References
in this report to “we,” “us” or “our company” refer to MTech Acquisition Corp. References
in this report to our “public shares” are to shares of our Class A common stock sold as part of the units sold in
our initial public offering (whether they were purchased in such offering or thereafter in the open market) and references to
“public stockholders” refer to the holders of our public shares, including our sponsor (as defined below), officers
and directors to the extent they purchase public shares, provided that their status as “public stockholders” shall
only exist with respect to such public shares. References in this report to our “management” or our “management
team” refer to our officers and directors, references to our “sponsor” refer to MTech Sponsor LLC. Our chairman,
Steven Van Dyke, and our president and one of our directors, Scott Sozio, are the managing members of one of our sponsor’s
managing members and each of our officers and directors is a member of our sponsor or owns, indirectly, membership interests in
our sponsor through a managing member entity.
General
We
are a blank check company formed as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our initial business
combination and value creation strategy will be to acquire and, after our initial business combination, assist in the growth of
a business ancillary to the cannabis industry, with a particular sector focus that includes compliance, business intelligence,
brand development and media. However, we are not limited to this industry and, if the Merger (defined below) is not consummated,
we may pursue a business combination opportunity in any business or industry we choose and we may pursue a company with operations
or opportunities outside of the United States.
Although
the cannabis industry has evolved significantly and continues to mature, we believe the industry is still undercapitalized and
companies operating across multiple verticals consistently have trouble accessing capital from traditional resources. Financing
of businesses that operate within the legal cannabis industry in the U.S. has relied largely on private money — friends
and family, high net-worth individuals and small-to-medium-sized private investment firms. Institutional investors have shied
away from companies in the cannabis industry, especially those that are directly involved in the production, distribution and
sale of cannabis (businesses that “touch the plant”), which we do not intend to target. Even businesses that do not
“touch the plant” and instead provide ancillary services to the industry, for the most part, have found it extremely
difficult to access capital. The federal prohibition on cannabis has led to a situation in which small investors and venture funds
have become the industry’s financial backbone. As a result, we believe we have the opportunity to create a compelling structure
that will enable the right target company to go public and access the capital it needs in order to accelerate its organic growth
and also create additional stakeholder value as a well-capitalized acquirer in an industry defined by undercapitalized competition.
We will not invest in an entity or assets which violate, or aid and abet the violation, of federal law.
On
October 10, 2018, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among us, MTech
Acquisition Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of ours (“Pubco”), MTech Purchaser
Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Pubco, MTech Company Merger Sub LLC, a Colorado limited
liability company and a wholly-owned subsidiary of Pubco, MTech Sponsor LLC, a Florida limited liability company, MJ Freeway LLC,
a Colorado limited liability (“MJF”), and Harold Handelsman.
Consummation
of the transaction contemplated by the Merger Agreement (the “Merger) is subject to customary conditions of the respective
parties, including the approval of the Merger by our stockholders in accordance with our amended and restated certificate of incorporation
and the completion of a redemption offer whereby we will be providing our public stockholders with the opportunity to redeem their
shares of our common stock for cash equal to their pro rata share of the aggregate amount on deposit in our trust account.
For
any risks associated with the Merger and MJF, see the Company’s preliminary proxy statement, as amended from time to time
(the “Proxy Statement”) containing information about the Merger and MJF, as initially filed with the SEC on November
7, 2018.
The
Merger Agreement and related agreements are further described in the Form 8-K filed by us on October 11, 2018. For additional
information regarding MJF, the Merger Agreement and the transactions contemplated therein, see the Proxy Statement.
Other
than as specifically discussed, this report does not assume that the closing of the Merger will occur.
Business
Strategy
Our
strategy is to invest in businesses that are ancillary to the production, distribution and sale of cannabis, with a particular
focus on three segments of the industry:
●
|
Compliance
:
We believe the businesses that succeed in these early years of legal cannabis will be
the ones that make compliance with state regulations an operational priority, driving
decision-making at all levels of the company. We believe that investing in compliance
services will be critical to the success of the industry in the long-term.
|
●
|
Business
Intelligence
: Cannabis is in the very early stages of discovery. Companies need tools
to understand and analyze their business, in many cases without the ability to borrow
from other industries. We believe cannabis presents a unique set of challenges, as a
highly-regulated industry that operates within a network of conflicting federal and state
laws. As a result, ancillary businesses that provide services to other industries, and
would under normal circumstances make their products and technologies available to the
cannabis industry, have instead stayed out of the market. The void is being filled by
companies dedicated to the cannabis industry, in many cases designing custom-built technology.
|
●
|
Brands
& Media
: Cannabis is an industry defined by a lack of information and misinformation. We believe that brands and media
will play a critical role in supplying consumers with the knowledge and confidence to patronize the category.
|
Acquisition
Criteria
Consistent
with our business strategy, we have identified the following criteria that we have used in evaluating business transaction opportunities
and would continue to use in the event that we are unable to consummate the Merger. We expect that no individual criterion will
entirely determine a decision to pursue a particular opportunity. Further, any particular business transaction opportunity which
we ultimately determine to pursue may not meet one or more of these criteria. Notwithstanding anything below, we will not invest
in an entity or assets which violate, or aid and abet the violation, of federal law. We have used these criteria in evaluating
acquisition opportunities, including MJF, which meets all of these criteria, but we may decide to enter into our initial business
combination with an alternative target business that may not meet the following criteria:
●
|
Ancillary
:
Does not touch the plant, allowing the business to be unconstrained by state borders.
|
●
|
Able
to Build Infrastructure
: Our management believes that technology-driven solutions to operational challenges in a nascent industry
and complex regulatory environment have a unique window of opportunity to create infrastructure that will grow with the industry.
|
●
|
Scalable
:
We believe the cannabis industry is in an explosive growth phase and our goal is to invest in the businesses that are built to
scale faster than the competition.
|
These
criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business transaction
may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our
management team may deem relevant. In the event that the Merger is not consummated and we find an opportunity that is more compelling
to us than the opportunities described above, we would pursue such opportunity. However, we have not established any particular
parameters as to when we might turn our attention to opportunities that are not underperforming and/or not operating in an industry
undergoing a period of dislocation.
Direct
Involvement Post-Transaction
Because
our management team knows what it is like to operate in the cannabis industry, we understand the everyday challenges confronting
other management teams in this industry. Not only do we bring capital and resources to our investments, but we have the ability
to anticipate their needs and equip them with solutions. After the initial business combination, our management team intends to
apply a rigorous approach to enhancing shareholder value, including evaluating the experience and expertise of incumbent management
and making changes when appropriate, examining opportunities for revenue enhancement, cost savings, operating efficiencies and
strategic acquisitions and divestitures, and accessing the financial markets to optimize the company’s capital structure.
We will pursue post-merger initiatives through participation on the board of directors, through direct involvement with company
operations and/or calling upon a stable of former managers and advisors when necessary.
●
|
Corporate
Governance and Oversight
. Actively participating as board members can include many activities ranging from monthly or quarterly
board meetings, chairing standing (compensation, audit or investment committees) or special committees, to replacing or supplementing
company management teams when necessary, adding outside directors with industry expertise, providing guidance on strategic and
operational issues including revenue enhancement opportunities, cost savings, operating efficiencies as well as reviewing and
testing annual budgets, reviewing acquisitions and divestitures, and assisting in the accessing of capital markets to further
optimize financing costs and fund expansion. As active members on the board of directors, our management team members intend to
evaluate the suitability of the incumbent organization leaders.
|
●
|
Direct
Operational Involvement
. Our management team, through ongoing board service, intend to actively engage with company management
to effect change in an organization. These activities may include: (i) establishing an agenda for management and instilling a
sense of accountability and urgency; (ii) aligning the interest of management with growing shareholder value; (iii) providing
strategic planning and management consulting assistance; (iv) establishing measurable key performance metrics and accretive internal
processes; and (v) right-sizing costs. These skill sets will be integral to shareholder value creation.
|
●
|
Access
to Portfolio Company Managers and Advisors
. When appropriate, we intend to bring in outside directors, managers or consultants
to assist in corporate governance and operational turnaround activities. The use of supplemental advisors should provide additional
resources to management to address time intensive issues that may be delaying an organization from realizing fully its potential
shareholder returns.
|
Status
as a public company
We
believe our structure will make us an attractive business combination partner to target businesses. As an existing public company,
we offer a target business an alternative to the traditional initial public offering through a merger or other business combination.
In this situation, the owners of the target business would exchange their shares of stock in the target business for shares of
our stock or for a combination of shares of our stock and cash, allowing us to tailor the consideration to the specific needs
of the sellers. We believe target businesses might find this method a more certain and cost effective method to becoming a public
company than the typical initial public offering. In a typical initial public offering, there are additional expenses incurred
in marketing, roadshow and public reporting efforts that will likely not be present to the same extent in connection with a business
combination with us. Furthermore, once the business combination is consummated, the target business will have effectively become
public, whereas an initial public offering is always subject to the underwriters’ ability to complete the offering, as well
as general market conditions, that could prevent the offering from occurring. Once public, we believe the target business would
then have greater access to capital and an additional means of providing management incentives consistent with stockholders’
interests than it would have as a privately-held company. It can offer further benefits by augmenting a company’s profile
among potential new customers and vendors and aid in attracting talented employees. However there is currently no market for our
securities and a market for our securities may not develop. As a result, this purported benefit may not be realized.
While
we believe that our status as a public company will make us an attractive business partner, some potential target businesses may
view the inherent limitations in our status as a blank check company as a deterrent and may prefer to effect a business combination
with a more established entity or with a private company. These inherent limitations include limitations on our available financial
resources, which may be inferior to those of other entities pursuing the acquisition of similar target businesses; the requirement
that we seek stockholder approval of a business combination or conduct a tender offer in relation thereto, which may delay the
consummation of a transaction; and the existence of our outstanding warrants, which may represent a source of future dilution.
Financial
position
With
funds in the trust account of $57,500,000 available to use for a business combination (assuming no stockholder seeks conversion
of their shares or seeks to sell their shares to us in a tender offer in relation to such business combination), we offer a target
business a variety of options such as providing the owners of a target business with shares in a public company and a public means
to sell such shares, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet
by reducing its debt ratio. Because we are able to consummate our initial business combination using our cash, debt or equity
securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us
to tailor the consideration to be paid to the target business to fit its needs and desires.
Significant
Activities Since Inception
On
February 1, 2018, we consummated our initial public offering of 5,000,000 units, each unit consisting of one share of Class A
common stock, par value $0.0001 per share and one warrant, each warrant exercisable for one share of Class A common stock at an
exercise price of $11.50 per share, pursuant to a registration statement on Form S-1 (File No. 333-221957). The units were sold
in our initial public offering at an offering price of $10.00 per unit, generating gross proceeds of $50,000,000 (before underwriting
discounts and commissions and offering expenses). Simultaneously with the consummation of our initial public offering, we completed
the private placement of 225,000 units, issued to our sponsor, generating gross proceeds of $2,250,000.
