UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
Vertical Aerospace Ltd.
(Address of principal executive offices)
General Counsel
Telephone:
Email:
Vertical Aerospace Ltd.
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ Large accelerated filer |
| ☒ |
| ☐ Non-accelerated filer |
|
|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ U.S. GAAP |
| ☒ |
| ☐ Other |
|
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
TABLE OF CONTENTS
1 | ||
8 | ||
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 8 | |
8 | ||
8 | ||
8 | ||
8 | ||
8 | ||
8 | ||
43 | ||
43 | ||
44 | ||
57 | ||
57 | ||
58 | ||
58 | ||
58 | ||
64 | ||
68 | ||
68 | ||
68 | ||
68 | ||
68 | ||
70 | ||
79 | ||
81 | ||
82 | ||
F. Disclosure of a Registrant's Action to Recover Erroneously Awarded Compensation | 82 | |
82 | ||
82 | ||
84 | ||
88 | ||
88 | ||
88 | ||
88 | ||
88 | ||
88 | ||
89 | ||
89 | ||
89 | ||
89 | ||
89 | ||
89 | ||
89 | ||
89 | ||
89 | ||
89 | ||
90 | ||
98 | ||
98 | ||
98 | ||
98 | ||
98 | ||
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 98 | |
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 99 |
i
ii
ABOUT THIS ANNUAL REPORT
Except where the context otherwise requires or where otherwise indicated in this Annual Report on Form 20-F (the “Annual Report”), the terms “Vertical,” the “Company,” “we,” “us,” “our,” “our company” and “our business” refer to Vertical Aerospace Ltd., together with its consolidated subsidiaries as a consolidated entity.
SELECTED DEFINITIONS
The following terms used in this Annual Report are defined below, unless where context otherwise requires:
“2021 Incentive Plan” means the Vertical Aerospace Ltd. 2021 Incentive Award Plan, as amended and restated, filed as Exhibit 4.3 to this Annual Report.
“AAM” means advanced air mobility, with reference to the advanced air mobility market.
“Amended and Restated Memorandum and Articles of Association” means the amended and restated memorandum and articles of association of Vertical Aerospace Ltd. adopted on December 1, 2021, a copy of which is filed as Exhibit 1.1 to this Annual Report.
“American” means American Airlines Inc.
“American Commercial Warrant Shares” means the Ordinary Shares represented by Warrant B, Warrant C, Warrant D, Warrant E, Warrant F and Warrant G (as such terms are defined in the American Warrant Instrument) to be issued to American in accordance with the American Warrant Instrument.
“American Lock-Up Agreement” means the Lock-Up Agreement entered into by American at the Closing in connection with the Business Combination.
“American SPA” means the share purchase deed, dated as of June 10, 2021, providing for, among other things, the sale of 5,804 Class Z ordinary shares of VAGL to Vertical in consideration for the issuance by Vertical of 6,125,000 ordinary shares to American.
“American Warrant Instrument” means the warrant instrument entered into by Vertical immediately following the Closing, as amended and restated on July 15, 2022, pursuant to which, among other things, American received warrants exercisable for ordinary shares and shall receive additional warrants exercisable for ordinary shares upon placement of certain legally binding commitments for additional aircraft or payment of certain commitment fees.
“Avolon” means Avolon e Limited, its shareholders or a member of the Avolon Group (as applicable).
“Avolon Commercial Warrant Shares” means the Ordinary Shares represented by Warrant C1 and Warrant C2 (as such terms are defined in the Avolon Warrant Instrument) to be issued to the Avolon Warrantholders in accordance with the Avolon Warrant Instrument.
“Avolon Group” means Avolon Holdings Limited and each of its subsidiaries from time to time.
“Avolon Warrantholders” means the shareholders of Avolon e Limited.
“Avolon Lock-Up Agreements” means the Lock-Up Agreements entered into by the Avolon Warrantholders in connection with the Business Combination.
“Avolon Warrant Instrument” means the warrant instrument entered into by Vertical immediately following the Closing pursuant to which, among other things, the Avolon Warrantholders received warrants exercisable for ordinary shares.
“Babcock International” means Babcock Aerospace Limited.
“Bristow” means Bristow Group Inc.
1
“British pounds sterling” or “£” means the legal currency of the United Kingdom.
“Broadstone” means Broadstone Acquisition Corp., a Cayman Islands exempted company.
“Business Combination” means the Merger, the Share Acquisition, and the other transactions contemplated by the Business Combination Agreement.
“Business Combination Agreement” means the Business Combination Agreement, dated as of June 10, 2021, as amended, by and among, inter alia, Broadstone, Merger Sub, Vertical, VAGL and the VAGL Shareholders.
“CAA” means the United Kingdom’s Civil Aviation Authority.
“Closing” means the closing of the Business Combination on December 16, 2021.
“Code” means the Internal Revenue Code of 1986, as amended.
“Companies Act” means the Companies Act (as amended) of the Cayman Islands, as amended, modified, re-enacted or replaced.
“Convertible Loan Note Instrument” means the convertible loan note instrument of VAGL dated March 11, 2021.
“Convertible Notes Warrants” means the 4,000,000 warrants, which are exercisable for one ordinary share each, with an exercise price of $11.50 per ordinary share (subject to adjustment), and which were issued to the Convertible Senior Secured Notes Investor immediately after Closing pursuant to the Convertible Senior Secured Notes Subscription Agreement.
“Convertible Senior Secured Notes” means the convertible senior secured notes due 2026 of Vertical with an aggregate principal amount of $200,000,000, which bear interest at a rate of 7.00% per annum for cash interest or 9.00% per annum paid-in-kind at the election of Vertical that is paid semi-annually.
“Convertible Senior Secured Notes Investor” means Mudrick Capital Management L.P., the third-party investor who subscribed for the Convertible Senior Secured Notes on behalf of certain funds, investors, entities or accounts that are managed, sponsored or advised by it or its affiliates.
“Convertible Senior Secured Notes Shares” means the ordinary shares into which the Convertible Senior Secured Notes are convertible pursuant to the Convertible Senior Secured Notes Subscription Agreement.
“Convertible Senior Secured Notes Subscription Agreement” means the subscription agreement, dated October 26, 2021, entered into between Vertical, Broadstone and the Convertible Senior Secured Notes Investor, pursuant to which, among other things, Vertical agreed to issue and sell the Convertible Senior Secured Notes in a private placement that closed concurrently with the Business Combination.
“Convertible Senior Secured PIK Shares” means the ordinary shares representing the total amount of PIK Interest that may be issued to the Convertible Senior Secured Notes Investor.
“Earn Out Shares” means 35,000,000 ordinary shares issued at the Closing to the VAGL Shareholders and Loan Note Holders, which are held subject to restrictions and are subject to forfeiture until Vertical satisfies certain milestones.
“EASA” means the European Union Aviation Safety Agency.
“EMI Option Agreements” means certain option agreements entered into on March 15, 2022 between the Company and certain employees of the Company and its subsidiaries as replacement option agreements for share options previously granted over shares in VAGL that were exchanged for options of equivalent value over ordinary shares in the Company, which options are intended to be tax qualifying enterprise management incentive options under Schedule 5 of the U.K. Income Tax (Earnings and Pensions) Act 2003, a form of which is filed as Exhibit 4.4 to this Annual Report.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
2
“FAA” means the United States Federal Aviation Authority.
“FLYINGGROUP” means FLYING GROUP HOLDING NV.
“Iberojet” means Evelop Airlines SL, a subsidiary of Avoris Corporacion Empresarial.
“IFRS” refers to International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).
“Indenture” means the indenture governing the Convertible Senior Secured Notes as entered into between Vertical, Broadstone as guarantor, VAGL as guarantor and U.S. Bank National Association as trustee and collateral agent for the Convertible Senior Secured Notes.
“Initial Virgin Atlantic Warrants” means 2,625,000 warrants to purchase ordinary shares issued to Virgin Atlantic immediately after Closing in accordance with the Virgin Atlantic Warrant Instrument.
“IRS” means the U.S. Internal Revenue Service.
“JOBS Act” means the Jumpstart Our Business Startups Act.
“Leonardo” means Leonardo S.p.A.
“Loan Note Holders” means Microsoft Corporation and Rocket Internet SE (each a Loan Note Holder).
“Marubeni” means Marubeni Corporation.
“Merger” means the merger of Merger Sub with Broadstone, with Broadstone surviving such merger, prior shareholders of Broadstone receiving securities of Vertical, and Broadstone becoming a wholly owned subsidiary of Vertical.
“Merger Sub” means Vertical Merger Sub Ltd., a Cayman Islands exempted company.
“Molicel” means E-One Moli Energy Corp.
“Nomura” means Nomura Securities International, Inc.
“Nomura Registration Rights Agreement” means the registration rights agreement, dated as of August 5, 2022, by and between Vertical and Nomura.
“NYSE” means the New York Stock Exchange.
“OEM” means original equipment manufacturers.
“ordinary resolution” means an ordinary resolution under Cayman Islands law, being the affirmative vote of the holders of a majority of the issued ordinary shares of the company that are present in person or represented by proxy and entitled to vote thereon and who vote at the general meeting.
“ordinary shares” means the ordinary shares, par value $0.0001 per share, of Vertical Aerospace Ltd., unless otherwise specified.
“PCAOB” means the Public Company Accounting Oversight Board. “PFIC” means passive foreign investment company.
“PIK Interest” means the 9.00% per annum paid-in-kind interest that can be paid semi-annually, at our option, and are convertible for ordinary shares due under the Convertible Senior Secured Notes.
“PIPE” or “PIPE Financing” means the sale of 9,400,000 ordinary shares to the PIPE Investors at a purchase price of $10.00 per ordinary share.
3
“PIPE Investment” means the aggregate cash consideration of ninety- four million dollars ($94,000,000).
“PIPE Investors” means those certain investors who were party to the Subscription Agreements in connection with the PIPE Financing, which was composed of the following: (i) American; (ii) Avolon; (iii) Rolls-Royce Plc; (iv) Standard Latitude Master Fund Ltd.; (v) Honeywell International Inc.; (vi) Microsoft Corporation; (vii) Stephen Fitzpatrick; (viii) Kouros SA; and (ix) the Sponsor.
“Public Warrant Agreement” means the warrant agreement governing the Public Warrants.
“Public Warrants” means the public warrants of Vertical Aerospace Ltd., each one (1) warrant of which entitles the holder thereof to purchase one (1) ordinary share.
“Purchase Agreement” means the share purchase agreement, dated as of August 5, 2022, and amended and restated on September 22, 2022, by and between Vertical and Nomura Securities International, Inc.
“Registration Rights Agreement” means the registration rights agreement entered into by Vertical, the Sponsor, American, the Avolon Warrantholders and the VAGL Shareholders at the closing of the Merger in connection with the Business Combination.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the U.S. Securities Act of 1933.
“Senior Management” refers to those persons named as officers of Vertical in the section titled “Management.”
“Share Acquisition” means the acquisition by Vertical all of the issued share capital of VAGL in consideration for the issue to the VAGL Shareholders of ordinary shares, such that VAGL became a direct wholly owned subsidiary of Vertical.
“special resolution” means a special resolution under Cayman Islands law, being the affirmative vote of the holders of at least a two-thirds (2/3) majority of the issued ordinary shares of the company that are present in person or represented by proxy and entitled to vote thereon and who vote at the general meeting.
“Sponsor” means Broadstone Sponsor LLP, a United Kingdom limited liability partnership.
“Sponsor Lock-Up Agreement” means the Lock-Up Agreement entered into by the Sponsor at the Closing in connection with the Business Combination.
