Unless otherwise stated in this annual report on Form 10-K, references to:
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:
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) and 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.” 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. These risks and others described under “Risk Factors” may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.
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PART I
Overview
We are an early stage blank check company incorporated on September 18, 2017 as a Cayman Islands exempted company and incorporated for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout this report as our initial business combination. We have generated no operating revenues to date and we will not generate operating revenues until we consummate our initial business combination.
On January 21, 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with TB Acquisition Merger Sub LLC, a Delaware limited liability company and our wholly-owned subsidiary (“Merger Sub”), Hawk Parent Holdings, LLC, a Delaware limited liability company (“Repay”), and CC Payment Holdings, L.L.C., solely in its capacity as the securityholder representative thereunder (the “Repay Securityholder Representative”). Pursuant to the Merger Agreement, (i) we will domesticate from a Cayman Islands exempted company to a Delaware corporation (the “Domestication”) and (ii) simultaneously with the closing of the Domestication, Merger Sub will merge with and into Repay with Repay continuing as the surviving entity and our subsidiary (the “Merger” and together with the Domestication and the other transactions contemplated by the Merger Agreement, the “Transactions”). In connection with the Transactions, our corporate name will change to “Repay Holdings Corporation.”
As a result of the Transactions, each issued and outstanding Class A ordinary share and Class B ordinary share of the Company will convert into a share of Class A common stock of the Company, and each issued and outstanding warrant to purchase Class A ordinary shares of the Company will be exercisable by its terms to purchase an equal number of shares of Class A common stock of the Company. Each share of Company Class A common stock will provide the holder with the rights to vote, receive dividends, and share in distributions in connection with a liquidation and other shareholder rights with respect to the Company.
The merger consideration (the “Merger Consideration”) to be paid to holders of the limited liability company interests of Repay (each, a “Repay Equity Holder”) pursuant to the Merger Agreement will be an amount equal to $600,000,000, subject to adjustment, paid in a mix of cash (the “Cash Consideration”) and units (the “Unit Consideration”) representing limited liability company interests of Repay as the surviving company following the Merger (the “Post-Merger Repay Units”), valued at $10.00 per unit, each of which will be exchangeable, pursuant to an exchange agreement between us and the Repay Equity Holders, dated as of January 21, 2019 (the “Exchange Agreement”), for shares of Class A common stock of the Company initially on a one-for-one basis (subject to customary conversion rate adjustments, including for stock splits, stock dividends and reclassifications). Additionally, at the closing of the Transactions (the “Closing”), each Repay Equity Holder will be issued a share of new Class V common stock of the Company entitling such holder to vote as a common stockholder of the Company with a number of votes equal to the number Post-Merger Repay Units held by such holder of Class V common stock of the Company.
The Merger Consideration of $600,000,000 will be (i) reduced (or increased if such amount is negative) by an amount equal to the sum of the following “Closing Adjustment Items” including (A) the indebtedness of Repay and its subsidiaries (the “Target Companies”); plus (B) transaction expenses of the Target Companies in excess of $15,000,000; plus (C) certain payments owed to Repay’s employees, directors, officers and other personnel under certain plans and arrangements; plus (D) the amount by which net working capital of the Target Companies exceeds $4,000,000; plus (E) certain contingent obligations of the Target Companies in connection with a previous acquisition, minus (F) the cash and cash equivalents of the Target Companies immediately prior to the Closing, and (ii) may be increased by any amounts remaining of the following, which will be deducted from the Merger Consideration and escrowed or otherwise set aside under the Merger Agreement: (A) 60,000 Post-Merger Repay Units (the “Escrow Units”) to be set aside in escrow at Closing to pay any post-Closing true-up adjustments for the Closing Adjustment Items; (B) $2,000,000 in cash to be held by the Repay Securityholder Representative to pay its costs and expenses; (C) $14,048,595 in cash to be held in escrow to cover certain contingent earn-out obligations of Repay; and (D) $150,000 in cash to be held in escrow to cover certain specified indemnity matters under the Merger Agreement.
Additionally, the Repay Equity Holders have the contingent right to receive an earn-out of up to 7,500,000 Post-Merger Repay Units, deposited in escrow at Closing, subject to the satisfaction of certain stock-price based performance thresholds.
In connection with the Merger Agreement, our sponsor has agreed to forfeit 400,000 shares and to escrow 3,900,000 shares, subject to an earnout based upon our stock price reaching certain thresholds.
The Merger Agreement also requires the establishment of a management incentive plan and allocates 6,800,000 shares of Class A common stock of the Company to such plan.
In January 2019, SunTrust Bank and SunTrust Robinson Humphrey, Inc. (“SunTrust”) provided a commitment letter to us to provide credit facilities of approximately $170,400,000 at the closing of the Merger.
For any risks associated with the Transactions and Repay, see the Company’s preliminary proxy statement, as amended from time to time (the “Proxy Statement”) containing information about the Transactions and Repay, as initially filed with the SEC on February 12, 2019.
The Merger Agreement and related agreements are further described in the Form 8-K filed by us on January 22, 2019 and in the Proxy Statement. Other than as specifically discussed, this report does not give effect to the Transactions or assume that the closing of the Transactions will occur.
Recent Developments
On March 11, 2019, the Nasdaq Listing Qualifications Staff sent a letter to us, pursuant to Nasdaq Listing Rule 5250(a), requesting, among other things, that we provide information and documents related to certain named persons and entities and their relationship to us.
We understand from Gary Simanson, our President and Chief Executive Officer, that he, in his capacity as managing member of our sponsor, engaged in discussions and other related activities with certain of these individuals and entities regarding their advising and investing in our sponsor. None of the Company, Repay, nor any representative of the Company or Repay in his or her capacity as such (or otherwise, other than with respect to the discussions and other investment-related activities described in the foregoing sentence) has had discussions or other involvement with such individuals or entities.
We are currently preparing our response to the Nasdaq Listing Qualifications Staff request with the assistance of outside counsel. We cannot assure you that the Nasdaq Listing Qualifications Staff will not continue its inquiry after it has reviewed our response. Such inquiry could result in an action that may have adverse effects on our listing on the Nasdaq Stock Market, which listing is a condition to closing to our proposed business combination with Repay.
Significant Activities Since Inception
On June 18, 2018, the Company consummated its IPO of 22,500,000 units (the “Initial Units”). Each Unit consists of one Class A Ordinary Share, and one warrant (“Public Warrant”), each whole warrant entitling the holder to purchase one Class A Ordinary Share at $11.50 per share. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $225,000,000. On June 28, 2018, the underwriters partially exercised the option and purchased 3,300,000 Units (the “Over-Allotment Units”; collectively with the Initial Units, the “Units”). As a result of the underwriters’ partial exercise of the over-allotment option, the Company’s sponsor, Thunder Bridge Acquisition LLC (the “Sponsor”), forfeited 18,750 Class B Ordinary Shares. Simultaneously with the consummation of the IPO and the sale of the Units, the Company consummated the private placement (“Private Placement”) of an aggregate of 8,500,000 warrants (“Placement Warrants”) at a price of $1.00 per Placement Warrant, generating total proceeds of $8,500,000. On June 28, 2018, simultaneously with the sale of the Over-Allotment Units, the Company consummated a private sale of an additional 330,000 Placement Warrants to the Sponsor, generating gross proceeds of $330,000.