On
February 8, 2018, the underwriters of our initial public offering exercised their over-allotment option in full and purchased
750,000 units at an offering price of $10.00 per unit, generating gross proceeds of $7.5 million. On February 8, 2018, simultaneously
with the sale of the over-allotment units, we completed a private placement with our sponsor for an additional 18,750 units at
a price of $10.00 per unit, generating gross proceeds of $187,500.
Approximately
$57.5 million of the net proceeds from our initial public offering (including the over-allotment) and the private placements with
our sponsor were deposited in a trust account established for the benefit of the Company’s public stockholders.
Our
units began trading on January 30, 2018 on the Nasdaq Capital Market under the symbol MTECU. Commencing on February 21, 2018,
the securities comprising the units began separate trading. The units, common stock and warrants are trading on the Nasdaq Capital
Market under the symbols “MTECU,” “MTEC” and “MTECW,” respectively.
As
discussed above, on October 10, 2018, we entered into the Merger Agreement, pursuant to which, among other things and subject
to the terms and conditions contained therein, we have agreed to acquire MJF. For additional information regarding the Merger,
please see the Proxy Statement.
Effecting
a Business Combination
General
We
are not presently engaged in, and we will not engage in, any substantive commercial business until the closing of our initial
business combination. We intend to utilize cash derived from the proceeds of our initial public offering and the private placement
of founders’ units, our capital stock, debt or a combination of these in effecting a business combination. A business combination
may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires
to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking
a public offering itself. These include time delays, significant expense, loss of voting control and compliance with various federal
and state securities laws. In the alternative, we may seek to consummate a business combination with a company that may be financially
unstable or in its early stages of development or growth. In the event that we do not consummate the Merger, we may seek to effect
simultaneous business combinations with more than one target business, we will probably have the ability, as a result of our limited
resources, to effect only a single business combination.
We
will have until August 1, 2019 to consummate our initial business combination. If we are unable to consummate the Merger or an
alternative initial business combination within the applicable time period, we will, as promptly as reasonably possible but not
more than ten business days thereafter, redeem the public shares for a pro rata portion of the funds held in the trust account
and as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our
board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of
creditors and the requirements of other applicable law.
Sources
of Target Businesses
We
have evaluated and, in the event that the Merger is not consummated, we expect to continue to evaluate, opportunities that are
sourced through the relationship networks of our management team, which includes numerous entrepreneurs, management teams, intermediaries
and venture capital funds.
Our
management team has considerable expertise in the evaluation of cannabis investments, with the benefit of further diligence support
from our senior advisor.
We
believe based on our management team’s business knowledge and past experience that there are numerous alternative acquisition
candidates, in the event that the Merger is not consummated. We expect that our principal means of identifying potential target
businesses, if the Merger is not consummated, will be through the extensive contacts and relationships of our management team.
While our officers and directors are not required to commit any specific amount of time in identifying or performing due diligence
on potential target businesses, our officers and directors believe that the relationships they have developed over their careers
and their access to their contacts and resources will continue to generate a number of potential business combination opportunities
that will warrant further investigation, if needed. We also anticipate that target business candidates may continue to be brought
to our attention from various unaffiliated sources, including investment bankers, venture capital funds, private equity funds,
leveraged buyout funds, management buyout funds and other members of the financial community. Target businesses may be brought
to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may
also introduce us to target businesses they think we may be interested in on an unsolicited basis, since many of these sources
will have read this report and know what types of businesses we are targeting. Our officers and directors, as well as their affiliates,
may also bring to our attention target business candidates that they become aware of through their business contacts as a result
of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. They must present
to us all target business opportunities that have a fair market value of at least 80% of the assets held in the trust account
(excluding taxes payable on the income accrued in the trust account) at the time of the agreement to enter into the initial business
combination, subject to any pre-existing fiduciary or contractual obligations. We may engage these firms or other individuals
in the future in connection with the Merger or an alternative business combination, in which event we may pay a finder’s
fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction.
In no event, however, will our sponsor, officers, directors or their respective affiliates be paid any finder’s fee, consulting
fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of an initial business
combination (regardless of the type of transaction that it is) other than the $10,000 per month administrative services fee, the
repayment of any loans from our sponsor, officers and directors for working capital purposes and reimbursement of any out-of-pocket
expenses. Our audit committee reviews and must approve all reimbursements and payments made to our sponsor, officers, directors
or our or their respective affiliates, with any interested director abstaining from such review and approval. We have no present
intention to enter into a business combination with a target business that is affiliated with any of our officers, directors or
sponsor. However, we are not restricted from entering into any such transactions and may do so if (i) such transaction is approved
by a majority of our disinterested independent directors and (ii) we obtain an opinion from an independent investment banking
firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to
acquire, that the business combination is fair to our unaffiliated stockholders from a financial point of view.
Selection
of a Target Business and Structuring of a Business Combination
Subject
to our officers’ and directors’ pre-existing fiduciary duties and the limitations that a target business have a fair
market value of at least 80% of the balance in the trust account (excluding taxes payable on the income earned on the trust account)
at the time of the execution of a definitive agreement for our initial business combination, as described above in more detail,
and that we must acquire a controlling interest in the target business, our management will have virtually unrestricted flexibility
in selecting a prospective target business. Except for the general criteria and guidelines set forth above under the caption “
Acquisition
Criteria
,” we have not established any specific attributes or criteria (financial or otherwise) for prospective target
businesses, except that we will not invest in an entity or assets which violate, or aid and abet the violation, of federal law.
The
time and costs required to select and evaluate an alternative target business and to structure and complete the Merger or an alternative
business combination cannot presently be ascertained with any degree of certainty. Any costs incurred with respect to the Merger,
if not consummated, or the identification and evaluation of an alternative prospective target business with which a business combination
is not ultimately completed, will result in a loss to us and reduce the amount of capital available to otherwise complete a business
combination.
Fair
Market Value of Target Business
The
target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance
of the funds in the trust account (excluding taxes payable on the income earned on the trust account) at the time of the execution
of a definitive agreement for our initial business combination, although we may acquire a target business whose fair market value
significantly exceeds 80% of the trust account balance.
We
currently anticipate structuring a business combination to acquire 100% of the equity interests or assets of the target business
or businesses, such as in connection with the Merger. We may, however, structure our initial business combination where we merge
directly with the target business or where we acquire less than 100% of such interests or assets of the target business in order
to meet certain objectives of the target management team or stockholders or for other reasons, but we will only complete such
business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the
target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment
company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities
of the target, our stockholders prior to the business combination may collectively own a minority interest in the post-transaction
company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could
pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock
of a target. In this case, we could acquire a 100% controlling interest in the target; however, as a result of the issuance of
a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than
a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests
or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business
or businesses that is owned or acquired is what will be valued for purposes of the 80% fair market value test. In order to consummate
such an acquisition, we may issue a significant amount of our debt or equity securities to the sellers of such businesses and/or
seek to raise additional funds through a private offering of debt or equity securities. The fair market value of any target will
be determined by our board of directors based upon one or more standards generally accepted by the financial community (such as
actual and potential sales, earnings, cash flow and/or book value). The proxy solicitation materials or tender offer documents
used by us in connection with any proposed transaction will provide public stockholders with our analysis of the fair market value
of the target business, as well as the basis for our determinations. If our board is not able to independently determine that
the target business has a sufficient fair market value, we will obtain an opinion from an unaffiliated, independent investment
banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking
to acquire, with respect to the satisfaction of such criteria.
We
are not required to obtain an opinion from an investment banking firm as to the fair market value if our board of directors independently
determines that the target business complies with the 80% threshold. We are not required to obtain, and have not obtained, a fairness
opinion in connection with the Merger.
Lack
of Business Diversification
In
the event that the Merger is not consummated, we may seek to effect a business combination with more than one target business,
and there is no required minimum valuation standard for any target at the time of such acquisition. We expect to complete only
a single business combination, although this process may entail the simultaneous acquisitions of several operating businesses.
Therefore, at least initially, the prospects for our success may be entirely dependent upon the future performance of a single
business operation. Unlike other entities which may have the resources to complete several business combinations of entities operating
in multiple industries or multiple areas of a single industry, it is probable that we will not have the resources to diversify
our operations or benefit from the possible spreading of risks or offsetting of losses. By consummating a business combination
with only a single entity, our lack of diversification may:
|
●
|
subject
us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon
the particular industry in which we may operate subsequent to a business combination, and
|
|
●
|
result
in our dependency upon the performance of a single operating business or the development or market acceptance of a single or limited
number of products, processes or services.
|
If
we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need for
each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other acquisitions,
which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple acquisitions,
we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and
due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation
of the operations and services or products of the acquired companies in a single operating business.
Limited
Ability to Evaluate the Target Business’ Management
Although
we intend to scrutinize the management of a prospective target business when evaluating the desirability of effecting a business
combination, we cannot assure you that our assessment of the target business’ management will prove to be correct. In addition,
we cannot assure you that the future management will have the necessary skills, qualifications or abilities to manage a public
company. Furthermore, the future role of our officers and directors, if any, in the target business following a business combination
cannot presently be stated with any certainty. While it is possible that some of our key personnel will remain associated in senior
management or advisory positions with us following a business combination, it is unlikely that they will devote their full time
efforts to our affairs subsequent to a business combination. Moreover, they would only be able to remain with the company after
the consummation of a business combination if they are able to negotiate employment or consulting agreements in connection with
the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and
could provide for them to receive compensation in the form of cash payments and/or our securities for services they would render
to the company after the consummation of the business combination. While the personal and financial interests of our key personnel
may influence their motivation in selecting a target business, their ability to remain with the company after the consummation
of a business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential
business combination. Additionally, we cannot assure you that our officers and directors will have significant experience or knowledge
relating to the operations of the particular target business. In the event the Merger is consummated, Messrs. Kane, Rehmatullah
and Rothschild will serve as directors of the surviving corporation following the Merger.
Following
a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business.
We cannot assure you that we will have the ability to recruit additional managers, or that any such additional managers we do
recruit will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Stockholders
May Not Have the Ability to Approve an Initial Business Combination
The
Merger requires the approval of our stockholders. However, in the event that the Merger is not consummated, in connection with
any alternative proposed business combination, we will either (1) seek stockholder approval of our initial business combination
at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for
or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account
(net of taxes payable), or (2) provide our stockholders with the opportunity to sell their shares to us by means of a tender offer
(and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on
deposit in the trust account (net of taxes payable), in each case subject to the limitations described herein. If we determine
to engage in a tender offer, such tender offer will be structured so that each stockholder may tender any or all of his, her or
its shares rather than some pro rata portion of his, her or its shares. The decision as to whether we will seek stockholder approval
of a proposed business combination or will allow stockholders to sell their shares to us in a tender offer will be made by us,
solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms
of the transaction would otherwise require us to seek stockholder approval. In connection with the Merger, we have announced that
we intend to hold a special meeting of stockholders. If the Merger is not consummated, in connection with an alternative business
combination, we will have the flexibility to avoid such stockholder vote and allow our stockholders to sell their shares pursuant
to Rule 13e-4 and Regulation 14E of the Exchange Act which regulate issuer tender offers. In that case, we will file tender offer
documents with the SEC which will contain substantially the same financial and other information about the initial business combination
as is required under the SEC’s proxy rules. We will consummate our initial business combination only if we have net tangible
assets of at least $5,000,001 upon such consummation and, if we seek stockholder approval, a majority of the outstanding shares
of common stock voted are voted in favor of the business combination.