“Subscription Agreements” means the subscription agreements, each dated as of June 10, 2021, entered into by Broadstone, Vertical and the PIPE Investors, as amended and restated on October 26, 2021, pursuant to which the PIPE Investors have agreed to purchase an aggregate of 9,400,000 ordinary shares immediately before the Closing at a purchase price of $10.00 per share.
“U.K.” means the United Kingdom.
“U.S.” means the United States of America.
“U.S. dollar” and “$” mean the legal currency of the United States.
“U.S. GAAP” means United States generally accepted accounting principles.
“VAGL” means Vertical Aerospace Group Ltd., a private limited company incorporated under the laws of England and Wales, and is a wholly-owned subsidiary of Vertical Aerospace Ltd.
“VAGL Shareholder Lock-Up Agreement” means the Lock-Up Agreement entered into by the VAGL Shareholders at the Closing in connection with the Business Combination.
“VAGL Shareholders” means the shareholders of VAGL named as a party to the Business Combination Agreement.
4
“Virgin Atlantic” means Virgin Atlantic Limited.
“Virgin Atlantic Commercial Warrant Shares” means the ordinary shares represented by Warrant B, Warrant C and Warrant D (as such terms are defined in the Virgin Atlantic Warrant Instrument) to be issued to Virgin Atlantic in accordance with the Virgin Atlantic Warrant Instrument.
“Virgin Atlantic Warrant Instrument” means the warrant instrument by and between Vertical and Virgin Atlantic, dated October 29, 2021, pursuant to which, among other things, immediately after Closing, Virgin Atlantic received warrants exercisable for ordinary shares.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements as contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, whether express or implied, other than statements of historical fact contained in this Annual Report, including without limitation, statements regarding the design and manufacture of our electric vertical takeoff and landing (“eVTOL”) aircraft, our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding the guidance as described under Item 4. “Information on the Company” and Item 5. “Operating and Financial Review and Prospects,” liquidity, growth and profitability strategies, our ability and plans to raise additional capital to fund our operations, our plans to mitigate the risk that we are unable to continue as a going concern, our ability to achieve regulatory certification of our aircraft product on any particular timeline or at all, and factors and trends affecting our business are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “aims,” “potential” or “continue,” “is/are likely to” or the negative of these terms or other similar expressions, though not all forward-looking statements use these words or expressions.
Forward-looking statements involve a number of risks, uncertainties and assumptions, and actual results or events may differ materially from those projected or implied in those statements. Important factors that could cause such differences include, but are not limited to:
| ● | Our limited operating history and that we have not yet manufactured any non-prototype aircraft or sold any aircraft to eVTOL aircraft customers; |
| ● | If we are unable to produce, certify or launch aircraft in the volumes or timelines projected; |
| ● | Being an early-stage company with a history of losses, we expect to incur significant expenses and continuing losses in the foreseeable future; |
| ● | Our markets are still in relatively early stages of growth, and such markets may not continue to grow, grow more slowly than we expect or fail to grow as large as we expect; |
| ● | Our dependence on our partners and suppliers for the components in our aircraft and for our operational needs; |
| ● | Any accidents or incidents involving eVTOL aircraft developed by us or our competitors could harm our business; |
| ● | Our eVTOL aircraft may not be certified by transportation authorities for production and operation within any projected timeline, or at all; |
| ● | All of the pre-orders we have received for our aircraft are conditional and may be terminated at any time by either party and any pre-delivery payments may be fully refundable upon certain circumstances; |
| ● | Our aircraft may not perform at the level we expect and may have potential defects; |
5
| ● | Our business has grown rapidly and expects to continue to grow significantly, and any failure to manage that growth effectively could harm our business; |
| ● | Our dependence on recruiting and retaining our senior management team and other highly skilled personnel; |
| ● | Our business plans require a significant amount of capital and we may not be able to raise additional funds when we need or want them, or at all, to fund our operations, which could force us to curtail or even cease our planned operations and the pursuit of our growth strategy; |
| ● | Our limited cash and cash equivalents and recurring losses from our operations raise significant doubt (or raise substantial doubt as contemplated by PCAOB standards) regarding our ability to continue as a going concern; |
| ● | We previously identified material weaknesses in our internal controls over financial reporting, which if we fail to properly remediate, could adversely affect our results of operations, investor confidence in us and the market price of our ordinary shares; and |
| ● | The other matters described in Item 3.D. “Risk Factors.” |
We caution you against placing undue reliance on forward-looking statements, which reflect current beliefs and are based on information currently available as of the date a forward-looking statement is made. Forward-looking statements set forth herein speak only as of the date of this Annual Report. We undertake no obligation to revise forward-looking statements to reflect future events, changes in circumstances or changes in beliefs. In the event that any forward-looking statement is updated, no inference should be made that we will make additional updates with respect to that statement, related matters or any other forward-looking statements. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements, including discussions of significant risk factors, may appear in our public filings with the SEC, which are accessible at www.sec.gov, and which you are advised to consult.
You should read this Annual Report and the documents that we reference in this Annual Report and have filed with the SEC as exhibits to this Annual Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
MARKET AND INDUSTRY DATA
This Annual Report contains estimates, projections and other information concerning our industry, including market size and growth of the market in which we participate that are based on industry publications and reports and forecasts prepared by our management. In some cases, we do not expressly refer to the sources from which these estimates and information are derived. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates.
Certain estimates of market opportunity, including internal estimates of our addressable market and forecasts of market growth included in this Annual Report may prove inaccurate. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. The estimates and forecasts in this Annual Report relating to the size of our target market, market demand and adoption, capacity to address this demand and pricing may prove to be inaccurate. Our addressable market estimates may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates in this Annual Report, our business could fail to successfully address or compete in such markets, if at all. We obtained certain information from the following sources:
| ● | Size of the global helicopter market 2019-2027 – Statista, 2022 taken together with Ride-hailing & Taxi - Worldwide – Statista, 2022, the “ reports taken together the “Statista Reports”; and |
| ● | eVTOL/Urban Air Mobility TAM Update: A Slow Take-Off, But Sky’s the Limit — Morgan Stanley Research (“Morgan Stanley”). |
6
Industry publications, research, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this Annual Report. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under Item 3.D. “Risk Factors.” These and other factors could cause results to differ materially from those expressed in any forecasts or estimates.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
This Annual Report contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this Annual Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Our financial statements have been prepared in accordance with IFRS. None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
Certain monetary amounts, percentages and other figures included in this Annual Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
All references in this Annual Report to “dollar,” “USD” or “$” refer to U.S. dollars, the terms “£” and “GBP” refer to British pounds sterling, and the terms “euro,” “EUR” or “€” refer to the currency introduced at the start of the third stage of the European economic and monetary union pursuant to the treaty establishing the European Community, as amended. For the convenience of the reader, in this Annual Report, unless otherwise indicated, balances from British pounds sterling into U.S. dollars were made at the rate of £1.00 to $1.20 which was the noon buying rate of the Federal Reserve Bank of New York on December 30, 2022. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of British pounds sterling at the dates indicated.
7
PART I
Item 1.Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2.Offer Statistics and Expected Timetable
Not applicable.
Item 3.Key Information
| A. | [Reserved] |
B. | Capitalization and Indebtedness |
Not applicable.
C.Reasons for the Offer and Use of Proceeds
Not applicable.
D.Risk Factors
You should carefully consider the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our securities could decline due to any of these risks, and you may lose all or part of your investment. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report.
Risks Related to Our Business And Industry
We have a limited operating history and have not yet manufactured any non-prototype aircraft or sold any eVTOL aircraft to customers, and we may never develop or manufacture any eVTOL aircraft.
We have a limited operating history in the eVTOL aircraft industry, which is nascent and continuously evolving. eVTOL aircraft are currently in the developmental stage and we may never be successful in commercially producing our first VX4 or any other eVTOL aircraft. We have no experience as an organization in high volume manufacturing of eVTOL aircraft. We cannot assure you that we or our partners will be able to develop efficient, automated, cost-efficient manufacturing capabilities and processes and reliable sources of component supplies that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes, required to successfully mass market our eVTOL aircraft. You should consider our business and prospects in light of the risks and significant challenges we face as a new entrant into our industry, including, among other things, with respect to our ability to:
| ● | design and produce safe, reliable and quality eVTOL aircraft on an ongoing basis; |
| ● | obtain the necessary regulatory approvals in a timely manner; |
| ● | attract, retain and motivate talented employees; |
| ● | build a well-recognized and respected brand; |
| ● | establish and expand our customer base; |
8
| ● | successfully service our aircraft after sales and maintain a good flow of spare parts and customer goodwill; |
| ● | improve and maintain our operational efficiency; |
| ● | predict our future revenues and appropriately budget for our expenses; |
| ● | anticipate trends that may emerge and affect our business; |
| ● | anticipate and adapt to changing market conditions, including technological developments and changes in our competitive landscape; and |
| ● | navigate an evolving and complex regulatory environment. |
If we fail to adequately address any or all of these risks and challenges, our business, financial condition and results of operations may be materially and adversely affected.
We may not be able to produce or launch aircraft in the volumes or timelines projected.
There are significant challenges associated with mass producing aircraft in the volumes that we are projecting. We have not yet developed a manufacturing facility and planning remains at the concept stage. The aerospace industry has traditionally been characterized by significant barriers to entry, including large capital requirements, investment costs of designing and manufacturing aircraft, long lead times to bring aircraft to market from the concept and design stage, the need for specialized design and development expertise, extensive regulatory requirements, creating a brand and the need to establish maintenance and service locations. As a manufacturer of eVTOL aircraft, we face a variety of added challenges to entry that a traditional aircraft manufacturer would not encounter, including additional costs of developing and producing an electric powertrain, complexity of developing, manufacturing, and sourcing suitable materials for our batteries, regulations associated with the transport of lithium-ion batteries and unproven high-volume customer demand for a fully electric aerial mobility service. Additionally, we will need to develop assembly lines at volumes for which there is no precedent within the traditional aerospace industry. If we are not able to overcome these barriers, our business, prospects, operating results and financial condition will be negatively impacted, and our ability to grow our business will be harmed.
We have not yet constructed a high-volume production facility in which to manufacture and assemble our aircraft. Our manufacturing facility plans are still in process, and various aspects of the component procurement and manufacturing plans have not yet been determined. We are currently evaluating, qualifying, selecting and negotiating contracts with our suppliers for the planned production aircraft. However, we may not be able to engage suppliers for the remaining components in a timely manner, at an acceptable price or in the necessary quantities.
We also have to obtain all of the necessary regulatory approvals in each of our markets in order to sell our aircraft and for our customers to operate them. We will have to obtain aircraft type certification from the CAA, the EASA and the FAA, as well as local regulators in other countries where we intend to sell aircraft, and there can be no assurance that we will obtain certification of our aircraft in the time frame that we project, or at all, which would impact our overall timetable to produce our aircraft. Should there be any delays to our projected production timetables, this could have a material effect on our ability to deliver any orders to our customers, which could have a material adverse effect on our relationships with our current and existing customers and adversely affect our reputation. We also will be required to obtain and maintain a Design Organisation Approval (“DOA”) and a Production Organisation Approval (“POA”) from the CAA in order to be able to manufacture aircraft pursuant to an approved type design (e.g., type certificate). Securing and maintaining a DOA and POA will involve extensive ongoing oversight by the CAA of our team, company capabilities, processes and production facilities. If we are unable to obtain and maintain a DOA or POA, or the CAA imposes unanticipated restrictions as a condition of approval, our projected costs of production could increase substantially and ultimately we may be unable to commercialize our aircraft.
Securing our DOA and POA, and the timing of our production ramp up, are dependent upon finalizing certain aspects of the design, engineering, component procurement, testing, build out and manufacturing plans in a timely manner and upon our ability to execute these plans within the timeline we set. We intend to fund the build out of this manufacturing facility using existing cash, capital from ordinary shares sold to Nomura pursuant to the Purchase Agreement and/or future financing opportunities. If we are unable to obtain the funds required on the timeline that we anticipate, our plans for building our manufacturing plants could be delayed which may adversely affect our business, financial condition and operating results.
