share for any period of twenty (20) trading days out of thirty (30) consecutive trading days on or prior to the fifth anniversary of the Closing Date (collectively, the “Earnout Shares”). The Earnout Shares will also be issued upon the occurrence of a Liquidity Event (as defined in the Merger Agreement), solely to the extent the Liquidity Event Consideration (as defined in the Merger Agreement) is greater than $12.50, in which case half of the Earnout Shares will be issued, or $14.00, in which case the other half of the Earnout Shares will also be issued. Earnout Shares that have not been issued on or prior to the fifth anniversary of the Closing Date will be cancelled.
In the event that, immediately prior to the Closing of the Business Combination, the amount of cash available to be released from the trust account after all redemptions of shares of our common stock pursuant to our amended and restated certificate of incorporation, plus the actual amount of cash proceeds received by our company pursuant to the debt financing, plus the cash and cash equivalents of AerSale in immediately available funds (collectively, “Available Cash”) is less than the amount of cash necessary to pay the Aggregate Cash Consideration plus each party’s transaction expenses (collectively, “Necessary Cash”), the cash consideration payable in the Business Combination will be reduced by up to $50 million and AerSale stockholders and SAR holders will receive, in lieu of an amount of cash equal to the amount by which Necessary Cash exceeds Available Cash (the “Available Cash Shortfall Amount”), a number of shares of 5.00% Series A Convertible Preferred Stock of NewCo, par value $0.0001 per share (each such share with a stated value of $100 per share) (“NewCo Convertible Preferred Stock”) with an aggregate value equal to the Available Cash Shortfall Amount, but in no event more than 500,000 shares of NewCo Convertible Preferred Stock. It is a condition to the obligations of both our company and AerSale to consummate the Business Combination that the Available Cash Shortfall Amount not exceed $50 million.
The Closing is subject to certain conditions, including but not limited to an approval of our stockholders of the Merger Agreement. The Merger Agreement may also be terminated by either party under certain circumstances.
Debt Commitment Letter
In order to finance a portion of the Aggregate Cash Consideration payable in the proposed Business Combination and the costs and expenses incurred in connection therewith, we entered into a debt commitment letter with NewCo, Wells Fargo Bank, N.A. (“Wells Fargo”) and PNC Bank, N.A. (“PNC”), dated December 8, 2019 (the “Debt Commitment Letter”), in connection with a $150 million senior secured asset-based revolving credit facility (the “ABL Facility”).
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Founder Shares Agreement
Concurrently with the execution of the Merger Agreement, our founders entered into a founder shares agreement (the “Founder Shares Agreement”), pursuant to which they have agreed to defer the vesting of an aggregate of 1,293,750 founder shares held by our founders (representing 30% of the founder shares) (the “Unvested Founder Shares”), half of which will vest at such time as the NewCo Common Stock price is greater than $12.50 per share for any period of twenty (20) trading days out of thirty (30) consecutive trading days and the other half of which will vest at such time as the NewCo Common Stock price is greater than $14.00 per share for any period of twenty (20) trading days out of thirty (30) consecutive trading days. The Unvested Founder Shares will also vest upon the occurrence of a Liquidity Event on or prior to the fifth anniversary of the date of the Founder Shares Agreement, solely to the extent the Liquidity Event Consideration is greater than $12.50, in which case half of the Unvested Founder Shares which will vest, or $14.00, in which case the other half of the Unvested Founder Shares will also vest. Unvested Founder Shares that have not vested on or prior to the fifth anniversary of the Closing Date will be forfeited.
Support and Release Agreement
Concurrently with the execution of the Merger Agreement, we entered into a company support and mutual release agreement (the “Support and Release Agreement”) with NewCo and the AerSale stockholders, pursuant to which (i) the AerSale stockholders have agreed not to transfer any shares of AerSale capital stock prior to the Closing, (ii) the AerSale stockholders have made certain representations as to their ownership of AerSale capital stock, (iii) the AerSale stockholders have agreed to customary releases in favor of our company, NewCo and our respective affiliates related to activity on or prior to the Closing, and (iv) NewCo and our company, on behalf of ourselves and the other Monocle parties and our respective affiliates, have agreed to customary releases in favor of the AerSale stockholders and their respective affiliates related to activity on or prior to the Closing.
Lock-Up Agreement
Pursuant to the Merger Agreement and as a condition to the Closing, each of the AerSale stockholders will enter into a lock-up agreement with NewCo in substantially the form attached to the Merger Agreement (the “Lock-Up Agreement”). Under the Lock-Up Agreement, each holder agrees not to, during the period commencing from the Closing and ending on the earliest of: (a) the 180th day after the Closing Date, (b) the expiration of the lock-up period previously agreed to by our sponsor and certain other parties and (c) the date following such Closing Date on which NewCo completes a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of NewCo’s stockholders having the right to exchange their shares of NewCo Common Stock for cash, securities or other property (the “AerSale Lock-Up Period”): (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, with respect to (A) the shares of NewCo Common Stock received pursuant to the Merger Agreement, (B) Earnout Shares, to the extent any are received after Closing Date, (C) the shares of NewCo Convertible Preferred Stock received pursuant to the Merger Agreement (if any), to the extent any are received Closing Date (D) any outstanding share of NewCo Common Stock or any other equity security (including the shares of NewCo Common Stock issued or issuable upon the exercise of any other equity security of NewCo) received by any of the AerSale stockholders in connection with the proposed Business Combination; and (E) any other equity security of NewCo issued or issuable with respect to any such share of NewCo Common Stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization (such shares, collectively, the “Lock-Up Shares”), (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Lock-Up Shares, in cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii) above.