We
chose our net tangible asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under
the Securities Act of 1933, as amended. However, if we seek to consummate an initial business combination with a target business
that imposes any type of working capital closing condition or requires us to have a minimum amount of funds available from the
trust account upon consummation of such initial business combination, we may need to have more than $5,000,001 in net tangible
assets upon consummation and this may force us to seek third party financing which may not be available on terms acceptable to
us or at all. As a result, we may not be able to consummate such initial business combination and we may not be able to locate
another suitable target within the applicable time period, if at all. Public stockholders may therefore have to wait until August
1, 2019 in order to be able to receive a pro rata share of the trust account.
Our
sponsor and our officers and directors have agreed (1) to vote any shares of common stock owned by them in favor of any proposed
business combination, including the founders’ shares and the shares of Class A common stock underlying the founders’
units, (2) not to convert any shares of common stock in connection with a stockholder vote to approve a proposed initial business
combination and (3) not sell any shares of common stock in any tender in connection with a proposed initial business combination.
As a result, we would need only 2,034,376, or 35.4%, of the 5,750,000 public shares to be voted in favor of a transaction in order
to have our initial business combination approved (assuming all shares were present and entitled to vote at the meeting).
If
we hold a meeting to approve the Merger or an alternative proposed business combination and a significant number of stockholders
vote, or indicate an intention to vote, against such proposed business combination, our officers, directors, sponsor or their
affiliates could make such purchases in the open market or in private transactions in order to influence the vote. Notwithstanding
the foregoing, our officers, directors, sponsor and their affiliates will not make purchases of shares of Class A common stock
if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act, which are rules designed to stop potential manipulation
of a company’s stock.
Conversion
Rights
At
any meeting called to approve an initial business combination, such as in connection with the Merger, public stockholders may
seek to convert their shares, regardless of whether they vote for or against the proposed business combination, into their pro
rata share of the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the
initial business combination, less any taxes then due but not yet paid (which taxes may be paid only from the interest earned
on the funds in the trust account). Alternatively, we may provide our public stockholders with the opportunity to sell their shares
of our Class A common stock to us through a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal
to their pro rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid.
We
may also require public stockholders seeking conversion, whether they are a record holder or hold their shares in “street
name,” to either (i) tender their certificates to our transfer agent or (ii) deliver their shares to the transfer agent
electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option,
in each case prior to a date set forth in the proxy materials sent in connection with the proposal to approve the business combination.
There
is a nominal cost associated with the above-referenced delivery process and the act of certificating the shares or delivering
them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker
whether or not to pass this cost on to the holder. However, this fee would be incurred regardless of whether or not we require
holders seeking to exercise conversion rights. The need to deliver shares is a requirement of exercising conversion rights regardless
of the timing of when such delivery must be effectuated. However, in the event we require stockholders seeking to exercise conversion
rights to deliver their shares prior to the consummation of the proposed business combination and the proposed business combination
is not consummated, this may result in an increased cost to stockholders.
Any
proxy solicitation materials we furnish to stockholders in connection with a vote for any proposed business combination will indicate
whether we are requiring stockholders to satisfy such certification and delivery requirements, such as in connection with the
Merger. Accordingly, a stockholder would have from the time the stockholder received our proxy statement up until the vote on
the proposal to approve the business combination to deliver his shares if he wishes to seek to exercise his conversion rights.
This time period varies depending on the specific facts of each transaction. However, as the delivery process can be accomplished
by the stockholder, whether or not he is a record holder or his shares are held in “street name,” in a matter of hours
by simply contacting the transfer agent or his broker and requesting delivery of his shares through the DWAC System, we believe
this time period is sufficient for an average investor. However, we cannot assure you of this fact. Please see the risk factor
titled “
We may require stockholders who wish to convert their shares in connection with a proposed business combination
to comply with specific requirements for conversion that may make it more difficult for them to exercise their conversion rights
prior to the deadline for exercising their rights
” for further information on the risks of failing to comply with these
requirements.
The
foregoing is different from the procedures historically used by some blank check companies. Traditionally, in order to perfect
conversion rights in connection with a blank check company’s business combination, the company would distribute proxy materials
for the stockholders’ vote on an initial business combination, and a holder could simply vote against a proposed business
combination and check a box on the proxy card indicating such holder was seeking to exercise his conversion rights. After the
business combination was approved, the company would contact such stockholder to arrange for him to deliver his certificate to
verify ownership. As a result, the stockholder then had an “option window” after the consummation of the business
combination during which he could monitor the price of the company’s stock in the market. If the price rose above the conversion
price, he could sell his shares in the open market before actually delivering his shares to the company for cancellation. As a
result, the conversion rights, to which stockholders were aware they needed to commit before the stockholder meeting, would become
a “continuing” right surviving past the consummation of the business combination until the holder delivered its certificate.
The requirement for physical or electronic delivery prior to the meeting ensures that a holder’s election to convert his
shares is irrevocable once the business combination is approved.
Any
request to convert such shares once made, may be withdrawn at any time up to the vote on the proposed business combination. Furthermore,
if a holder of a public share of Class A common stock delivered his certificate in connection with an election of their conversion
and subsequently decides prior to the vote on the proposed business combination not to elect to exercise such rights, he may simply
request that the transfer agent return the certificate (physically or electronically).
If
the initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise
their conversion rights would not be entitled to convert their shares for the applicable pro rata share of the trust account as
of two business days prior to the consummation of the initial business combination. In such case, we will promptly return any
shares delivered by public holders.
Liquidation
if No Business Combination
Our
amended and restated certificate of incorporation provides that we will have only until August 1, 2019 to complete an initial
business combination. If we have not completed an initial business combination by such date, we 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 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit
in the trust account, including any interest earned on the funds held in the trust account net of interest that may be used by
us to pay our franchise and income taxes payable and up to $15,000 of any remaining interest for 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), subject to applicable law, and (iii)
as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board
of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide
for claims of creditors and the requirements of other applicable law.
Our
sponsor, executive officers, and directors have agreed, pursuant to a written agreement with us, that they will not propose any
amendment to our amended and restated certificate of incorporation (i) to modify the substance or timing of our obligation to
redeem 100% of our public shares if we do not complete our initial business combination until August 1, 2019 or (ii) with respect
to any other provision relating to stockholders’ rights or pre-business combination activity, unless we provide our public
stockholders with the opportunity to redeem their shares of common stock upon approval of any such amendment at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall
be net of taxes payable) divided by the number of then outstanding public shares. This redemption right shall apply in the event
of the approval of any such amendment, whether proposed by our sponsor, any executive officer or director, or any other person.
However, we may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001
upon the consummation of our initial business combination (so that we are not subject to the SEC’s “penny stock”
rules). If this optional redemption right is exercised with respect to an excessive number of public shares such that we cannot
satisfy the net tangible asset requirement (described above), we would not proceed with the amendment or the related redemption
of our public shares at such time.
Under
the Delaware General Corporation Law, 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 our trust account distributed to our public
stockholders upon the redemption of 100% of our outstanding public shares in the event we do not complete our initial business
combination within the required time period may be considered a liquidation distribution under Delaware law. If the corporation
complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law 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.
Furthermore,
if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our public
shares in the event we do not complete our initial business combination within the required time period is not considered a liquidation
distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the
Delaware General Corporation Law, 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 liquidation distribution. If we are unable to complete a
business combination within the prescribed time frame, we 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 100% of the outstanding public
shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any
interest earned on the funds held in the trust account net of interest that may be used by us to pay our franchise and income
taxes payable and up to $15,000 of any remaining interest for 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), subject to applicable law, and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate,
subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the
requirements of other applicable law. Accordingly, it is our intention to redeem our public shares as soon as reasonably possible
following August 1, 2019, and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially
be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may
extend well beyond the third anniversary of such date.
Because
we will not be complying with Section 280 of the Delaware General Corporation Law, Section 281(b) of the Delaware General Corporation
Law requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and
pending claims or claims that may be potentially brought against us within the subsequent ten years. However, because we are a
blank check company, rather than an operating company, and our operations will be limited to searching for prospective target
businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or
prospective target businesses.
We
are required to use our reasonable best efforts to have all third parties (including any vendors or other entities we engage)
and any prospective target businesses enter into agreements with us waiving any right, title, interest or claim of any kind they
may have in or to any monies held in the trust account. As a result, the claims that could be made against us will be limited,
thereby lessening the likelihood that any claim would result in any liability extending to the trust. We therefore believe that
any necessary provision for creditors will be reduced and should not have a significant impact on our ability to distribute the
funds in the trust account to our public stockholders. Nevertheless, we cannot assure you of this fact as there is no guarantee
that vendors, service providers and prospective target businesses will execute such agreements. If any third party refuses to
execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the
alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management
believes that such third party’s engagement would be significantly more beneficial to us than any alternative. 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.
The underwriters of our initial public offering and our auditor are the only third parties we are currently aware of that may
not execute a waiver. Nor is there any guarantee that, even if they execute such agreements with us, they will not seek recourse
against the trust account. Mr. Van Dyke has agreed that he will be personally liable to ensure that the proceeds in the trust
account are not reduced below $10.00 per share by the claims of target businesses or claims of vendors or other entities that
are owed money by us for services rendered or contracted for or products sold to us, but we cannot assure you that he will be
able to satisfy its indemnification obligations if he is required to do so. Additionally, the agreement Mr. Van Dyke entered into
specifically provides for two exceptions to the indemnity he has given: he will have no liability (1) as to any claimed amounts
owed to a target business or vendor or other entity who has executed an agreement with us waiving any right, title, interest or
claim of any kind they may have in or to any monies held in the trust account, or (2) as to any claims for indemnification by
the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. We
have not independently verified whether Mr. Van Dyke has sufficient funds to satisfy his indemnity obligations. We have not asked
Mr. Van Dyke to reserve for such indemnification obligations. As a result, if we liquidate, the per-share distribution from the
trust account could be less than $10.00 due to claims or potential claims of creditors. We will distribute to all of our public
stockholders, in proportion to their respective equity interests, an aggregate amount then on deposit in the trust account, including
any interest earned on the funds held in the trust account net of interest that may be used by us to pay our franchise and income
taxes payable and up to $15,000 of any remaining interest for dissolution expenses.