9
There can be no assurance that we will be able to achieve certification on any projected timeline or at all, which would have a material adverse effect on our ability to produce our aircraft and meet our customers’ demands, any of which would have a material adverse effect on our reputation, business, financial condition and results of operations.
We are a pre-revenue, early-stage company with a history of losses, and we expect to incur significant expenses and continuing losses for the foreseeable future.
We are a pre-revenue, early-stage company that has incurred losses in the operation of our business related to research and development activities since inception. We anticipate that our expenses will increase and that we will continue to incur losses in the future until at least the time we begin commercial manufacturing of our aircraft. Even if we are able to successfully develop and sell our aircraft, there can be no assurance that the aircraft will be commercially successful and achieve or sustain profitability.
We expect the rate at which we will incur losses to be significantly higher in future periods as we, among other things, certify and assemble our aircraft, deploy our facilities, build up inventories of parts and components for our aircraft, increase our sales and marketing activities, develop our manufacturing infrastructure and increase our general and administrative functions to support our growing operations. We may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenue, which would further increase our losses.
The markets for our offerings are still in relatively early stages of growth, and if such markets do not continue to grow, grow more slowly than we expect or fail to grow as large as we expect, our business, financial condition and results of operations could be harmed.
The market for eVTOL aircraft is still in a relatively early stage, and our success in these markets is dependent upon our ability to effectively market and sell advanced air mobility as a substitute for conventional methods of transportation and the effectiveness of our other marketing and growth strategies. If the public does not perceive advanced air mobility as beneficial, or chooses not to adopt advanced air mobility as a result of concerns regarding safety, affordability or for other reasons, then the market for our offerings may not further develop, may develop more slowly than we expect or may not achieve the growth potential we expect, any of which could harm our business, financial condition and results of operations.
Our suppliers and partners for the parts and components in our aircraft are an important part of our business model, and any interruptions, disagreements or delays could have a material adverse effect on our business, results of operations and financial condition.
Our suppliers and partners, some of whom are currently single source suppliers for certain components, are a key part of our business model in order to manufacture our aircraft. Our supplier and partner base is located globally, and we strategically partnered with what we believe to be industry leaders in order to supply high quality components for our aircraft. Many of the components used in our aircraft are being custom made for us, including our flight controls systems, engine, avionics systems and software, all of which are currently being developed with our partners. This supply chain exposes us to multiple potential sources of delivery failure or component shortages for our aircraft, most of which are out of our control, including shortages of, or disruptions in the supply of, the raw materials used by our partners in the manufacture of components, disruptions to our partners’ workforce (such as strikes or labor shortfalls), disruptions to, or capacity constraints affecting, shipping and logistics and delays to the design, development or delivery of the custom components.
While we believe that we may be able to establish alternate supply relationships and can obtain replacement components, we may be unable to do so in the short term or at all at prices that are acceptable to us or may need to recertify components. We may experience source disruptions in our or our partners’ supply chains, which may cause delays in our overall production process for both prototype and commercial production aircraft. We are also, in some cases, subject to key suppliers for certain pieces of manufacturing equipment for which we rely on, or may be reliant on to achieve our projected high-volume production numbers. For example, we expect to procure electric motors primarily from Rolls-Royce, and our flight control system and avionics systems primarily from Honeywell. If we needed to find alternative suppliers for any of the key components of our aircraft, then this could increase our costs and adversely affect our ability to receive such components on a timely basis, or at all, which could cause significant delays in our overall projected timelines for the delivery of our aircraft and adversely affect our relationships with our customers.
10
In addition, if we experience a significant increase in demand beyond the anticipated volumes, or need to replace our existing suppliers, there can be no assurance that additional suppliers of component parts will be available when required on terms that are acceptable to us, or at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner. Further, if we are unable to manage successfully our relationships with all of our suppliers and partners, the quality and availability of our aircraft may be harmed. Our suppliers or partners could, under some circumstances, decline to accept new purchase orders from, or otherwise reduce their business with, us. Any disruptions in the supply of components from our suppliers and partners could lead to delays in aircraft production, which would materially adversely affect our business, financial condition and operating results.
Further, if any conflicts arise between our suppliers or partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our business strategies, which could impact our projected production timelines and number of aircraft produced. Our suppliers or partners may also develop, either alone or with others, products in related fields that are competitive with our products as a result of any conflicts or disagreements. Any disagreements or conflicts with our suppliers or partners could have an adverse effect on our reputation, which could also negatively impact our ability to source new suppliers or partners.
Also, given the nascent state of the electric aviation industry in comparison to the relatively well established electric automotive industry, we, and the electric aviation industry as a whole, have limited influence over the specifications of certain components manufactured by our suppliers (in particular, certain components used to manufacture our batteries). If such suppliers change the specification of key components required for our aircraft, we may be required to renew our certification or redesign our aircraft. This could have a material adverse impact on our business, and there can be no guarantee that such redesign and re-certification could be achieved on a timely basis, or at all.
Any changes in business conditions, wars (including the ongoing war between Russia and Ukraine), governmental changes, political intervention and other factors beyond our control or which we do not presently anticipate, could also affect our partners’ and suppliers’ abilities to deliver components to us on a timely basis, which could have a material adverse effect on our overall timelines to produce our aircraft. We do not control our suppliers or partners or such parties’ labor and other legal compliance practices, including their environmental, health and safety practices. If our current suppliers or partners, or any other suppliers or partners which we may use in the future, violates any specific laws or regulations, we may be subjected to extra duties, significant monetary penalties, adverse publicity, the seizure and forfeiture of products that we are attempting to import or the loss of our import privileges. The effects of these factors could render the conduct of our business in a particular country undesirable or impractical and have a negative impact on our business, financial condition and results of operations.
Accidents or incidents involving eVTOL aircraft developed by us or our competitors could have a material adverse effect on our business, financial condition and results of operations.
Test flying prototype aircraft is inherently risky, and accidents or incidents involving our aircraft are possible. Any such occurrence would negatively impact our development, testing and certification efforts, and could result in re-design, certification delay and/or postponements or delays to the sales of our aircraft.
The operation of aircraft is subject to various risks, and we expect demand for our aircraft to be impacted by accidents or other safety issues regardless of whether such accidents or issues involve our aircraft. Such accidents or incidents could also have a material impact on our ability to obtain certification from the CAA, the EASA, and/or the FAA for our aircraft, or to obtain such certification in a timely manner. Such events could impact confidence in a particular aircraft type or the air transportation services industry as a whole, particularly if such accidents or disasters were due to a safety fault. We believe that regulators and the general public are still forming their opinions about the safety and utility of aircraft that are highly reliant on lithium-ion batteries and/or advanced flight control software capabilities. An accident or incident involving either our aircraft or a competitor’s aircraft during these early stages of opinion formation could have a disproportionate impact on the longer-term view of the emerging AAM market.
There may be heightened public skepticism of this nascent technology and its adopters. In particular, there could be negative public perception surrounding eVTOL aircraft, including the overall safety and the potential for injuries or death occurring as a result of accidents involving eVTOL aircraft, regardless of whether any such safety incidents involve our aircraft. Any of the foregoing risks and challenges could adversely affect Vertical’s prospects, business, financial condition and results of operations.
11
We are at risk of adverse publicity stemming from any public incident involving our company, our people, our brand or other companies in our industry. Such an incident could involve the actual or alleged behavior of any of our employees or third-party contractors. Further, if our personnel, our aircraft or other types of aircraft are involved in a public incident, accident, catastrophe, litigation or regulatory enforcement action, we could be exposed to significant reputational harm and potential legal liability. The insurance we carry may be inapplicable or inadequate to cover any such incident, accident, catastrophe or action. In the event that our insurance is inapplicable or inadequate, we may be forced to bear substantial losses from an incident or accident. In addition, any such incident, accident, catastrophe, litigation or action involving our employees, our aircraft or other types of aircraft could create an adverse public perception, which could harm our reputation, result in passengers being reluctant to use our services and adversely impact our business, results of operations and financial condition.
Our eVTOL aircraft may not be certified by transportation authorities in a timely manner, or at all, which could adversely affect our prospects, business, financial condition and results of operations.
eVTOL aircraft involve a complex set of technologies, which we and our partners and suppliers must continue to develop and rely on independent third-party aircraft operators to adopt. However, before eVTOL aircraft can fly passengers, the aircraft must receive requisite approvals from the relevant authorities. No eVTOL aircraft are currently certified by the CAA, the EASA or the FAA for commercial operations, and there is no assurance that our research and development will result in regulatory-certified aircraft that are market-viable or commercially successful in a timely manner, or at all. In order to gain regulatory certification, the safety of our eVTOL aircraft must be proven, which cannot be assured. Even if eVTOL aircraft are certified, individual operators must conform eVTOL aircraft to their licenses and air operator certificates, which requires the CAA, the EASA and the FAA approval, and individual pilots also must be licensed and approved by the CAA, the EASA and/or the FAA, as applicable, to fly eVTOL aircraft, which could contribute to delays in any widespread use of eVTOL aircraft and potentially limit the number of eVTOL aircraft operators available to purchase our aircraft.
All of the pre-orders we have received for our aircraft are not legally binding, are conditional, and may be terminated without penalty at any time by either party. If these orders are cancelled, modified, delayed or not placed in accordance with the terms agreed with each party, our business, results of operations, liquidity and cash flow will be materially adversely affected.
All of the pre-orders we have received to date are conditional and are subject to the occurrence of certain agreed upon conditions with the respective parties, including that all such pre-orders may be terminated in writing without penalty by either party. We have received pre-orders for over 1,400 aircraft as of the date of this Annual Report, which includes pre-orders from: American Airlines, with a pre-order of up to 250 aircraft and an option to purchase an additional 100 aircraft; Bristow, with a pre-order of 25 aircraft and an option for up to 25 additional aircraft; Iberojet, with a pre-order of 20 aircraft and an option for up to 80 additional aircraft; Marubeni, with a pre-order option to purchase up to 200 aircraft; Virgin Atlantic, with an option to purchase between 50 and 150 aircraft; and FLYINGGROUP, with a pre-order of 25 aircraft and an option for up to 25 additional aircraft. Within our indirect channel sales channel, Avolon, the world’s second largest aircraft leasing company, agreed to pre-order up to approximately 310 aircraft, with an option to pre-order a further 190 aircraft approximately, and as of March 2022, Avolon had placed approximately 550 aircraft to international airlines consisting of up to 250 aircraft to GOL and Grupo Comporte in Brazil, up to 100 aircraft to Japan Airlines, a minimum of 100 aircraft with AirAsia and up to 100 aircraft with Gözen Holding in Turkey.
Each of Avolon, American Airlines, Bristow, Iberojet, Marubeni, Virgin Atlantic and FLYINGGROUP have agreed to ordinary course terms and conditions contained in our memoranda of understanding with them, subject to specific agreed-upon terms and conditions precedent with each party, including, among other things, certain deadlines to enter into a long-form master purchase agreement regarding the number of aircraft and, for certain of such purchasers, the potential creation of joint working groups to explore opportunities in the various jurisdictions in which our customers operate.
All of our pre-orders are not legally binding until we have executed a master purchase agreement between us and each party that contains the final terms for the purchase of our aircraft, including, but not limited to, the final number of aircraft to be purchased and the timing for delivery of the aircraft. We intend to execute such master purchase agreement prior to certain dates agreed upon with each party.