We
anticipate notifying the trustee of the trust account to begin liquidating such assets promptly after such date and anticipate
it will take no more than 10 business days to effectuate such distribution. The holders of the founders’ shares and the
shares of Class A common stock underlying the founders’ units have waived their rights to participate in any liquidation
distribution with respect to such founders’ shares. There will be no distribution from the trust account with respect to
our warrants, which will expire worthless. We will pay the costs of any subsequent liquidation from our remaining assets outside
of the trust account and the interest earned on the funds held in the trust account that we are permitted to withdraw to pay such
expenses.
In
the event that we do not consummate the Merger, and if we are unable to complete an alternative initial business combination and
expend all of the net proceeds of our initial public offering, other than the proceeds deposited in the trust account, and without
taking into account interest, if any, earned on the trust account, the initial per-share redemption price would be $10.00. The
proceeds deposited in the trust account could, however, become subject to claims of our creditors that are in preference to the
claims of public stockholders.
Our
public stockholders will be entitled to receive funds from the trust account only upon the earlier to occur of: (i) the completion
of our initial business combination, (ii) the redemption of any public shares properly tendered in connection with a stockholder
vote to amend our amended and restated certificate of incorporation (A) to modify the substance or timing of our obligation to
redeem 100% of our public shares if we do not complete our initial business combination by August 1, 2019 or (B) with respect
to any other provision relating to stockholders’ rights or pre-business combination activity, and (iii) the redemption of
all of our public shares if we are unable to complete our business combination by August 1, 2019, subject to applicable law. In
no other circumstances will a public stockholder have any right or interest of any kind to or in the trust account.
The
holders of the founders’ shares or shares of Class A common stock underlying the founders’ units will not participate
in any redemption distribution from our trust account with respect to such founders’ shares. Additionally, any loans made
by our officers, directors, sponsors or their affiliates for working capital needs will be forgiven and not repaid if we are unable
to complete an initial business combination.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds
held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject
to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete
the trust account, we cannot assure you we will be able to return to our public stockholders at least $10.00 per share.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which 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 all amounts received
by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders
promptly after August 1, 2019, this may be viewed or interpreted as giving preference to our public stockholders over any potential
creditors with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached
their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims
of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot
assure you that claims will not be brought against us for these reasons.
Amended
and Restated Certificate of Incorporation
Our
amended and restated certificate of incorporation contains certain requirements and restrictions relating to our initial public
offering that will apply to us until the consummation of our initial business combination. These provisions cannot be amended
without the approval of a majority of our stockholders. If we seek to amend any provisions of our amended and restated certificate
of incorporation that would stop our public stockholders from converting or selling their shares to us in connection with a business
combination or affect the substance or timing of our obligation to redeem 100% of our public shares if we do not complete a business
combination by August 1, 2019, we will provide dissenting public stockholders with the opportunity to convert their public shares
in connection with any such vote. This redemption right shall apply in the event of the approval of any such amendment, whether
proposed by our sponsor, any executive officer, or director, or any other person. Our sponsor, officers and directors, and other
holders of our founders’ units have agreed to waive any conversion rights with respect to any founders’ shares, shares
of Class A common stock underlying the founders’ units and any public shares they may hold in connection with any vote to
amend our amended and restated certificate of incorporation. Specifically, our amended and restated certificate of incorporation
provides, among other things, that:
|
●
|
we shall
either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose at which stockholders
may seek to convert their shares, regardless of whether they vote for or against the proposed business combination, into their
pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), or (2) provide our stockholders
with the opportunity to sell their shares to us by means of a tender offer (and thereby avoid the need for a stockholder vote)
for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable),
in each case subject to the limitations described herein;
|
|
●
|
we will
consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation
and, if we seek stockholder approval, a majority of the outstanding shares of common stock voted are voted in favor of the business
combination;
|
|
●
|
if our
initial business combination is not consummated by August 1, 2019, then we will redeem all of the outstanding public shares and
thereafter liquidate and dissolve our company;
|
|
●
|
our
shares of Class B common stock will automatically convert into shares of Class A common stock at the time of our initial business
combination on a one-for-one basis, subject to adjustment as provided herein;
|
|
●
|
upon
the consummation of our initial public offering, $57.5 million was placed into the trust account;
|
|
●
|
we may
not consummate any other business combination, merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar transaction prior to our initial business combination; and
|
|
●
|
prior
to our initial business combination, we may not issue additional stock that participates in any manner in the proceeds of the
trust account, or that votes as a class with the Class A common stock sold in our initial public offering on any matter.
|
Competition
In
the event we do not consummate the Merger, we may continue to encounter intense competition from other entities having a business
objective similar to ours in identifying, evaluating and selecting an alternative target business. Many of these entities are
well established and have extensive experience identifying and effecting business combinations directly or through affiliates.
Many of these competitors possess greater technical, human and other resources than us and our financial resources will be relatively
limited when contrasted with those of many of these competitors. While we believe there may be numerous potential target businesses
that we could acquire with the net proceeds of our initial public offering, our ability to compete in acquiring certain sizable
target businesses may be limited by our available financial resources.
The
following also may not be viewed favorably by certain target businesses:
|
●
|
our
obligation to seek stockholder approval of a business combination or engage in a tender offer may delay the completion of a transaction;
|
|
●
|
our
obligation to convert or repurchase shares of Class A common stock held by our public stockholders may reduce the resources available
to us for a business combination;
|
|
●
|
our
Class B stock converting into shares of Class A common stock as described herein; and
|
|
●
|
our
outstanding warrants and unit purchase options, and the potential future dilution they represent.
|
Any
of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management
believes, however, that our status as a public entity and potential access to the United States public equity markets may give
us a competitive advantage over privately-held entities having a similar business objective as ours in acquiring a target business
with significant growth potential on favorable terms.
If
we succeed in effecting the Merger or an alternative business combination, there will be, in all likelihood, intense competition
from competitors of the target business. We cannot assure you that, subsequent to a business combination, we will have the resources
or ability to compete effectively.
Employees
We
have two executive officers. These individuals are not obligated to devote any specific number of hours to our matters and intend
to devote only as much time as they deem necessary to our affairs. The amount of time they devote in any time period varies based
on whether a target business has been selected for the business combination and the stage of the business combination process
the company is in. Our executive officers devote such amount of time as they reasonably believe is necessary to our business.
We do not intend to have any full time employees prior to the consummation of the Merger or an alternative business combination.
Periodic
Reporting and Audited Financial Statements
We
have registered our units, common stock and warrants under the Exchange Act and have reporting obligations, including the requirement
that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, this
report contains financial statements audited and reported on by our independent registered public accountants.
We
have filed audited financial statements of MJF to be included as part of the proxy solicitation materials to be sent to stockholders
to assist them in assessing MJF, and, in the event that the Merger is not consummated, we will provide stockholders with audited
financial statements of another prospective target company as part of the proxy solicitation or tender offer material to be sent
to stockholders. These financial statements will need to be prepared in accordance with or reconciled to United States generally
accepted accounting principles or international financial reporting standards. We cannot assure you that any particular target
business identified by us as a potential acquisition candidate will have the necessary financial statements. To the extent that
this requirement cannot be met, we may not be able to acquire the proposed target business.
We
may be required to have our internal control procedures audited for the fiscal year ending December 31, 2019 as required by the
Sarbanes-Oxley Act. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy
of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley
Act may increase the time and costs necessary to complete any such acquisition.
You
should consider carefully the risk factors described below, together with the other information contained in this report, including
the financial statements and the notes thereto. This report also contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors,
including the risks described below. The risk factors described below are not necessarily exhaustive and you are encouraged to
perform your own investigation with respect to us and our business. Risks associated with the Merger and MJF are more fully discussed
in the Proxy Statement.
Risks
Associated with Our Business
We
are a company with no operating history and, accordingly, you do not have any basis on which to evaluate our ability to achieve
our business objective.
We
are a company with no operating results to date. Since we do not have an operating history, you have no basis upon which to evaluate
our ability to achieve our business objective, which is to consummate an initial business combination. We will not generate any
revenues until, at the earliest, after the consummation of a business combination.
Our
independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt
about our ability to continue as a “going concern.”
As
of December 31, 2018, we had $4,489 in cash and a working capital deficit of $233,352, which excludes franchise and income taxes
payable of $137,401, of which such amounts will be paid from interest earned on the trust account. Further, we have incurred and
expect to continue to incur significant costs in pursuit of our financing and acquisition plans. Management’s plans to address
this need for capital are discussed in the section of this report titled
”Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
We cannot assure you that our plans to raise capital or to consummate
an initial business combination will be successful. These factors, among others, raise substantial doubt about our ability to
continue as a going concern. The financial statements contained elsewhere in this report do not include any adjustments that might
result from our inability to continue as a going concern.
If
we are unable to consummate the Merger or an alternative business combination, our public stockholders may be forced to wait until
August 1, 2019 before receiving distributions from the trust account.
We
have until August 1, 2019 in which to complete a business combination. We have no obligation to return funds to investors prior
to such date unless (i) we consummate a business combination prior thereto or (ii) we seek to amend our amended and restated certificate
of incorporation prior to consummation of a business combination, and only then in cases where investors have sought to convert
or sell their shares to us. Only after the expiration of this full time period will public security holders be entitled to distributions
from the trust account if we are unable to complete a business combination. Accordingly, investors’ funds may be unavailable
to them until after such date and to liquidate your investment, public security holders may be forced to sell their public shares
or warrants, potentially at a loss.
Our
public stockholders may not be afforded an opportunity to vote on our proposed business combination.
The
Merger requires the approval of our stockholders. However, in the event that the Merger is not consummated, we will, in connection
with any alternative business combination, either (1) seek stockholder approval of our initial business combination at a meeting
called for such purpose at which public stockholders may seek to convert their shares, regardless of whether they vote for or
against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account
(net of taxes payable), or (2) provide our public stockholders with the opportunity to sell their shares to us by means of a tender
offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount
then on deposit in the trust account (net of taxes payable), in each case subject to the limitations described elsewhere in this
report. Accordingly, it is possible that we will consummate our initial business combination even if holders of a majority of
our public shares do not approve of the business combination we consummate. The decision as to whether we will seek stockholder
approval of a proposed business combination or will allow stockholders to sell their shares to us in a tender offer will be made
by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the
terms of the transaction would otherwise require us to seek stockholder approval. For instance, Nasdaq rules currently allow us
to engage in a tender offer in lieu of a stockholder meeting but would still require us to obtain stockholder approval if we were
seeking to issue more than 20% of our outstanding shares to a target business as consideration in any business combination. Therefore,
if we were structuring a business combination that required us to issue more than 20% of our outstanding shares, we would seek
stockholder approval of such business combination instead of conducting a tender offer.
If
we seek stockholder approval of our initial business combination, such as in connection with the Merger, our sponsor has agreed
to vote in favor of such initial business combination, regardless of how our public stockholders vote.
Unlike
some other blank check companies in which the initial stockholders agree to vote their founders’ shares in accordance with
the majority of the votes cast by the public stockholders in connection with an initial business combination, our sponsor has
agreed (i) to vote any of the founders’ shares and shares of Class A common stock underlying the founders’ units held
by the sponsor in favor of any proposed business combination, (ii) not to convert any such shares in connection with a stockholder
vote to approve a proposed initial business combination such as in connection with the Merger and (iii) not to sell any
such shares to us in a tender offer in connection with any proposed business combination. As a result, we would need only 2,034,376,
or 35.4%, of the 5,750,000 public shares to be voted in favor of a transaction in order to have our initial business combination
approved (assuming all shares were present and entitled to vote at the meeting). Accordingly, it is more likely that the necessary
stockholder approval will be received than would be the case if our sponsor agreed to vote its founders’ shares and shares
of Class A common stock underlying the founders’ units in accordance with the majority of the votes cast by our public stockholders.
You
will not be entitled to protections normally afforded to investors of blank check companies.
We
are deemed to be a “blank check” company under the United States securities laws. However, since we had net tangible
assets in excess of $5,000,000 upon the successful consummation of our initial public offering and filed a Current Report on Form
8-K, including an audited balance sheet demonstrating this fact, we are exempt from rules promulgated by the SEC to protect investors
of blank check companies such as Rule 419. Accordingly, investors are not afforded the benefits or protections of those rules
which would, for example, completely restrict the transferability of our securities and restrict the use of interest earned on
the funds held in the trust account. Because we are not subject to Rule 419, we will be entitled to withdraw amounts from the
funds held in the trust account prior to the completion of a business combination.
If
we seek stockholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer
rules, a stockholder or a “group” of stockholders holding a substantial portion of our Class A common stock may influence
our ability to complete our business combination.
Unlike
other blank check companies, if we seek stockholder approval of our initial business combination and we do not conduct redemptions
in connection with our initial business combination pursuant to the tender offer rules, our amended and restated certificate of
incorporation does not provide that 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),
holding in excess of a certain percentage of shares offered in our initial public offering will be restricted from seeking redemption
rights with respect to any shares they hold in excess of such percentage. The ability of any such stockholder to redeem all their
shares will increase their influence over our ability to complete our business combination and could make it more difficult for
us to complete such business combination.
If
we determine to change our acquisition criteria or guidelines, many of the disclosures contained in this report would be rendered
irrelevant and you would be investing in our company without any basis on which to evaluate the potential target business we may
acquire.
We
could seek to deviate from the acquisition criteria or guidelines disclosed in the prospectus relating to our initial public offering,
although we have no current intention to do so. For instance, we currently anticipate acquiring a target business with a consistent
historical financial performance, and the Merger does not deviate from such guidelines. However, in the event that we do not consummate
the Merger, we are not obligated to do so and may determine to merge with or acquire a company with no operating history if the
terms of the transaction are determined by us to be favorable to our public stockholders. In such event, many of the acquisition
criteria and guidelines set forth in the prospectus relating to our initial public offering would be rendered irrelevant. We could
also seek to amend our amended and restated certificate of incorporation to provide us with more time to complete an initial business
combination. Accordingly, investors may be making an investment in our company without any basis on which to evaluate the potential
target business we may acquire.
We
may issue shares of our capital stock or debt securities to complete a business combination, which would reduce the equity interest
of our stockholders and likely cause a change in control of our ownership.
Our
certificate of incorporation authorizes the issuance of up to 15,000,000 shares of Class A common stock, par value $0.0001 per
share, 3,000,000 shares of Class B common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value
$0.0001 per share. There are currently 2,268,750 and 1,562,500 authorized but unissued shares of Class A and Class B common stock
available, respectively, for issuance, which amount takes into account shares reserved for issuance upon exercise of outstanding
warrants (including insiders’ warrants) and the underwriters’ unit purchase option but not upon the conversion of
the Class B common stock. Shares of Class B common stock are automatically convertible into shares of our Class A common stock
at the time of our initial business combination, initially at a one-for-one ratio but subject to adjustment as set forth herein.
Currently, there are no shares of preferred stock issued and outstanding. We may issue a substantial number of additional shares
of common stock or shares of preferred stock, or a combination of common stock and preferred stock, to complete a business combination.
We may also issue shares of Class A common stock upon conversion of the Class B common stock at a ratio greater than one-to-one
at the time of our initial business combination as a result of the anti-dilution provisions contained therein (although this is
not the case if we consummate the Merger). The issuance of additional shares of common stock will not reduce the per-share conversion
amount in the trust account. The issuance of additional shares of common stock or preferred stock:
|
●
|
may
significantly reduce the equity interest of investors;
|
|
●
|
may
subordinate the rights of holders of shares of common stock if we issue shares of preferred stock with rights senior to those
afforded to our shares of common stock;
|
|
●
|
may
cause a change in control if a substantial number of shares of common stock are issued, which may affect, among other things,
our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present
officers and directors; and
|
|
●
|
may
adversely affect prevailing market prices for our shares of common stock.
|
Similarly,
if we issue debt securities, it could result in:
|
●
|
default
and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations;
|
|
●
|
acceleration
of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
|
|
●
|
our
immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and
|
|
●
|
our
inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such
financing while the debt security is outstanding.
|
If
we incur indebtedness, our lenders will not have a claim on the cash in the trust account and such indebtedness will not decrease
the per-share conversion amount in the trust account.
If
the proceeds not being held in trust are insufficient to allow us to operate until August 1, 2019, we may be unable to complete
a business combination.
If
we use all of the funds held outside of the trust account, we may not have sufficient funds available with which to structure,
negotiate or close an initial business combination. In such event, we would need to borrow funds from our sponsor, officers or
directors or their affiliates to operate or may be forced to liquidate. Our sponsor, officers, directors and their affiliates
may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount that they deem reasonable in
their sole discretion for our working capital needs. Each loan would be evidenced by a promissory note. The notes would either
be paid upon consummation of our initial business combination, without interest, or, at holder’s discretion, up to $1,500,000
of the notes may be converted into units at a price of $10.00 per unit. As of the date hereof, an aggregate of $150,000 of such
loans have been made.
If
third parties bring claims against us, the proceeds held in trust could be reduced and the per-share redemption price received
by stockholders may be less than $10.00.
Our
placing of funds in trust may not protect those funds from third party claims against us. Although we seek to have all vendors
and service providers we engage and prospective target businesses we negotiate with execute agreements with us waiving any right,
title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders,
they may not execute such agreements. Furthermore, even if such entities execute such agreements with us, they may seek recourse
against the trust account. A court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could
be subject to claims which could take priority over those of our public stockholders. If we are unable to complete a business
combination and distribute the proceeds held in trust to our public stockholders, Mr. Van Dyke has agreed (subject to
certain exceptions described elsewhere in this report) that he will be liable to ensure that the proceeds in the trust account
are not reduced below $10.00 per share by the claims of target businesses or claims of vendors or other entities that are owed money
by us for services rendered or contracted for or products sold to us. However, he may not be able to meet such obligation. Therefore,
the per-share distribution from the trust account may be less than $10.00, plus interest, due to such claims.
Additionally,
if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds
held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject
to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete
the trust account, we may not be able to return to our public stockholders at least $10.00. We have not independently verified
whether Mr. Van Dyke has sufficient funds to satisfy his indemnity obligations. We have not asked Mr. Van Dyke to reserve for
such indemnification obligations. As a result, if any such claims were successfully made against the trust account, the funds
available for our initial business combination and redemptions could be reduced to less than $10.00 per public share.
Our
stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.
Our
amended and restated certificate of incorporation provides that we will continue in existence only until August 1, 2019. If we
have not completed the Merger or an alternative business combination by such date, we 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 100%
of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
trust account, including any interest earned on the funds held in the trust account net of interest that may be used by us to
pay our franchise and income taxes payable and up to $15,000 of any remaining interest for 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), subject to applicable law, and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors,
dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims
of creditors and the requirements of other applicable law. We cannot assure you that we will properly assess all claims that may
be potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions
received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of the date
of distribution. Accordingly, we cannot assure you that third parties will not seek to recover from our stockholders amounts owed
to them by us.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which 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 all amounts received
by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders
promptly after expiration of the time we have to complete an initial business combination, this may be viewed or interpreted as
giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our
assets. Furthermore, our board may be viewed as having breached their fiduciary duties to our creditors and/or may have acted
in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the
trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for
these reasons.
Our
directors may decide not to enforce Mr. Van Dyke’s indemnification obligations, resulting in a reduction in the amount of
funds in the trust account available for distribution to our public stockholders.
In
the event that the proceeds in the trust account are reduced below $10.00 per public share and Mr. Van Dyke asserts that he is
unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our independent
directors would determine whether to take legal action against Mr. Van Dyke to enforce such indemnification obligations. While
we currently expect that our independent directors would take legal action on our behalf against Mr. Van Dyke to enforce such
indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose
not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations,
the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $10.00 per
share.
If
we do not file and maintain a current and effective prospectus relating to the Class A common stock issuable upon exercise of
the warrants issued in our initial public offering, holders will only be able to exercise such warrants on a “cashless basis.”
If
we do not file and maintain a current and effective prospectus relating to the Class A common stock issuable upon exercise of
the warrants issued in our initial public offering at the time that holders wish to exercise such warrants, they will only be
able to exercise them on a “cashless basis” provided that an exemption from registration is available. As a result,
the number of shares of Class A common stock that holders will receive upon exercise of the warrants will be fewer than it would
have been had such holder exercised his warrant for cash. Further, if an exemption from registration is not available, holders
would not be able to exercise on a cashless basis and would only be able to exercise their warrants for cash if a current and
effective prospectus relating to the Class A common stock issuable upon exercise of the warrants issued in our initial public
offering is available. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditions
and to file and maintain a current and effective prospectus relating to the Class A common stock issuable upon exercise of the
warrants issued in our initial public offering until the expiration of the warrants. However, we cannot assure you that we will
be able to do so. If we are unable to do so, the potential “upside” of the holder’s investment in our company
may be reduced or the warrants may expire worthless.
An
investor will only be able to exercise a warrant if the issuance of shares of Class A common stock upon such exercise has been
registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants
issued in our initial public offering.
No
warrants will be exercisable and we will not be obligated to issue shares of Class A common stock unless the shares of Class A
common stock issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of
the state of residence of the holder of the warrants. If the shares of Class A common stock issuable upon exercise of the warrants
are not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the warrants
may be deprived of any value, the market for the warrants may be limited and they may expire worthless if they cannot be sold
and may be subject to redemption.
We
may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 50%
of the then outstanding warrants.