12
In 2022, we extended and amended our memorandum of understanding with American Airlines, pursuant to which we agreed to enter into a master purchase agreement that will contain the final terms for the purchase of our aircraft (the “AA Master Purchase Agreement”) by October 31, 2023, and American Airlines committed to pay a pre-delivery payment (the “Pre-Delivery Payment”) upon the satisfaction of certain conditions. We committed to reserve delivery slots for the first 50 VX4 aircraft of American Airlines’ conditional pre-order of up to 250 aircraft in exchange for the payment of the Pre-Delivery Payment. Subject to the final terms of the AA Master Purchase Agreement, the parties agreed that the Pre-Delivery Payment will be released to Vertical upon the satisfaction of certain conditions agreed by the parties, and later be used to set off against the purchase price for the number of aircraft ultimately purchased by American Airlines pursuant to the AA Master Purchase Agreement. Such Pre-Delivery Payment may be refundable in full to American Airlines under certain circumstances.
In January 2023, we received a pre-delivery payment from Marubeni for the reservation of aircraft delivery slots for 25 out of its conditional pre-order of up to 200 aircraft. Such reservation fee may be refundable in full to Marubeni under certain circumstances.
The obligations of each of Avolon, American Airlines, Bristow, Iberojet, Marubeni, Virgin Atlantic and FLYINGGROUP to consummate the order will arise only after all of such material terms are agreed in the discretion of each party. As a result, there can be no assurance that Avolon, American Airlines, Bristow, Iberojet, Marubeni, Virgin Atlantic and/or FLYINGGROUP will place a sufficient number of orders, if any at all, for our aircraft, which could adversely affect our business, prospects and results of operations. If any of these orders are cancelled, modified or delayed, or otherwise not consummated, or if we are otherwise unable to convert our strategic relationships into sales revenue, our business, results of operations, liquidity and cash flow will be affected.
Our aircraft may not perform at the level we expect on projected timelines and may have potential defects, such as higher than expected noise profile, lower payload than initially estimated, shorter range and/or shorter useful lives than we anticipate.
Our aircraft may not perform at the level we expect on projected timelines or may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair. For example, our aircraft may have a higher noise profile than we expect, carry a lower payload or have shorter maximum range than we estimate. Our aircraft will also use a substantial amount of software code to operate. Software products are inherently complex and often contain defects and errors when first introduced.
While we have performed, and will continue to perform, extensive testing, it is not possible to fully replicate every operating condition and validate the long-term durability of every aspect of our aircraft prior to its use in service. In some instances, we may need to continue to rely upon projections and models to validate the projected performance of our aircraft over their lifetime. Therefore, similar to most aerospace products, there is a risk that our aircraft may suffer unforeseen faults, defect or other issues in service. Such faults, defects and other issues may require significant additional research and development to rectify and could involve suspension of operation of our aircraft until any such defects can be cured. There can be no assurance that such research and development efforts would result in viable products or cure any such defects. Obtaining the necessary data and results may take longer than planned or may not be obtained at all. Any such delays or setbacks could have a material adverse effect on our reputation and our ability to achieve our projected timelines and financial goals.
We expect to introduce new and additional features and capabilities to the aircraft and our service over time. For example, while we intend for our aircraft to be capable of operating under instrument flight rules (“IFR”) from the date of their manufacture, they may initially operate either fully or partially under visual flight rules, as operation under IFR is likely to require further testing and certification and may potentially require revisions to the IFR to accommodate eVTOL technology. We may be unable to test and have the aircraft certified in a timely manner, or at all, and any necessary revisions to the IFR may not take place in a timely manner, or at all.
Further, some components of our aircraft, such as the batteries, may have a lower performance life than we initially expected, and will have a significantly shorter performance life than that of the aircraft overall, requiring frequent replacement. This could put an additional strain on our supply chain and may add to the overall operating cost of the aircraft, thereby negatively impacting the attractiveness of our aircraft to our operator customers.
Any product defects or any other failure of our aircraft to perform as expected could harm our reputation and result in adverse publicity, delays in or inability to obtain certification, lost revenue, delivery delays, product recalls, product liability claims, harm to our brand and reputation, and significant warranty and other expenses and could have a material adverse impact on our business, financial condition and results of operations.
13
Certain of our strategic, development and deployment arrangements could be terminated or may not materialize into long-term contract partnership arrangements and may restrict or limit us from developing our aircraft with or providing services to other strategic partners.
We have agreements with strategic, development and deployment partners and collaborators. Some of these arrangements are evidenced by memoranda of understanding, letters of intent, early stage agreements, some of which are non-binding, that are used for design and development purposes but will require further negotiation at later stages of development or production or master agreements that have yet to be implemented under separately negotiated statements of work, each of which could be terminated or may not materialize into next-stage contracts or long-term contract partnership arrangements. In addition, we do not currently have arrangements in place that will allow us to fully execute our business plan, including, without limitation, final supply and manufacturing agreements. Moreover, existing or future arrangements may contain limitations on our ability to enter into strategic, development and deployment arrangements with other partners. If we are unable to maintain such arrangements and agreements, or if such agreements or arrangements contain other restrictions from, or limitations on, developing aircraft with other strategic partners, our business, financial condition and operating results could be materially and adversely affected.
We intend to grow our business rapidly and expect to expand our operations significantly. Any failure to manage our growth effectively could adversely affect our business, prospects, operating results and financial condition.
Any failure to manage our growth effectively could materially and adversely affect our business, operating results and financial condition. We intend to expand our operations significantly. We expect our future expansion to include:
| ● | expanding the management team; |
| ● | hiring and training new personnel; |
| ● | leveraging consultants to assist with our growth and development; |
| ● | forecasting production and revenue; |
| ● | controlling expenses and investments in anticipation of expanded operations; |
| ● | establishing or expanding design, production, sales and service facilities; and |
| ● | implementing and enhancing administrative infrastructure, systems and processes. |
We intend to continue to hire a significant number of additional personnel with considerable expertise, including software engineers, design and production personnel and service technicians for our aircraft. Because our eVTOL aircraft are based on a different technology platform from traditional internal combustion engines, individuals with sufficient training and experience in eVTOL aircraft may not be available to hire, and as a result, we will need to expend significant time and expense training any newly hired employees. Competition for individuals with experience designing, producing and servicing electric aircraft and their software is intense, and we may not be able to attract, integrate, train, motivate or retain additional highly qualified personnel. The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business, financial condition and operating results.
Our ability to effectively manage growth and expansion of our operations will also require us to enhance our operational systems, internal controls and infrastructure, human resources policies and reporting systems. These enhancements will require significant capital expenditures and allocation of valuable management and employee resources.
14
We are dependent on our senior management team and other highly skilled personnel, and if we are not successful in attracting or retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our success depends, in significant part, on the continued services of our senior management team and on our ability to attract, motivate, develop and retain a sufficient number of other highly skilled personnel, including engineering, finance, marketing, sales, and technology and support personnel. Competition for senior management and key personnel in our sector is intense and the pool of qualified candidates is limited, and we may be unable to hire or retain sufficient numbers of appropriately skilled personnel to deliver on our plans. The loss of any one or more members of our senior management team or other highly skilled personnel, for any reason, including resignation, retirement or corporate restructuring, could impair our ability to execute our business strategy and harm our business, financial condition and results of operations. Additionally, our financial condition and results of operations may be adversely affected if we are unable to attract and retain skilled employees to support our operations and growth.
If we are unable to establish and maintain confidence in our long-term business prospects among customers and analysts and within our industry, or if we are subject to negative publicity, then our financial condition, operating results, business prospects and access to capital may suffer materially.
Customers may be less likely to purchase our aircraft if they are not convinced that our business will succeed or that our service and support and other operations will continue in the long term. Similarly, partners, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, in order to build and maintain our business, we must maintain confidence among customers, suppliers, analysts, ratings agencies and other parties in our aircraft, long-term financial viability and business prospects. Maintaining such confidence may be particularly complicated by certain factors including those that are largely outside of our control, such as our limited operating history, customer unfamiliarity with eVTOL aircraft, any delays in scaling production, delivery and service operations to meet demand, competition and uncertainty regarding the future of electric aircraft, including our electric aircraft and our production and sales performance compared with market expectations.
Our aircraft utilization may be lower than expected, and our aircraft may be limited in its performance during certain weather conditions or in other environmental conditions.
Our aircraft, when produced, may not be able to fly safely over certain terrain, for example over desert or large bodies of water, or in certain weather conditions, including snowstorms, thunderstorms, lightning, hail, icing conditions, fog and/or excessive heat. This inability to operate in these conditions could reduce our aircraft utilization and cause delays and disruptions in the services provided by our customers and partners. Aircraft utilization is reduced by delays and cancellations from various factors, many of which are beyond our control, including adverse weather conditions, security requirements, air traffic congestion and unscheduled maintenance events. The success of our business is dependent, in part, on the utilization rate of our aircraft by our customers and reductions in utilization may adversely impact the expected sales of our aircraft and aftermarket service revenue, therefore, our financial performance and results of operations.
Our aircraft may require maintenance at frequencies or at costs that are unexpected and could adversely impact the estimated prices for those maintenance services that we sell in connection with our aircraft.
Our aircraft, when they are produced, are anticipated to be highly technical products that will require maintenance and support. We are still developing our understanding of the long-term maintenance profile of the aircraft, and if useful lifetimes are shorter than expected, this may lead to greater maintenance costs than previously anticipated. If our aircraft and related equipment require maintenance more frequently than we plan for or at costs that exceed our estimates, that would have an impact on the sales of our aircraft and have a material adverse effect on our business, financial condition and results of operations.
Our competitors may commercialize their technology before us in one or more markets.
While we expect to be one of the pioneering companies to market eVTOL aircraft, we expect this industry to be increasingly competitive, and it is possible that our competitors could launch in one or more markets before us. Even if we are among the first to market, we may not fully realize the benefits we anticipate, and we may not receive any competitive advantage or may be overcome by other competitors. If new companies or existing aerospace companies launch competing solutions in the markets in which we intend to operate and/or obtain large scale capital investment, we may face increased competition.
15
Additionally, our competitors may benefit from our efforts in developing consumer and community acceptance for eVTOL aircraft, making it easier for them to obtain the permits and authorizations required to sell the aircraft in the markets in which we intend to sell or in other markets. In the event we do not capture an early-mover advantage, it may harm our business, financial condition, operating results and prospects.
Many of our current and potential competitors are larger and have substantially greater resources than we have and expect to have in the future. They may also be able to devote greater resources to the development of their current and future technologies or the promotion and sale of their offerings, or offer lower prices. In particular, our competitors may be able to obtain the relevant certification and approvals for their aircraft before us. Our current and potential competitors may also establish cooperative or strategic relationships amongst themselves or with third parties or may undertake an acquisition or merger to combine their business and technologies that may further enhance their resources and offerings. Further, it is possible that domestic or foreign companies or governments, some with greater experience in the aerospace industry or greater financial resources than we possess, will seek to provide products that compete directly or indirectly with ours in the future.
We currently target many customers, suppliers and partners that are large corporations with substantial negotiating power and exacting product, quality and warranty standards. If we are unable to sell our products to these customers on satisfactory terms, or buy our suppliers’ products on satisfactory terms, our prospects and results of operations will be adversely affected.
Many of our potential customers, and current and potential suppliers and partners are large, multinational corporations with substantial negotiating power relative to us and, in some instances, may have internal solutions that are competitive to our products. These large, multinational corporations also have significant development resources, which may allow them to acquire or develop independently, or in partnership with others, competitive technologies.
Meeting the technical requirements and securing design wins with any of these companies will require a substantial investment of our time and resources. We cannot assure you that our products will secure design wins from these or other companies or that we will generate meaningful revenue from the sales of our aircraft to these key potential customers. If our aircraft are not selected by these large corporations or if these corporations develop or acquire competitive technology, this may have an adverse effect on our business.
There may be a shortage of pilots and mechanics who meet the training standards required, which could reduce our ability to sell our aircraft at scale and on timelines contemplated.
There is a shortage of pilots that is expected to exacerbate over time as more pilots in the industry approach mandatory retirement age. Similarly, trained and qualified aircraft and aviation mechanics with a variety of different skills, including battery maintenance and dealing with high voltage electrical systems, are also in short supply. This will affect the aviation industry, including AAM services and more specifically, our business.
Our service is dependent on recruiting mechanics qualified to perform the requisite maintenance activities, which may be difficult due to the corresponding personnel shortages. If we are unable to hire, train, and retain qualified mechanics, our business could be harmed, and we may be unable to implement our growth plans.
We may encounter obstacles outside of our control that slow market adoption of eVTOL aircraft or aerial rideshares, such as regulatory requirements or infrastructure limitations.
Our growth is highly dependent upon the adoption of electric aircraft by customers in the aviation industry, as well as consumers who will travel in the aircraft. The target demographic markets for our aircraft are highly competitive. If the market for electric aircraft does not develop at the rate or in the manner or to the extent that we expect, or if critical assumptions we have made regarding the efficiency of our electric aircraft are incorrect or incomplete, our business, prospects, financial condition and operating results will be harmed. The market for electric aircraft is new and untested and is characterized by rapidly changing technologies, price competition, numerous competitors, evolving government regulation and industry standards and uncertain customer demands and behaviors.
16
If we experience harm to our reputation and brand, our business, financial condition and results of operations could be adversely affected.
Continuing to increase the strength of our reputation and brand for high-performing, sustainable, safe and cost-effective advanced air mobility is critical to our ability to attract and retain customers and partners. In addition, our growth strategy includes international expansion through joint ventures or other partnerships with local companies that would benefit from our reputation and brand recognition. The successful development of our reputation and brand will depend on a number of factors, many of which are outside our control. Negative perception of our aircraft or company may harm our reputation and brand, including as a result of:
| ● | complaints or negative publicity or reviews about us, independent third-party aircraft operators, fliers or other brands or events that we associate with, even if factually incorrect or based on isolated incidents; |
| ● | changes to our operations, safety and security or other policies that customers, end-users or others perceive as overly restrictive, unclear or inconsistent with our values; |
| ● | illegal, negligent, reckless or otherwise inappropriate behavior by fliers, independent or other third parties involved in the operation of our business or by our management team or other employees; |
| ● | actual or perceived disruptions or defects in our aircraft; |
| ● | litigation over, or investigations by regulators into, our operations or those of our independent third-party aircraft operators, or our senior management or other personnel; |
| ● | a failure to operate our business in a way that is consistent with our values; |
| ● | negative responses by independent third-party aircraft operators or fliers to new mobility offerings; or |
| ● | any of the foregoing with respect to our competitors, to the extent such resulting negative perception affects the public’s perception of us or our industry as a whole. |
Any of the foregoing could adversely affect our business, financial condition and results of operations.
Customer and consumer perception of us and our reputation may be impacted by the broader industry, and customers may not differentiate our aircraft from our competitors.
Potential customers and consumers may not differentiate between us and the broader aviation industry or, more specifically, the AAM service industry. If our competitors or other participants in this market have problems in a wide range of issues, including safety, technology development, engagement with aircraft certification bodies or other regulators, engagement with communities, target demographics or other positioning in the market, security, data privacy, flight delays, or bad customer service, such problems could impact the public perception of the entire industry, including our business. We may fail to adequately differentiate our brand, our services and our aircraft from others in the market which could impact our ability to attract passengers or engage with other key stakeholders. The failure to differentiate ourselves and the impact of poor public perception of the industry could have an adverse impact on our business, financial condition, and results of operations.
17
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.
The global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, fluctuations in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. If the current equity and credit markets continue to deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Furthermore, our share price may also decline due in part to the volatility of the stock market and the general economic downturn. In addition, there is a risk that one or more of our partners or suppliers may not survive an economic downturn or recession, which could have a material adverse effect on our ability to manufacture our aircraft in a timely manner or otherwise affect our strategic business goals. As a result, our business, our results of operations and the price of our ordinary shares may be adversely affected.
We are subject to risks related to health epidemics and pandemics, including the ongoing COVID-19 pandemic, which could adversely affect our business and operating results.
We face various risks related to public health issues, including epidemics, pandemics and other outbreaks, including the ongoing COVID-19 pandemic. The effects and potential effects of COVID-19, include, but are not limited to, its impact on general economic conditions, trade and financing markets, changes in customer behavior and continuity in business operations creates significant uncertainty. The spread of COVID-19 also disrupted the manufacturing, delivery and overall supply chain of aircraft manufacturers and suppliers, and has led to a global decrease in aircraft sales in markets around the world. In particular, the COVID-19 crisis may cause a decrease in demand for our aircraft if our customers delay purchases of aircraft generally, an increase in costs resulting from our efforts to mitigate the effects of COVID-19 or the increase in cost of raw materials, delays in our schedule to full commercial production of electric aircraft, disruptions to our supply chain, and the implementation or reinstatement of government restrictions, among other negative effects.
The full impact of the COVID-19 pandemic continues to evolve and the extent to which it may continue to affect our business (including our ability to test aircraft and the ability of regulators to certify our aircraft) will depend on continued developments. As such, the extent to which the COVID-19 pandemic and related global events and market impacts will affect our financial condition, liquidity, and future results of operations is uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, we may continue to suffer an adverse effect to our business due to the global economic effects, including any economic recession.
In order to reach production for our aircraft, we need to develop complex software and technology systems in coordination with our partners and suppliers, and there can be no assurance such systems will be successfully developed.
We anticipate that our aircraft will use a substantial amount of sophisticated software and hardware to operate. The development of such advanced technologies is inherently complex, and we will need to coordinate with our partners and suppliers in order to reach production for our aircraft. Defects and errors may be revealed over time and our control over the performance of third-party services and systems may be limited. Thus, our potential inability to develop the necessary software and technology systems may harm our competitive position.
We are relying on third-party partners to develop a number of emerging technologies for use in our products. These technologies are not today, and may not ever be, commercially viable. There can be no assurances that our partners will be able to meet the technological requirements, production timing, and volume requirements to support our business plan. In addition, the technology may not comply with the cost, performance useful life and warranty characteristics that we anticipate in our business plan. As a result, our business plan could be significantly adversely impacted, and we may incur significant liabilities under warranty claims, which could adversely affect our business, prospects, and results of operations.
18
Any material disruption in our information systems could adversely affect our business.
We rely on information technology networks and systems to operate and manage our business. Our information technology networks and systems will process, transmit and store personal and financial information, proprietary information of our business, allow us to coordinate our business across our operation bases and allow us to communicate with our employees and externally with customers, suppliers, partners and other third parties. While we believe we take reasonable steps to secure these information technology networks and systems, and the data processed, transmitted and stored thereon, such networks, systems and data may be susceptible to cyberattacks, viruses, malware or other unauthorized access or damage (including by environmental, malicious, or negligent acts), which could result in unauthorized access to, or the release and public exposure of, our proprietary information. Our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, computer viruses, external and internal security breaches or other security incidents and external factors, such as trade wars, political tensions or armed conflicts including the conflict between Russia and Ukraine that could make it more difficult for us to access information stored in other countries. Our third-party information technology providers are also subject to these risks, which could impact our ability to access these systems and any data outside of our physical control. Any of the foregoing could cause substantial harm to our business, require us to make notifications to governmental authorities, or the media, and could result in litigation, investigations or inquiries by government authorities, or subject us to penalties, fines and other losses relating to the investigation and remediation of such an attack or other unauthorized access or damage to our information technology systems and networks.
If we are unable to obtain and maintain adequate facilities and infrastructure, we may be unable to develop and manufacture the aircraft as expected.
In order to develop and manufacture our aircraft, we must be able to obtain and maintain adequate facilities and infrastructure. We may be unsuccessful in obtaining, developing and/or maintaining these facilities in a commercially viable manner. Even if we are able to begin assembly operations in these facilities, maintenance of these facilities will require considerable capital expenditure as we expand operations. We cannot provide any assurance that we will be successful in obtaining and maintaining adequate facilities and infrastructure, and any failure to do so may result in our inability to develop and manufacture our aircraft as expected or on projected timelines, which would adversely affect our business, financial condition and results of operations.
Our aircraft and the facilities that manufacture them may not be operable due to natural disaster, permitting or other external factors.
Natural disasters, including wildfires, tornadoes, hurricanes, floods and earthquakes and severe weather conditions, such as heavy rains, strong winds, dense fog, blizzards or snowstorms, may damage our facilities or aircraft. Severe weather conditions, such as rainfall, snowfall, fog, mist, freezing conditions or extreme temperatures, may also impact the ability for flights to occur as planned, which could reduce our customers’ revenue and profitability and demand for our aircraft as a result, and cause passengers to view our aircraft as less reliable. Any of the foregoing could have an adverse effect on our business, financial condition and results of operations.
We are subject to risks associated with climate change, including the potential increased impacts of severe weather events on our operations and infrastructure.
The potential physical effects of climate change, such as increased frequency and severity of storms, floods, fires, fog, mist, freezing conditions, sea-level rise and other climate-related events, could affect the operations of third-party operators, and therefore, our operations and financial results. We could incur significant costs to improve the climate resiliency of our aircraft and otherwise prepare for, respond to and mitigate such physical effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change.
19
Market and regulatory trends to reduce climate change may not evolve in the direction and within the timing expected, which could have a negative impact on our business plan.
A number of governments globally have introduced or are moving to introduce climate change legislation and treaties at the international, national, state/provincial and local levels. Regulation relating to emission levels and energy efficiency is becoming more stringent and is gaining more widespread market approval, as consumers expect companies to play a role in addressing climate change. Our aircraft will operate on electricity and are being designed to produce zero carbon emissions in operation. We expect that market and regulatory trends favoring such “clean” energy and addressing climate change will continue to evolve in our favor. However, there may be changes or reversals in such market and regulatory trends, such as less focus on climate-friendly solutions or less stringent legislation with respect to emissions. In addition, we are not currently able to determine the overall carbon footprint associated with the lifecycle of our aircraft, including relative to alternative modes of transport, and this may ultimately have a detrimental effect on the marketability of our aircraft to customers and consumers. This could result in lower demand for our eVTOL aircraft and have an adverse effect on our business.
As we expand into new territories, we may encounter stronger market resistance than we currently expect, including from incumbent competitors in those territories.
We may face risks associated with any potential international expansion of our operations into new territories, including possible unfavorable regulatory, political, tax and labor conditions, which could harm our business. In addition, in certain of these markets, we may encounter incumbent competitors with established technologies and customer bases, lower prices or costs and greater brand recognition. We anticipate having international operations and subsidiaries that are subject to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. However, we have no experience to date selling and servicing our aircraft internationally, and such expansion would require us to make significant expenditures, including the hiring of local employees and establishing facilities, in advance of generating any revenue. We will be subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our electric aircraft and require significant management attention. If we fail to successfully address these risks, our business, prospects, financial condition and operating results could be materially harmed.
The intended initial operations of our customers may be concentrated in a small number of metropolitan areas and airports, which could indirectly make our business particularly susceptible to natural disasters, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances affecting these metropolitan areas.
We intend to initially sell to customers that will service larger metropolitan areas, and these sales will be the primary source of the majority of our revenue. As a result, our business and financial results may be susceptible to natural disasters, wars, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances applicable to metropolitan areas. In addition, any changes to local laws or regulations within key metropolitan areas that affect our customers’ ability to operate our aircraft in these markets could have an adverse effect on our business, financial condition and operating results.