Our
warrants are issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant
agent, and us. 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. The warrant agreement requires the approval by the holders of at least
50% of the then outstanding warrants in order to make any change that adversely affects the interests of the registered holders.
Unlike
many other similarly structured blank check companies, our initial stockholder may receive additional shares of Class A common
stock if we issue shares to consummate an initial business combination.
The
founders’ shares will automatically convert into Class A common stock on the first business day following the consummation
of our initial business combination on a one-for-one basis, subject to adjustment as provided herein. Although this is not the
case if we consummate the Merger, in the case that additional Class A common stock, or equity-linked securities convertible or
exercisable for Class A common stock, are issued or deemed issued in excess of the amounts offered in our initial public offering
and related to the closing of the initial business combination, the ratio at which founders’ shares shall convert into Class
A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive
such adjustment with respect to any such issuance or deemed issuance) so that the number of Class A common stock issuable upon
conversion of all founders’ shares will equal, in the aggregate, on an as-converted basis, 20% of the total number of all
outstanding shares of common stock upon completion of the initial business combination (not including the shares of Class A common
stock underlying the founders’ units) excluding any shares or equity-linked securities issued, or to be issued, to any seller
in the initial business combination and any founders’ units (and underlying securities) issued upon conversion of working
capital loans, after taking into account Class A common stock redeemed in connection with the business combination. This is different
from most other similarly structured blank check companies in which the initial stockholder will only be issued an aggregate of
20% of the total number of shares to be outstanding prior to the initial business combination. This may make it more difficult
and expensive for us to consummate an initial business combination.
Because
we are not limited to a particular industry or target business with which to complete a business combination, in the event that
the Merger is not consummated, we are unable to currently ascertain the merits or risks of the industry or business in which we
may ultimately operate.
We
may consummate a business combination with a company in any industry we choose and are not limited to any particular industry
or type of business, although we intend to focus on companies or assets ancillary to the cannabis industry. Accordingly, in the
event that the Merger is not consummated, there is no current basis for you to evaluate the possible merits or risks of the particular
industry in which we may ultimately operate or the target business which we may ultimately acquire. To the extent we complete
a business combination with a financially unstable company or an entity in its development stage, we may be affected by numerous
risks inherent in the business operations of those entities. If we complete a business combination with an entity in an industry
characterized by a high level of risk, we may be affected by the currently unascertainable risks of that industry. Although our
management will endeavor to evaluate the risks inherent in a particular industry or target business, we cannot assure you that
we will properly ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our
securities will not ultimately prove to be less favorable than a direct investment, if an opportunity were available, in a target
business.
Our
ability to successfully effect a business combination and to be successful thereafter will be totally dependent upon the efforts
of our key personnel, some of whom may join us following a business combination. While we intend to closely scrutinize any individuals
we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct.
Our
ability to successfully effect a business combination is dependent upon the efforts of our key personnel. We believe that our
success depends on the continued service of our key personnel, at least until we have consummated our initial business combination.
We cannot assure you that any of our key personnel will remain with us for the immediate or foreseeable future. In addition, none
of our officers are required to commit any specified amount of time to our affairs and, accordingly, our officers will have conflicts
of interest in allocating management time among various business activities, including identifying potential business combinations
and monitoring the related due diligence. We do not have employment agreements with, or key-man insurance on the life of, any
of our officers. The unexpected loss of the services of our key personnel could have a detrimental effect on us.
In
the event that the Merger is consummated, Messrs. Kane, Rehmatullah and Rothschild will serve as directors of the surviving corporation.
In the event that the Merger is not consummated, the role of our key personnel after a business combination, however, cannot presently
be ascertained. Although some of our key personnel may serve in senior management or advisory positions following a business combination,
it is likely that most, if not all, of the management of the target business will remain in place. While we intend to closely
scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals
will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could
cause us to have to expend time and resources helping them become familiar with such requirements. This could be expensive and
time-consuming and could lead to various regulatory issues which may adversely affect our operations.
Our
officers and directors may not have significant experience or knowledge regarding the jurisdiction or industry of the target business
we may seek to acquire.
We
may consummate a business combination with a target business in any geographic location or industry we choose, although we intend
to focus on companies or assets ancillary to the cannabis industry, with a particular sector focus that includes compliance, business
intelligence, brand development and media. We cannot assure you that our officers and directors will have enough experience or
have sufficient knowledge relating to the jurisdiction of the target or its industry to make an informed decision regarding a
business combination.
Our
key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business
combination. These agreements may provide for them to receive compensation following a business combination and as a result, may
cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
In
the event that the Merger is consummated, members of our management team may be paid director fees from the surviving corporation.
In the event that the Merger is not consummated, our key personnel will be able to remain with the company after the consummation
of a business combination only if they are able to negotiate employment or consulting agreements or other appropriate arrangements
in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business
combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities
for services they would render to the company after the consummation of the business combination. The personal and financial interests
of such individuals may influence their motivation in identifying and selecting a target business.
Our
officers and directors allocate their time to other businesses thereby causing conflicts of interest in their determination as
to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to consummate
a business combination.
Our
officers and directors are not required to commit their full time to our affairs, which could create a conflict of interest when
allocating their time between our operations and their other commitments. Each of our employees devotes such amount of time as
they reasonably believe is necessary to our business. We do not intend to have any full time employees prior to the consummation
of our initial business combination. All of our officers and directors are engaged in other business endeavors and are not obligated
to devote any specific number of hours to our affairs. If our officers’ and directors’ other business affairs require
them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and
could have a negative impact on our ability to consummate the Merger or an alternative initial business combination. We cannot
assure you that these conflicts will be resolved in our favor.
Our
officers and directors may have a conflict of interest in determining whether a particular target business is appropriate for
a business combination.
Our
sponsor, which is affiliated with certain of our officers and directors, has agreed to waive its right to convert its founders’
shares, the shares of Class A common stock underlying the founders’ units or any other public shares purchased, or to receive
distributions from the trust account with respect to its founders’ shares or the shares of Class A common stock underlying
the founders’ units upon our liquidation if we are unable to consummate a business combination. Accordingly, the shares
acquired prior to our initial public offering, as well as the founders’ units and the securities underlying the founders’
units, will be worthless if we do not consummate a business combination. The personal and financial interests of our directors
and officers, through their interests in our sponsor, may influence their motivation in timely identifying and selecting a target
business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying
and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and
timing of a particular business combination are appropriate and in our stockholders’ best interest.
Certain
of our officers have, and any of our officers and directors or their affiliates may in the future have, fiduciary and contractual
obligations and accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should
be presented.
Certain
of our directors have, and any of our officers and directors or their affiliates may in the future have, fiduciary and contractual
obligations to other companies. Accordingly, they may participate in transactions and have obligations that may be in conflict
or competition with our consummation of our initial business combination. As a result, a potential target business may be presented
by our management team to another entity prior to its presentation to us and we may not be afforded the opportunity to engage
in a transaction with such target business.
Our
executive officers, directors, senior advisor, security holders and their respective affiliates may have competitive pecuniary
interests that conflict with our interests.
We
have not adopted a policy that expressly prohibits our directors, executive officers, senior advisor, security holders or affiliates
from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any
transaction to which we are a party or have an interest. In fact, we may enter into a business combination with a target business
that is affiliated with our sponsor, our directors, executive officers or our senior advisor (although this is not the case with
respect to the Merger). Nor do we have a policy that expressly prohibits any such persons from engaging for their own account
in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests
and ours. We will be required to obtain a fairness opinion with respect to the target business that we seek to acquire if it is
an entity that is affiliated with any of our officers, directors or sponsor.
Nasdaq
may delist our securities from quotation on its exchange which could limit investors’ ability to make transactions in our
securities and subject us to additional trading restrictions.
Our
securities are currently listed on Nasdaq. However, we cannot assure you that our securities will continue to be listed on Nasdaq
in the future or prior to our initial business combination. In order to continue listing our securities on Nasdaq prior to our
initial business combination, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain
a minimum amount in stockholders’ equity (generally $2,500,000) and a minimum number of holders of our securities (generally
300 round-lot holders). Additionally, in connection with our initial business combination, we will be required to demonstrate
compliance with Nasdaq’s initial listing requirements, which are more rigorous than Nasdaq’s continued listing requirements,
in order to continue to maintain the listing of our securities on Nasdaq. For instance, our stock price would generally be required
to be at least $4 per share and our stockholders’ equity would generally be required to be at least $5 million. Additionally,
we can provide no assurance that the securities of the combined company following our initial business combination will continue
to be listed on Nasdaq if our target company is unable to meet the initial listing standards, including qualitative and quantitative
standards.
If
Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities
exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant
material adverse consequences, including:
|
●
|
a limited
availability of market quotations for our securities;
|
|
●
|
reduced
liquidity with respect to our securities;
|
|
●
|
a determination
that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock
to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for
our shares of common stock;
|
|
●
|
a limited
amount of news and analyst coverage for our company; 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.” Because our units and our Class A common
stock and warrants are currently listed on Nasdaq, our units, Class A common stock and 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 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 we were no longer listed on Nasdaq, our securities would not be covered securities and we would be
subject to regulation in each state in which we offer our securities.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our shares of common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act. We will remain an “emerging growth company”
for up to five years. However, if our non-convertible debt issued within a three year period exceeds $1 billion or revenues exceeds
$1.07 billion, or the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last
day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following
fiscal year. As an emerging growth company, we are not required to comply with the auditor attestation requirements of section
404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements and we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, we
have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private
companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies
that comply with public company effective dates. We cannot predict if investors will find our shares of common stock less attractive
because we may rely on these provisions. If some investors find our shares of common stock less attractive as a result, there
may be a less active trading market for our shares and our share price may be more volatile.
We
may only be able to complete one business combination with the proceeds of our initial public offering, which will cause us to
be solely dependent on a single business which may have a limited number of products or services.
It
is likely we will consummate a business combination with a single target business, although, in the event that the Merger is not
consummated, we have the ability to simultaneously acquire several target businesses. By consummating a business combination with
only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments.
Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses,
unlike other entities which may have the resources to complete several business combinations in different industries or different
areas of a single industry. Accordingly, the prospects for our success may be:
|
●
|
solely
dependent upon the performance of a single business, or
|
|
●
|
dependent
upon the development or market acceptance of a single or limited number of products, processes or services.
|
This
lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may
have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination.
Alternatively,
if we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need
for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business
combinations, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple
business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple
negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent
assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable
to adequately address these risks, it could negatively impact our profitability and results of operations.
The
ability of our stockholders to exercise their conversion rights or sell their shares to us in a tender offer may not allow us
to effectuate the most desirable business combination or optimize our capital structure.