Disruption of operations at vertiports, whether caused by labor relations, utility or communications issues or power outages could cause our customers to reduce the number of aircrafts that they order or to cancel their orders entirely. Certain airports may regulate our flight operations, such as limiting the number of landings per year, which could reduce our customers’ ability to operate as many aircraft as they originally forecast, which in turn could lead to a reduction in orders of our aircraft. In addition, demand for our customers’ advanced air mobility services could be impacted if drop-offs or pick-ups of fliers become inconvenient because of airport rules or regulations, or more expensive for fliers because of airport-imposed fees, which would adversely affect our business, financial condition and operating results.
20
We will rely on the vertiport network being developed by third parties. The ability of such networks to support high-volume eVTOL service and our aircraft could have an adverse effect on the use of our aircraft and our expected growth potential.
In order to use our aircraft, our customers will require adequate landing infrastructure. As airports and heliports around the world become more congested, it may not be possible to ensure that our customers’ plans can be implemented in a commercially viable manner given infrastructure constraints, including those imposed by inadequate facilities at desirable locations. Access to airports, heliports and vertiports may be prohibitively expensive, not available at all, or may be inconsistent with our projections. Our customers’ advanced air mobility service will depend on the ability to develop and operate vertiports in desirable locations in metropolitan locations. Developing and operating vertiport locations will require significant financial investment and permits and approvals from international, national and local regulatory authorities and government bodies and our customers’ ability to operate their service will depend on such permits and approvals. We cannot predict whether our customers will be willing or able to make such investment, or whether they will receive such permits and approvals or whether they will receive them in a timely manner. If any of our current or future customers are prohibited, restricted or delayed from developing and operating desirable vertiport locations, our business could be adversely affected.
The current conditional pre-orders and future sale orders of our aircraft, in both cases once formalized by the execution of master purchase agreements, may or may not be subject to indexed price escalation clauses, which could subject us to losses if we have cost overruns or if increases in costs exceed the applicable escalation rate.
Aircraft sales contracts are often entered into years before the aircraft are delivered. In order to help account for economic fluctuations between the contract date and delivery date, aircraft pricing in such master purchase agreements may include price escalation clauses to account for cost increases from labor, commodity and other price indices. Our revenue estimates are based on current assumptions with respect to these escalation formulas, but the actual escalation amounts are outside of our control. Escalation factors can fluctuate significantly from period to period and changes in escalation amounts can significantly impact revenues and operating margins in our eVTOL business. We can make no assurance that any customer, current or future, will exercise purchase options, fulfill existing purchase commitments or purchase additional products or services from us. The terms and conditions of the pre-orders regarding price escalation clauses are yet to be determined, and there is no assurance that they will be determined in a manner that will mitigate the risks described above.
Our business plans require a significant amount of additional capital beyond our current cash and cash equivalents. Such additional capital might not be available to us in a timely manner or on terms that are acceptable, or at all. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute our shareholders or introduce covenants that may restrict our operations or our ability to pay dividends.
We expect our capital expenditures to continue to be significant in the foreseeable future as we expand our business, and that our level of capital expenditures will remain uncertain and may be higher than anticipated. Overall, however, we expect to make significant investments in our business, including development of our aircraft, investments in our brand and developing assembly and manufacturing facilities. These efforts may prove more expensive than currently anticipated, and we may not succeed in acquiring sufficient capital to offset these higher expenses and achieve positive revenue generation. The fact that we have a limited operating history means we have limited historical data on the demand for our aircraft. As a result, our future capital requirements may be uncertain and actual capital requirements may be different from those we currently anticipate. We may need to seek equity or debt financing to finance a portion of our capital expenditures. Such financing might not be available to us in a timely manner or on terms that are acceptable, or at all.
Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business model. For example, the global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. In addition, market conditions impacting financial institutions could impact our ability to access some or all of our cash, cash equivalents and marketable securities, and we may be unable to obtain alternative funding when and as needed and on acceptable terms, if at all. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our corporate structure. If we are unable to obtain any funding, or if we do not have sufficient resources to conduct our business as projected, we might be forced to curtail or discontinue our operations, sell or dispose of our assets, potentially to a competitor at less favorable prices, or enter into a business combination on less favorable terms.
21
In addition, our future capital needs and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute our shareholders. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of our ordinary shares. If we raise funds by issuing debt securities, these debt securities may have rights, preferences, and privileges senior to those of preferred and common shareholders. The terms of debt securities or borrowings may impose significant restrictions on our operations. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends to our shareholders.
In addition, while we expect from time to time to apply for, and to be a recipient of, government grant funding under various schemes, we cannot be certain that any such amounts will be received in whole or in part, including under schemes for which we or the applicable government agency have announced an indicative award of funding to us. Under such schemes we could receive less funding than we expect or ultimately none at all, including as a result of failure to enter into necessary agreements with third parties or the non-fulfilment of other conditions precedent, the early termination or amendment of the grant funding scheme, failure to adhere to the terms and conditions applicable to the project, our failure to secure sufficient resources to be able to claim the full eligible amount of the grant funding, failure to progress the technology development project according to our current plans or because the relevant project changes in scope or duration.
If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected
Our recurring losses from operations indicates that a material uncertainty exists that may raise significant doubt (or raise substantial doubt as contemplated by PCAOB standards) regarding our ability to continue as a going concern.
We have incurred net losses since inception and to date have not generated any revenue from the design, development, manufacturing, engineering and sale or distribution of electric aircraft. Commensurate with being in the development phase of our journey to the commercialization of the VX4, we have invested heavily in research to support the development of our aircraft. As of December 31, 2022, we had £122.8 million of cash and cash equivalents on hand including short-term deposits.
We have prepared a cash flow forecast and have considered our ability to continue as a going concern for the foreseeable future, being at least 12 months following the date of this Annual Report. Within the next 12 months following the date of this Annual Report, we expect our funding requirements to be approximately £90 million, which will be used primarily to fund the creation and testing of the prototype aircraft, support the certification process and invest in additional personnel across both engineering and support functions.
We will need to raise additional capital to fund our future operations and remain as a going concern, before we use all of our existing resources. There can be no assurance that we will be able to obtain additional funding on acceptable terms and thus have sufficient funds to meet our funding requirements. As a result, the timely completion of financing is important for our ability to continue as a going concern when we have exhausted our existing resources
Our forecast is based on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. These factors indicate that a material uncertainty exists that may raise significant doubt (or substantial doubt as contemplated by PCAOB standards) about our ability to continue as a going concern and therefore we may be unable to realize our assets and discharge our liabilities in the normal course of business.
There can be no assurance that we will be able to obtain additional funding on acceptable terms, if at all. To the extent that we raise additional capital through future equity offerings, the ownership interest of ordinary shareholders will be diluted, which dilution may be significant. However, we cannot guarantee that we will be able to obtain any or sufficient additional funding or that such funding, if available, will be obtainable on terms satisfactory to us. We may also seek to defer certain operating expenses unless and until additional capital is received. In the event that we are unable to obtain any or sufficient additional funding or defer sufficient operating expenses, there can be no assurance that we will be able to continue as a going concern, and we may be forced to delay, reduce or discontinue certain activities, including planned research and development activities, hiring plans, flight tests and manufacturing activities or commercialization efforts.
Significant doubt (or raise substantial doubt as contemplated by PCAOB standards) about our ability to continue as a going concern may materially and adversely affect the price per share of our ordinary shares, and it may be more difficult for us to obtain financing. If potential collaborators decline to do business with us or potential investors decline to participate in any future financings
22
due to such concerns, our ability to increase our cash position may be limited. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.
We have prepared our consolidated financial statements assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our consolidated financial statements included in this Annual Report do not include any adjustments to reflect the possible inability to continue as a going concern. If we are unable to continue as a going concern, you could lose all or part of your investment.
Please refer to note 2 to our consolidated financial statements for the year ended December 31, 2022 included elsewhere in this Annual Report.
It is not possible to predict the actual number of ordinary shares we will sell under the Equity Subscription Line to Nomura or the actual gross proceeds resulting from those sales.
On August 5, 2022, we entered into the Purchase Agreement with Nomura, pursuant to which Nomura has committed to purchase up to $100 million in aggregate gross proceeds of our ordinary shares, subject to certain limitations and conditions set forth in the share purchase agreement (the “Equity Subscription Line”). As of December 31, 2022, we had sold approximately 1.1 million ordinary shares at a weighted average price per share of $7.70, net of transaction costs, and have received approximately $8,497 thousand in net proceeds from the Equity Subscription Line, and we have the right to continue to sell ordinary shares under the Equity Subscription Line as long as it remains available to us.
We generally have the right to control the timing and amount of any sales of our ordinary shares to Nomura under the Equity Subscription Line. Sales of our ordinary shares, if any, to Nomura under the Equity Subscription Line will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Nomura all, some or none of the ordinary shares that may be available for us to sell to Nomura pursuant to the Equity Subscription Line. However, even if we elect to sell ordinary shares to Nomura pursuant to the Equity Subscription Line, Nomura may resell all, some or none of such shares at any time or from time to time in its sole discretion and at different prices.
Because the purchase price per share of ordinary shares to be paid by Nomura for the ordinary shares that we may elect to sell to Nomura under the Equity Subscription Line, if any, will fluctuate based on the market prices of our ordinary shares at the time we elect to sell ordinary shares to Nomura pursuant to the Equity Subscription Line, if any, it is not possible for us to predict the number of ordinary shares that we will sell to Nomura under the Equity Subscription Line, the purchase price per share that Nomura will pay for ordinary shares purchased from us under the Equity Subscription, or the aggregate gross proceeds that we will receive from those purchases by Nomura under the Equity Subscription Line.
As a result, it may become necessary for us to issue and sell to Nomura under the Equity Subscription Line more than the 20 million ordinary shares currently registered for resale in order to receive aggregate gross proceeds equal to $100 million under the Purchase Agreement, which would require that we file with the SEC one or more additional registration statements to register under the Securities Act the resale by Nomura of any such additional ordinary shares we wish to sell from time to time under the Equity Subscription Line, which the SEC must declare effective before we may elect to sell any additional ordinary shares to Nomura under the Equity Subscription Line. Any issuance and sale by us under the Equity Subscription Line of a substantial amount of ordinary shares in addition to the 20 million ordinary shares registered for resale by Nomura could cause additional substantial dilution to our shareholders.
Our Convertible Senior Secured Notes issued and outstanding may impact our financial results, result in the dilution of our shareholders, create downward pressure on the price of our ordinary shares, and restrict our ability to raise additional capital or take advantage of future opportunities.
In connection with the Business Combination, we issued and sold an aggregate of $200 million principal amount of Convertible Senior Secured Notes to the Convertible Senior Secured Notes Investor in a private placement. The Convertible Senior Secured Notes are convertible for ordinary shares at a conversion rate of 90.9091 ordinary shares per $1,000 principal amount of Convertible Senior Secured Note, subject to adjustments to such rate as provided in the Indenture, and bear interest at a rate of 7.00% per annum for cash interest or 9.00% per annum for interest paid-in-kind, which is to be selected at our option and is paid semiannually. The sale of the Convertible Senior Secured Notes may affect our earnings per share figures, as accounting procedures may require that we include in our calculation of earnings per share the number of our ordinary shares into which the Convertible Senior Secured Notes are convertible. If our ordinary shares are issued to the holders of the Convertible Senior Secured Notes upon
23
conversion, there will be dilution to our shareholders’ equity and, if some or all such issued shares are then resold by the Convertible Senior Secured Notes Investor, the market price of our ordinary shares may decrease due to the additional selling pressure in the market. Any downward pressure on the price of our ordinary shares caused by the sale, or potential sale, of shares issuable upon conversion of the Convertible Senior Secured Notes could also encourage short sales by third parties, creating additional selling pressure on our ordinary share price.
In addition, pursuant to the Indenture, if we issue additional ordinary shares or additional securities convertible into ordinary shares at an average price per share (or in the case of convertible securities, the effective conversion price per share) (the “Issue Price”) lower than the last reported sale price of our ordinary shares on the issue date of the Convertible Senior Secured Notes, and if the number of additional ordinary shares (or the number of ordinary shares underlying any such additional convertible securities) in the aggregate (in one or a series of transactions) exceeds 2.5% of the number of outstanding ordinary shares as of the issue date of the Convertible Senior Secured Notes, then the conversion rate for the Convertible Senior Secured Notes will be increased to be equal to $1,000 divided by the Issue Price, subject to limited exceptions (the “Anti-Dilution Adjustment”). The Anti-Dilution Adjustment may limit our ability to raise capital through the sale of additional equity securities without triggering the Anti-Dilution Adjustment. If the Anti-Dilution Adjustment is triggered, there will be additional dilution to our shareholders’ equity and the market price of our ordinary shares may decrease more due to the additional ordinary shares issuable upon conversion of the Convertible Senior Secured Notes as a result of the Anti-Dilution Adjustment.
We may still incur substantially more debt or take other actions that would diminish our ability to make payments on the Convertible Senior Secured Notes when due.
We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments. We are subject to certain restrictions under the terms of the Indenture, including limitations regarding incurring future indebtedness, subject to specific allowances in the Indenture. However, we will not be restricted from recapitalizing our debt or taking a number of other actions that are not limited by the terms of the Indenture that could have the effect of diminishing our ability to make payments on the Convertible Senior Secured Notes when due.
As an international business, we are exposed to fluctuations in currency exchange rates, which could adversely affect our cash flows and results of operations.
International markets are anticipated to contribute a substantial portion of our revenue, and we intend to expand our presence in these regions. The exposure to fluctuations in currency exchange rates takes on different forms. International revenue and costs are subject to the risk that fluctuations in exchange rates could adversely affect our reported revenue and profitability when translated into British pounds sterling for financial reporting purposes. The majority of our revenue is expected to be denominated in U.S. dollars, and our costs are primarily in British pounds sterling. These fluctuations could also adversely affect the demand for products and services provided by us. As an international business, our businesses may occasionally invoice third-party customers in currencies other than the one in which they primarily do business (the “functional currency”). Movements in the invoiced currency relative to the functional currency could adversely impact our cash flows and our results of operations. As our international sales commence and grow, exposure to fluctuations in currency exchange rates could have a larger effect on our financial results. Our management has used, and expects to continue to use, financial instruments to hedge against currency fluctuations, but such action may be ineffective or insufficient.
24
We are subject to laws and regulations concerning our collection, processing, storage, sharing, disclosure and use of customer information and other sensitive data, and our actual or perceived failure to comply with data privacy and security laws and regulations could damage our reputation and brand and harm our business and operating results.
In the ordinary course of business, we collect, store, and transmit information, including personal information, in relation to our current, past or potential customers, business partners, employees and contractors. We therefore face particular privacy, data security, and data protection risks in connection with requirements of the European Union’s General Data Protection Regulation 2016/679 (“GDPR”), national implementing legislation of the GDPR, the United Kingdom GDPR and U.K. Data Protection Act 2018 (which retains the GDPR in U.K. national law (the “U.K. GDPR”)) and other data protection regulations in the European Economic Area (“EEA”) and the U.K. Among other stringent requirements, the GDPR and U.K. GDPR restrict transfers of data outside of the EEA and U.K. to third countries deemed to lack adequate privacy protections (such as the U.S.), unless an appropriate safeguard specified is implemented. A July 16, 2020 decision of the Court of Justice of the European Union invalidated a key mechanism for lawful data transfer to the U.S. and called into question the viability of its primary alternative, the standard contractual clauses. While the European Commission has since then published revised standard contractual clauses and the United Kingdom’s Information Commissioner’s Office has published new data transfer standard contracts for transfers from the UK under the UK GDPR, each of which must be used for relevant new data and existing transfers (subject to grace periods), the ability of companies to lawfully transfer personal data from the EEA and the U.K. to the U.S. and other third countries is presently complex and uncertain. We currently rely on the standard contractual clauses to transfer personal data outside the EEA and the U.K., including to the U.S. among other data transfer mechanisms pursuant to the GDPR and U.K. GDPR. Other countries have enacted or are considering enacting similar cross-border data transfer rules or data localization requirements. As this area and the enforcement landscape relating to it further develop, we could: suffer additional costs, complaints and/or regulatory investigations or fines; have to stop using certain tools and vendors and make other operational changes; have to implement revised standard contractual clauses for existing intragroup, customer and vendor arrangements within required time frames; and/or it could otherwise affect our future ability to deliver our products in the EEA, the U.K. and other foreign markets.
Fines for certain breaches of the GDPR and the U.K. GDPR are significant. For example, fines for certain breaches of the GDPR or the U.K. GDPR are up to the greater of €20 million / £17.5 million or 4% of total global annual turnover. In addition to the foregoing, a breach of the GDPR or U.K. GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data, enforcement notices, and/ or assessment notices (for a compulsory audit). We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm.
We are also subject to evolving EU and U.K. privacy laws on cookies and e-marketing. In the EU and U.K., informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing. The GDPR and the U.K. GDPR also impose conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. Recent European court and regulatory decisions, regulatory guidance and recent campaigns by a not-for-profit organization are driving increased attention to cookies and tracking technologies. If the trend of increasing enforcement by regulators of the strict approach to opt-in consent for all but essential use cases in recent guidance and decisions continues, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities.
25
In the U.S., there are numerous federal and state data privacy and protection laws and regulations governing the collection, use, disclosure, protection and other processing of personal data, including federal and state data privacy laws, data breach notification laws and consumer protection laws. We may become subject to these laws and regulations. For example, the FTC and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online and offline collection, use, dissemination, and security of data. Such standards require us to publish statements that describe how we handle personal data and choices that individuals may have about the way we handle their personal data. If such information we publish is considered untrue or inaccurate, we may be subject to government claims of unfair or deceptive trade practices, which could lead to significant liabilities and consequences. Moreover, according to the FTC, violating consumers’ data privacy rights or failing to take appropriate steps to keep consumers’ personal data secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. State consumer protection laws provide similar causes of action for unfair or deceptive practices. Some states, such as California and Massachusetts, have passed specific laws mandating reasonable security measures for the handling of consumer data. Further, data privacy advocates and industry groups have regularly proposed and sometimes approved, and may propose and approve in the future, self-regulatory standards with which we must legally comply or that contractually apply to us.
In addition, many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security, and data breaches. Such legislation includes the California Consumer Privacy Act of 2018 (“CCPA”), which came into force in January 2020 and created new consumer rights, and imposes corresponding obligations on covered businesses, relating to the access to, deletion of, and sharing of personal information collected by covered businesses, including California residents’ right to access and delete their personal information, opt out of certain sharing and sales of their personal information, and receive detailed information about how their personal information is used. The CCPA prohibits discrimination against individuals who exercise their privacy rights, and provides for civil penalties for violations that are enforceable by the California Attorney General as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. In addition, California voters passed the California Privacy Rights Act (“CPRA”), which came into effect on January 1, 2023. The CPRA significantly modifies the CCPA, including by imposing additional obligations on covered businesses and expanding California residents’ rights with respect to certain sensitive personal information, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. The CPRA also establishes the California Privacy Protection Agency, which some observers have noted that the CCPA (and the CPRA) marks the beginning of a trend toward more stringent data privacy legislation in the United States, and multiple states have enacted, and are expected to enact, similar or more stringent laws. In March 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”), which took effect on January 1, 2023. The VCDPA creates consumer rights similar to the CCPA, and imposes corresponding obligations on covered businesses, relating to the access to, deletion of, and disclosures of personal data collected by covered businesses about Virginia residents. The VCDPA provides for civil penalties for violations that are enforceable by the Virginia Attorney General. Further, Colorado, Utah and Connecticut recently passed comprehensive privacy laws that take effect in 2023 and will impose obligations similar to or more stringent than those we may face under other data protection laws. There is also discussion in Congress of a new comprehensive federal data protection and privacy law to which we likely would be subject if it is enacted. Such new laws and proposed legislation, if passed, could have conflicting requirements that could make compliance challenging, require us to expend significant resources to come into compliance, and restrict our ability to process certain personal information.
If we or our third-party service providers experience a security breach, or if unauthorized parties otherwise obtain access to our data or systems, including our customers’ data, partners’ data or other personal data, our reputation may be harmed, demand for services may be reduced and we may incur significant liabilities.
Our services currently are expected to continue to involve the storage, processing and transmission of data, including certain personal data and confidential and sensitive information. Any security breach, including those resulting from a cybersecurity attack, phishing attack or any unauthorized access, unauthorized usage, virus or similar breach or disruption could result in the loss or destruction of or unauthorized access to, or use, alteration, disclosure, or acquisition of, data, damage to our reputation, litigation, regulatory investigations or other liabilities. These attacks may come from individual hackers, criminal groups and state-sponsored organizations. In particular, ransomware attacks, including those from organized criminal threat actors, nation-states, and nation-state supported actors, are becoming increasingly prevalent and severe, and can lead to significant interruptions in our operations, loss of data and income, reputational loss, diversion of funds, and may result in fines, litigation and unwanted media attention. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting payments.
26
If our security measures are breached as a result of third-party action, employee error, a defect or bug in our products or those of our third-party suppliers or partners, malfeasance or otherwise, and as a result, someone obtains unauthorized access to our data, including our confidential, sensitive, personal or other information about individuals, or any of these types of information is lost, destroyed or used, altered, disclosed or acquired without authorization, our reputation may be damaged, our business may suffer, and we could incur significant liability and regulatory enforcement. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain and receive timely payments from existing customers. Further, we could be required to expend significant capital and other resources to address any data security incident or breach, which may not be covered or fully covered by our insurance and which may involve payments for investigations, forensic analyses, legal advice, public relations advice, system repair or replacement or other services.
We engage third-party service providers to store and otherwise process some of our data, including personal data and confidential and sensitive information. Our service providers may also be the targets of cyberattacks, malicious software, phishing schemes, and fraud. Our ability to monitor our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our data, including confidential data and confidential and sensitive information.
Techniques used to sabotage or obtain unauthorized access to systems or networks are constantly evolving and, in some instances, are not identified until after they have been launched against a target. We and our service providers may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventative and mitigating measures. If we are unable to efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more vulnerable to unauthorized access or disruption.
We may not be able to secure adequate insurance policies, or secure insurance policies at reasonable prices.
We maintain public liability and employers liability insurance and aviation liability coverage, directors and officers insurance and other insurance policies, and we believe our level of coverage is customary in our industry. However, there can be no assurance that it will be sufficient to cover potential claims or that present levels of coverage will be available in the future at reasonable cost. The eVTOL market is currently a nascent market for insurers, and as such, insurers may be unwilling to cover the risks associated with eVTOL technology, either partially or at all. Further, we expect our insurance needs and costs to increase as we build production facilities, manufacture aircraft, establish commercial operations and expand into new markets, and it is too early to determine what impact, if any, the commercial operation of eVTOLs will have on our insurance costs.
Changes in our tax rates, unavailability of certain tax credits or reliefs or exposure to additional tax liabilities, clawbacks or assessments could affect our profitability, and audits by tax authorities could result in additional tax payments for prior periods.
We expect to be affected by various domestic and international taxes, including direct and indirect taxes imposed on our activities, such as corporate income, withholding, customs, excise, value-added, sales and other taxes. Significant judgment is required in determining our provisions for taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain.
The amount of tax we expect to pay may be subject to audits by international, domestic and local tax authorities. If audits result in payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities, and our financial statements could be adversely affected. Any significant changes to the tax system in the United Kingdom, United States, Cayman Islands or in other jurisdictions (including changes in the taxation of international income as further described below) could adversely affect our business, financial condition and results of operations.