If
our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know
how many stockholders may exercise conversion rights or seek to sell their shares to us in a tender offer, we may either need
to reserve part of the trust account for possible payment upon such conversion, or we may need to arrange third party financing
to help fund our business combination. In the event that the acquisition involves the issuance of our stock as consideration,
we may be required to issue a higher percentage of our stock to make up for a shortfall in funds. Raising additional funds to
cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may
limit our ability to effectuate the most attractive business combination available to us.
In
connection with any stockholder meeting called to approve a proposed initial business combination, we may require stockholders
who wish to convert their shares in connection with a proposed business combination to comply with specific requirements for conversion
that may make it more difficult for them to exercise their conversion rights prior to the deadline for exercising their rights.
In
connection with any stockholder meeting called to approve a proposed initial business combination, each public stockholder will
have the right, regardless of whether he is voting for or against such proposed business combination, to demand that we convert
his shares into a pro rata share of the trust account as of two business days prior to the consummation of the initial business
combination. We may require public stockholders who wish to convert their shares in connection with a proposed business combination
to either (i) tender their certificates to our transfer agent or (ii) deliver their shares to the transfer agent electronically
using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holders’ option, in each
case prior to a date set forth in the proxy materials sent in connection with the proposal to approve the business combination.
In order to obtain a physical stock certificate, a stockholder’s broker and/or clearing broker, DTC and our transfer agent
will need to act to facilitate this request. It is our understanding that stockholders should generally allot at least two weeks
to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over
the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. While we have been
advised that it takes a short time to deliver shares through the DWAC System, we cannot assure you of this fact. Accordingly,
if it takes longer than we anticipate for stockholders to deliver their shares, stockholders who wish to convert may be unable
to meet the deadline for exercising their conversion rights and thus may be unable to convert their shares.
If,
in connection with any stockholder meeting called to approve a proposed business combination, we require public stockholders who
wish to convert their shares to comply with specific requirements for conversion, such converting stockholders may be unable to
sell their securities when they wish to in the event that the proposed business combination is not approved.
If
we require public stockholders who wish to convert their shares to either (i) tender their certificates to our transfer agent
or (ii) deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal
At Custodian) System as described above and such proposed business combination is not consummated, we will promptly return such
certificates to the tendering public stockholders. Accordingly, investors who attempt to convert their shares in such a circumstance
will be unable to sell their securities after the failed acquisition until we have returned their securities to them. The market
price for our shares of common stock may decline during this time and you may not be able to sell your securities when you wish
to, even while other stockholders that did not seek conversion may be able to sell their securities.
Because
of our structure, other companies may have a competitive advantage and we may not be able to consummate an attractive business
combination.
We
encounter intense competition from entities other than blank check companies having a business objective similar to ours, including
venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities are
well established and have extensive experience in identifying and effecting business combinations directly or through affiliates.
Many of these competitors possess greater technical, human and other resources than we do and our financial resources are relatively
limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses
that we could acquire with the net proceeds of our initial public offering, including MJF, our ability to compete in acquiring
certain sizable target businesses is limited by our available financial resources. This inherent competitive limitation gives
others an advantage in pursuing the acquisition of certain target businesses. Furthermore, seeking stockholder approval or engaging
in a tender offer in connection with any proposed business combination may delay the consummation of such a transaction. Additionally,
our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses.
Any of the foregoing may place us at a competitive disadvantage in successfully negotiating a business combination.
We
may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth
of the target business, which could compel us to restructure or abandon a particular business combination.
In
the event that the Merger is not consummated, we cannot ascertain the capital requirements for any particular transaction. If
the Merger is not consummated and we attempt to consummate an alternative business combination, if the net proceeds of our initial
public offering prove to be insufficient, either because of the size of the business combination, the depletion of the available
net proceeds in search of a target business, or the obligation to convert into cash a significant number of shares from dissenting
stockholders, we will be required to seek additional financing. Such financing may not be available on acceptable terms, if at
all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business combination,
we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative
target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the
operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on
the continued development or growth of the target business. None of our sponsor, officers, directors or stockholders is required
to provide any financing to us in connection with or after a business combination.
Our
initial stockholder controls a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
Our
sponsor owns approximately 22.6% of our issued and outstanding shares of common stock (including the shares of Class A common
stock underlying the founders’ units). Our sponsor, officers, directors or their affiliates could determine in the future
to make such purchases in the open market or in private transactions, to the extent permitted by law, in order to influence the
vote or magnitude of the number of stockholders seeking to tender their shares to us. In connection with any vote for a proposed
business combination, our sponsor, as well as all of our officers and directors, have agreed to vote the shares of Class B common
stock owned by them immediately before our initial public offering, the shares of Class A common stock underlying the founders’
units, as well as any shares of Class A common stock acquired in our initial public offering or in the aftermarket in favor of
such proposed business combination.
Our
board of directors is divided into two classes, each of which generally serves for a term of two years with only one class of
directors being elected in each year. There may not be an annual meeting of stockholders to elect new directors prior to the consummation
of a business combination, in which case all of the current directors will continue in office until at least the consummation
of the business combination. If there is an annual meeting, as a consequence of our “staggered” board of directors,
only a minority of the board of directors will be considered for election and our sponsor, because of their ownership position,
will have considerable influence regarding the outcome. Accordingly, our initial stockholder will continue to exert control at
least until the consummation of a business combination.
Our
outstanding warrants and unit purchase options may have an adverse effect on the market price of our Class A common stock and
make it more difficult to effect a business combination.
We
issued warrants to purchase 5,750,000 shares of Class A common stock as part of the units offered in our initial public offering,
founders’ warrants to purchase 243,750 shares of Class A common stock and 250,000 warrants underlying the unit purchase
options. We may also issue other units containing warrants to our sponsor, officers or directors in payment of working capital
loans made to us as described in this report. To the extent we issue shares of Class A common stock to effect a business combination,
the potential for the issuance of a substantial number of additional shares upon exercise of these warrants and unit purchase
options could make us a less attractive acquisition vehicle in the eyes of a target business. Such securities, when exercised,
will increase the number of issued and outstanding shares of common stock and reduce the value of the shares issued to complete
the business combination. Accordingly, our warrants and unit purchase options may make it more difficult to effectuate a business
combination or increase the cost of acquiring the target business. Additionally, the sale, or even the possibility of sale, of
the shares underlying the warrants or unit purchase options could have an adverse effect on the market price for our securities
or on our ability to obtain future financing. If and to the extent these warrants and options are exercised, you may experience
dilution to your holdings.
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 last reported sales price of our Class A common stock equals or exceeds $18.00 per
share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within a
30 trading-day period ending on the third business day prior to proper notice of such redemption provided that on the date we
give notice of redemption and during the entire period thereafter until the time we redeem the warrants, we have an effective
registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the warrants
and a current prospectus relating to them is available. 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 (i) to exercise your warrants and pay the exercise price therefor
at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you
might otherwise wish to hold your warrants or (iii) to 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 founders’
warrants will be redeemable by us so long as they are held by our sponsor or its permitted transferees.
Our
management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders
to receive fewer shares of Class A common stock upon their exercise of the warrants than they would have received had they been
able to exercise their warrants for cash.
If
we call our public warrants for redemption after the redemption criteria described elsewhere in this report have been satisfied,
our management will have the option to require any holder that wishes to exercise his warrant (including any warrants held by
our sponsor, officers or directors, other purchasers of our founders’ units, or their permitted transferees) to do so on
a “cashless basis.” If our management chooses to require holders to exercise their warrants on a cashless basis, the
number of shares of Class A common stock received by a holder upon exercise will be fewer than it would have been had such holder
exercised his warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s
investment in our company.
We
have no obligation to net cash settle the warrants.
In
no event will we have any obligation to net cash settle the warrants. Furthermore, there are no contractual penalties for failure
to deliver securities to the holders of the warrants upon exercise of the warrants. Accordingly, the warrants may expire worthless.
If
our security holders exercise their registration rights, it may have an adverse effect on the market price of our shares of Class
A common stock and the existence of these rights may make it more difficult to effect a business combination.
Our
initial stockholders are entitled to make a demand that we register the resale of the founders’ shares at any time commencing
three months prior to the date on which their shares may be released from escrow. Additionally, the holders of the founders’
units and any units our sponsor, officers, directors, or their affiliates may be issued in payment of working capital loans made
to us are entitled to demand that we register the resale of the founders’ units and any other units we issue to them (and
the underlying shares of Class A common stock) commencing at any time after we consummate an initial business combination, as
well as any securities underlying any such units. In connection with the Merger, the current owners of MJF will be granted piggy-back
registration rights for any shares that may be issued pursuant to the Merger for purchase price adjustment or indemnification
claims. The presence of these additional shares of Class A common stock trading in the public market may have an adverse effect
on the market price of our securities. In addition, the existence of these rights may make it more difficult to effectuate a business
combination or increase the cost of acquiring the target business, as the stockholders of the target business may be discouraged
from entering into a business combination with us or will request a higher price for their securities because of the potential
effect the exercise of such rights may have on the trading market for our shares of Class A common stock.
If
we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities
may be restricted, which may make it difficult for us to complete a business combination.
A
company that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business
of investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under
the Investment Company Act, as amended, or the Investment Company Act. Since we invested the proceeds held in the trust account,
it is possible that we could be deemed an investment company. Notwithstanding the foregoing, we do not believe that our principal
activities subject us to the Investment Company Act. To this end, the proceeds held in trust may be invested by the trustee only
in United States “government securities” within the meaning of Section 2(a)(16) of 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. By restricting the investment of the proceeds to
these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment
Company Act.
If
we are nevertheless deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions
that may make it more difficult for us to complete a business combination, including:
|
●
|
restrictions
on the nature of our investments; and
|
|
●
|
restrictions
on the issuance of securities.
|
In
addition, we may have imposed upon us certain burdensome requirements, including:
|
●
|
registration
as an investment company;
|
|
●
|
adoption
of a specific form of corporate structure; and
|
|
●
|
reporting,
record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.
|
Compliance
with these additional regulatory burdens would require additional expense for which we have not allotted.
If
we do not conduct an adequate due diligence investigation of a target business, we 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 our financial condition,
results of operations and our stock price, which could cause you to lose some or all of your investment.
We
must conduct a due diligence investigation of the target businesses we intend to acquire. Intensive due diligence is time consuming
and expensive due to the operations, accounting, finance and legal professionals who must be involved in the due diligence process.
Even if we conduct extensive due diligence on a target business, this diligence may not reveal all material issues that may affect
a particular target business, and factors outside the control of the target business and outside of our control may later arise.
If our diligence fails to identify issues specific to a target business, industry or the environment in which the target business
operates, 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 though these charges may be non-cash items and not have an immediate impact on
our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our
common stock. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject
as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing.
The
requirement that we complete an initial business combination by August 1, 2019 may give potential target businesses leverage over
us in negotiating a business combination.
We
have until August 1, 2019 to complete an initial business combination. Any potential target business with which we enter into
negotiations concerning a business combination will be aware of this requirement. Consequently, such target business may obtain
leverage over us in negotiating a business combination, knowing that if we do not complete a business combination with that particular
target business, we may be unable to complete a business combination with any other target business. This risk will increase as
we get closer to the time limit referenced above.
We
may not be able to complete our initial business combination within the prescribed time frame, in which case we would cease all
operations except for the purpose of winding up and we would redeem our public shares and liquidate.
We
must complete our initial business combination by August 1, 2019. We may not be able to find a suitable target business and complete
our initial business combination within such time period or we may be unable to consummate a business combination due to a downturn
in industry or economic conditions or due to other factors that may occur. If we have not completed our initial business combination
by August 1, 2019, we 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 100% of the outstanding public shares, at a per-share price, payable in
cash, equal to the aggregate amount then on deposit in the trust account, including any interest earned on the funds held in the
trust account net of interest that may be used by us to pay our franchise and income taxes payable and up to $15,000 of any remaining
interest for 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),
subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of
our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to
our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
We
may not obtain a fairness opinion with respect to the target business that we seek to acquire and therefore you may be relying
solely on the judgment of our board of directors in approving a proposed business combination.
We
will only be required to obtain a fairness opinion with respect to the target business that we seek to acquire if it is an entity
that is affiliated with any of our officers, directors or sponsor. In all other instances, we will have no obligation to obtain
an opinion. We are not required to obtain, and have not obtained, a fairness opinion in connection with the Merger. Accordingly,
investors will be relying solely on the judgment of our board of directors in approving a proposed business combination.
Resources
could be spent researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts
to locate and acquire or merge with another business.
The
investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments, such as in connection with the Merger, require substantial management time and attention and
substantial costs for accountants, attorneys and others. If a decision is made not to complete a specific business combination,
such as the Merger, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore,
even if an agreement is reached relating to a specific target business, such as the Merger, we may fail to consummate the business
combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related
costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
Compliance
with the Sarbanes-Oxley Act of 2002 requires substantial financial and management resources and may increase the time and costs
of completing an acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls and may require
that we have such system of internal controls audited beginning with our Annual Report on Form 10-K for the year ending December
31, 2019. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal
penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. Section
404 of the Sarbanes-Oxley Act also requires that our independent registered public accounting firm report on management’s
evaluation of our system of internal controls. A target company may not be in compliance with the provisions of the Sarbanes-Oxley
Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance
with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Furthermore, any failure
to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our
financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations.
Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have
a negative effect on the trading price of our stock.
If
we effect a business combination with a company located outside of the United States, we would be subject to a variety of additional
risks that may negatively impact our operations.
In
the event that we do not consummate the Merger, we may effect a business combination with a company located outside of the United
States. If we did, we would be subject to any special considerations or risks associated with companies operating in the target
business’ home jurisdiction, including any of the following:
|
●
|
rules
and regulations or currency conversion or corporate withholding taxes on individuals;
|
|
●
|
tariffs
and trade barriers;
|
|
●
|
regulations
related to customs and import/export matters;
|
|
●
|
tax
issues, such as tax law changes and variations in tax laws as compared to the United States;
|
|
●
|
currency
fluctuations and exchange controls;
|
|
●
|
challenges
in collecting accounts receivable;
|
|
●
|
cultural
and language differences;
|
|
●
|
employment
regulations;
|
|
●
|
crime,
strikes, riots, civil disturbances, terrorist attacks and wars; and
|
|
●
|
deterioration
of political relations with the United States.
|
We
cannot assure you that we would be able to adequately address these additional risks. If we were unable to do so, our operations
might suffer.
If
we effect a business combination with a company located outside of the United States, the laws applicable to such company will
likely govern all of our material agreements and we may not be able to enforce our legal rights.
In
the event that we do not consummate the Merger, if we effect a business combination with a company located outside of the United
States, the laws of the country in which such company operates will govern almost all of the material agreements relating to its
operations. We cannot assure you that the target business will be able to enforce any of its material agreements or that remedies
will be available in this new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not
be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under
any of our future agreements could result in a significant loss of business, business opportunities or capital. Additionally,
if we acquire a company located outside of the United States, it is likely that substantially all of our assets would be located
outside of the United States and some of our officers and directors might reside outside of the United States. As a result, it
may not be possible for investors in the United States to enforce their legal rights, to effect service of process upon our directors
or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors
and officers under federal securities laws.
Provisions
in our amended and restated certificate of incorporation and bylaws and Delaware law may inhibit a takeover of us, which could
limit the price investors might be willing to pay in the future for our common stock and could entrench management.
Our
amended and restated certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals
that stockholders may consider to be in their best interests. Our board of directors is divided into two classes, each of which
serves for a term of two years with only one class of directors being elected in each year. As a result, at a given annual meeting
only a minority of the board of directors may be considered for election. Since our “staggered board” may prevent
our stockholders from replacing a majority of our board of directors at any given annual meeting, it may entrench management and
discourage unsolicited stockholder proposals that may be in the best interests of stockholders. Moreover, our board of directors
has the ability to designate the terms of and issue new series of preferred stock. We are also subject to anti-takeover provisions
under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal
of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices
for our securities.
Because
we must furnish our stockholders with target business financial statements prepared in accordance with U.S. generally accepted
accounting principles or international financial reporting standards, we will not be able to complete a business combination with
prospective target businesses unless their financial statements are prepared in accordance with U.S. generally accepted accounting
principles.
The
federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain financial
significance tests include historical and/or pro forma financial statement disclosure in periodic reports. These financial statements
may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United
States of America, or GAAP, or international financial reporting standards, or IFRS, depending on the circumstances, and the historical
financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight
Board (United States), or PCAOB. We will include the same financial statement disclosure in connection with any tender offer documents
we use, whether or not they are required under the tender offer rules. Additionally, to the extent we furnish our stockholders
with financial statements prepared in accordance with IFRS, such financial statements will need to be audited in accordance with
U.S. GAAP at the time of the consummation of the business combination. These financial statement requirements may limit the pool
of potential target businesses we may acquire.
A
market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
The
price of our securities may vary significantly due to one or more potential business combinations and general market or economic
conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained.
You may be unable to sell your securities unless a market can be established and sustained.
Changes
in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and
results of operations.
We
are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply
with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult,
time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time
and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a
failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our
business and results of operations.
We
may be subject to an increased rate of tax on our income if we are treated as a personal holding company.
Depending
on the date and size of our initial business combination, it is possible that we could be treated as a “personal holding
company” for U.S. federal income tax purposes. A U.S. corporation generally will be classified as a personal holding company
for U.S. federal income tax purposes in a given taxable year if more than 50% of its ownership (by value) is concentrated, within
a certain period of time, in five or fewer individuals (without regard to their citizenship or residency and including as individuals
for this purpose certain entities such as certain tax-exempt organizations, pension funds, and charitable trusts), and at least
60% of its income is comprised of certain passive items.
There
may be tax consequences to our business combination that may adversely affect us.
While
we expect to undertake any merger or acquisition so as to minimize taxes both to the acquired business and/or asset and us, such
business combination might not meet the statutory requirements of a tax-free reorganization, or the parties might not obtain the
intended tax-free treatment upon a transfer of shares or assets. A non-qualifying reorganization could result in the imposition
of substantial taxes.
Our
amended and restated certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State
of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our
amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought
in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought
only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit
will be deemed to have consented to service of process on such stockholder’s counsel. Any person or entity purchasing or
otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions
in our amended and restated certificate of incorporation.
This
choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable
for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect
to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate
of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such
action in other jurisdictions, which could harm our business, operating results and financial condition.
There
are risks related to the cannabis industry to which we may be subject.
Business
combinations with companies with operations in the cannabis industry entail special considerations and risks. If we are successful
in completing a business combination with a target business with operations in the cannabis industry, we will be subject to, and
possibly adversely affected by, the following risks:
|
●
|
Use
of cannabis is illegal under federal law, and therefore, strict enforcement of federal laws regarding the use, cultivation, processing
and/or sale of cannabis would likely result in our inability to execute a business plan in the cannabis industry;
|
|
●
|
Enforcement
of federal law under the Controlled Substances Act by the Department of Justice and the Trump administration may negatively impact
our ability to pursue our prospective business operations and/or generate revenues;
|
|
●
|
The
cannabis industry is extremely speculative and its legality is uncertain, making it subject to inherent risk;
|
|
●
|
Consumer
complaints and negative publicity regarding the products and services of a prospective business could hurt the business and reputation
of such business;
|
|
●
|
Recent
governmental changes and other developments at the federal level have created uncertainty in the cannabis industry;
|
|
●
|
New
laws and regulations that are adverse to the cannabis industry may be enacted, and current favorable state or local laws and regulations
relating to cannabis may be modified or eliminated in the future;
|
|
●
|
Our
ability to grow a business in the cannabis industry will depend on state laws pertaining to the cannabis industry;
|
|
●
|
Assets
leased to cannabis businesses may be forfeited to the federal government;
|
|
●
|
U.S.
Food and Drug Administration regulation of cannabis and the possible registration of facilities where cannabis is grown could
negatively affect the cannabis industry, which could directly affect our financial condition;
|
|
●
|
Due
to our proposed involvement in the regulated cannabis industry, we may have a difficult time obtaining the various insurance policies
that are needed to operate our business, which may expose us to additional risks and financial liabilities;
|
|
●
|
The
cannabis industry may face significant opposition from other industries, including but not limited to the pharmaceutical industry;
|
|
●
|
We
may have difficulty accessing the service of banks, which may inhibit our ability to open bank accounts, obtain financing in the
future, or otherwise utilize traditional banking services;
|
|
●
|
Cannabis
businesses may incur uninsured losses and insurance may be difficult to obtain or maintain, and may be inadequate to cover losses
even if obtained;
|
|
●
|
Laws
and regulations affecting the regulated cannabis industry are varied, broad in scope and subject to evolving interpretations,
and may restrict the use of the properties we acquire or require certain additional regulatory approvals, which could materially
adversely affect our operations;
|
|
●
|
Securities
exchanges may not list companies engaged in the cannabis industry;
|
|
●
|
Applicable
state laws may prevent us from maximizing our potential income; and
|
|
●
|
Section
280E of the Internal Revenue Code, which disallows a tax deduction for any amount paid or incurred in carrying on any trade or
business that consists of trafficking in controlled substances prohibited by federal or state law, may prevent us from deducting
certain business expenditures, which would increase our net taxable income.
|
Any
of the foregoing could have an adverse impact on our operations following a business combination. However, our efforts in identifying
prospective target businesses will not be limited to the compliance, business intelligence, brand development and media sectors
of the cannabis industry. Accordingly, if we acquire a target business in another industry, these risks will likely not affect
us and we will be subject to other risks attendant with the specific industry in which we operate or target business which we
acquire, none of which can be presently ascertained.
For
any risks associated with the Merger and MJF, see the Proxy Statement.