We are subject to U.K. corporation tax, which is levied on profits generated in the U.K. and abroad. The U.K. corporation tax rate is currently 19% for the 2022/23 tax year. From April 1, 2023 the main U.K. corporation tax rate will rise to 25%, which will affect our post-tax profits.
27
We carry out extensive research and development activities, and as a result, we expect to benefit in the United Kingdom from HM Revenue & Customs’ (“HMRC”) research and development expenditure credit (“RDEC”), which provides relief against U.K. corporation tax. Broadly, RDECs provide a tax credit currently equal to 13% of “qualifying research and development expenditure” made from April 1, 2020 (the rate was previously 12% of qualifying research and development expenditure made from January 1, 2018 to March 31, 2020) by certain companies where certain criteria are met. For qualifying research and development expenditure made on or after April 1, 2023 the RDEC rate will increase to 20%. Based on criteria established by HMRC, a portion of expenditures incurred in relation to our research and development and manufacturing development activities are eligible for RDEC relief. Our qualifying research and development expenditures largely consist of employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive revenue and are loss generating. To the extent a company cannot utilize the RDEC against U.K. corporation tax, then certain rules apply that allow the RDEC to reduce the tax liability of certain specified taxes, and to the extent it is not possible to utilize the RDEC in full, then the net tax credit is repaid to the company by HMRC. Over the last few years the U.K. government has launched a number of consultations and reviews of the research and development tax relief system, including in January 2023. If there are unexpected adverse changes to the current RDEC scheme or for any reason we are unable to qualify for such advantageous tax legislation enabling tax reliefs for research and development, then our business, results of operations and financial condition may be adversely affected.
We may incur tax liabilities in relation to incentive awards held by employees.
We have in place certain arrangements to attract talent and to motivate and incentivize our employees.
A number of our employees have been issued incentive awards (in the form of share based awards and “phantom” cash-based awards), some of which are intended to qualify for certain tax reliefs in France, the United States and the United Kingdom. Generally, at settlement of these awards, we may be subject to:
| ● | Employee income tax and/or social security (or other similar charges) withholding and reporting obligations; and |
| ● | Employer social security in respect of the award which will need to be paid to the local tax authority. |
In the U.K., the tax rules provide that, in connection with share-based awards, including enterprise management incentive (“EMI”) options, this cost and/or liability may be passed to the employee, and this is reviewed on a case-by-case basis.
The tax authority can seek to recover unpaid amounts and impose penalties if we did not comply with these obligations.
Our business may be adversely affected by union activities.
Although none of our employees are currently represented by a recognized labor union, it is common throughout the aerospace and airline industries generally for many employees to belong to a union, which can result in higher employee costs and increased risk of work stoppages. As we expand our business, there can be no assurances that our employees will not join or form a recognized labor union or that we will not be required to become a union signatory. We are also directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our performance electric vehicles and have a material adverse effect on our business, operating results or financial condition.
We are subject to many hazards and operational risks that can disrupt our business, including interruptions or disruptions in service at our facilities, which could have a material adverse effect on our business, financial condition and results of operations.
Our operations are subject to many hazards and operational risks inherent to our business, including general business risks, product liability and damage to third parties, our infrastructure or properties that may be caused by fires, floods and other natural disasters, power losses, telecommunications failures, terrorist attacks (including hijacking, use of the aircraft as a weapon, or use of the aircraft to disperse a chemical or biological agent), catastrophic loss due to security related incidents, human errors and similar events. Additionally, our manufacturing operations are hazardous at times and may expose us to safety risks, including environmental risks and health and safety hazards to our employees or third parties.
28
Any legal proceedings, investigations or claims against us could be costly and time-consuming to defend and could harm our reputation regardless of the outcome.
We may in the future become subject to legal proceedings, investigations and claims, including claims that arise in the ordinary course of business, such as claims brought by our customers or partners in connection with commercial disputes, claims by end-users, claims or investigations brought by regulators, claims made against our directors or officers or employment claims made by our current or former employees. Any litigation, investigation or claim, whether meritorious or not, could harm our reputation, will increase our costs and may divert management’s attention, time and resources, which may in turn harm our business, financial condition and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position and results of operations.
Our business could be impacted by the war in Ukraine.
Although we do not have any operations or direct suppliers located in Ukraine or Russia and have not yet experienced any direct impacts from the conflict, we believe our continuing design and development activities, regulatory certification processes and ability to contract with prospective customers, suppliers and other counterparties, as well as to progress to the production, manufacturing and commercialization of the VX4, could be adversely affected by the conflict between Russia and Ukraine. For example, the continuance or any escalation of the conflict could result in disruptions to our business and operations, increased inflationary pressures, increased raw material costs, disruption to supply chains, increased cyberattacks or data security incidents and other adverse impacts on our anticipated costs and commercialization timeline. Russia provides most of the titanium used globally in the manufacture of aircraft, which we expect to require for certain components in our aircraft. Existing or additional government actions, including economic sanctions and export control restrictions introduced by the U.S., EU, U.K. and other jurisdictions, taken in response to the conflict could also adversely impact the commercial and regulatory environment in which we operate.
We continue to closely monitor the possible effects of the conflict in Europe and general economic factors on our business and planning. These factors put pressure on our costs for employees and materials and services we procure from our suppliers, as well as affect other stakeholders and regulatory agencies.
The increasing focus on environmental sustainability and social initiatives could increase our costs, harm our reputation and adversely impact our financial results.
There has been increasing public focus by investors, environmental activists, the media and governmental and nongovernmental organizations on a variety of environmental, social and other sustainability matters. We may experience pressure to make commitments relating to sustainability matters that affect us, including the design and implementation of specific risk mitigation strategic initiatives relating to sustainability. If we are not effective in addressing environmental, social and other sustainability matters affecting our business, or setting and meeting relevant sustainability goals, our reputation and financial results may suffer. In addition, we may experience increased costs in order to execute upon our sustainability goals and measure achievement of those goals, which could have an adverse impact on our business and financial condition.
In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements. If we fail to comply with new laws, regulations or reporting requirements, our reputation and business could be adversely impacted.
Risks Related to Our Regulatory Environment
The international nature of our business subjects us to additional risks.
We are subject to a number of risks related to doing business internationally, any of which could significantly harm our business. These risks include, but are not limited to:
| ● | restrictions on the transfer of funds to and from foreign countries, including potentially negative tax consequences; |
| ● | unfavorable changes in tariffs, quotas, trade barriers or other export or import restrictions, including navigating the changing relationships between countries globally such as the United States, Russia and China; |
29
| ● | unfavorable foreign exchange controls and currency exchange rates; |
| ● | increased exposure to general international market and economic conditions; |
| ● | political and economic uncertainty and volatility; |
| ● | the potential for substantial penalties and litigation related to violations of a wide variety of laws, treaties and regulations, including anti-corruption regulations (including the U.S. Foreign Corrupt Practices Act 1977 (as amended, the “FCPA”) and the U.K. Bribery Act 2010 (the “Bribery Act”)) and privacy laws and regulations (including the EU’s General Data Protection Regulation); |
| ● | significant differences in regulations across international markets and the regulatory impacts on a globally integrated supply chain; |
| ● | the difficulty and costs of designing and implementing an effective control environment across diverse regions and employee bases; |
| ● | the difficulty and costs of maintaining effective data security; |
| ● | global pricing pressures; and |
| ● | unfavorable and/or changing foreign tax treaties and policies. |
In addition, our financial performance on a British pounds sterling denominated basis is subject to fluctuations in currency exchange rates, as our principal funding and sales exposure is to the U.S. dollar. See note 26 to our consolidated financial statements included elsewhere in this Annual Report.
We are subject to laws and regulations worldwide, many of which are unsettled and still developing and which could increase our costs or materially and adversely affect our business.
We are subject to a variety of laws internationally that affect our business, including, but not limited to, laws regarding employment, safety, anti-money laundering and taxation, all of which are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting and compliance with laws, regulations and similar requirements may be burdensome and expensive. Laws and regulations may be inconsistent from jurisdiction to jurisdiction, which may increase the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could make our aircraft less attractive to our customers or cause us to change or limit our ability to sell our aircraft. We expect to put in place policies and procedures designed to ensure compliance with applicable laws and regulations, but we cannot assure you that our employees, contractors or agents will not violate such laws and regulations or our policies and procedures.
It is difficult to predict how existing or new laws may be applied. If we become liable, directly or indirectly, under these laws or regulations, we could be harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to modify our aircraft, which would harm our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business, financial condition or results of operations.
Our aircraft might not comply with all the requirements to operate according to Instrument Flight Rules.
We are subject to a variety of certification requirements in the jurisdictions in which we operate, including those relating to IFRs. While we are working to ensure that our aircraft is certified to operate under IFRs, including at low levels and in an urban environment, there can be no assurance that we will be successful.
30
Existing IFRs were designed based on the capabilities of traditional aircraft. Electric aircraft have different capabilities, in particular, with respect to loiter time and diversion range. Aviation regulators acknowledge and are working towards making the appropriate revisions to accommodate these new types of aircraft, but there can be no assurance that these changes will be made in a timely manner or at all, or that globally consistent standards will be promulgated. Further, there can be no assurance that our aircraft will be capable of meeting any newly defined IFR or other similar requirements in the future.
If we are unable, either fully or partially, to certify our aircraft in accordance with the IFRs, then this could limit the ability of our aircraft to fly under certain conditions, which could impair our ability to meet our customers’ requirements and as a result, harm our sales to our customers and potential new customers. In turn, this could adversely affect our business, financial condition and results of operations.
We may be unable to obtain the relevant regulatory approvals needed to produce and sell the aircraft and prospective operators of our aircraft may not be able to obtain the relevant regulatory approvals to operate our aircraft.
The commercialization of new aircraft and the operation of an aerial mobility service requires certain regulatory authorizations and certifications. We will need to obtain Design Organisation Approval and Production Organisation Approval from the CAA. We then need to obtain a type certificate for the aircraft from the CAA and the EASA (which we expect to occur concurrently as the EASA has agreed to concurrently validate the CAA’s certification) and then undergo successful foreign validation approvals to operate in other jurisdictions, for example with the FAA. While we anticipate being able to achieve these regulatory approvals, should we fail to do so, or fail to do so in a timely manner, or if these approvals or certifications are modified, suspended or revoked after we obtain them, we may be unable to provide our aircraft on projected timelines, which could have a material adverse effect on the relationships that we have with our customers and negatively impact our reputation, which could harm our ability to attract new customers.
In addition, our customers will need to obtain regulatory approval to operate the aircraft. This will include either obtaining an air (carrier) operator’s certificate from their National Authority or amending an existing certificate to include our aircraft. If obtaining such approvals is significantly more difficult, costly or time-consuming than envisaged, this may affect demand for our aircraft. Any of the foregoing would have adverse effects on our business, financial condition and results of operations.
Regulatory and planning authorities may introduce regulatory, procedural or policy changes to reflect the novel aspects of eVTOL aircraft, including in relation to pilot training, aircraft operation and maintenance. If changes are introduced, they may have a detrimental impact on our ability to successfully deploy and commercialize our aircraft, or to do so in a timely manner.
There are a number of existing laws, regulations and standards that may apply to our aircraft, including standards that were not originally intended to apply to electric aircraft. While our aircraft and our service will be designed, at launch, to operate as far as possible within the existing CAA, EASA, FAA or other regulatory frameworks in which we intend to operate, we anticipate national authorities may introduce changes to those frameworks, which may prohibit, restrict or delay our ability to launch in the relevant market. Regulatory authorities may introduce changes specifically to address electric aircraft or high-volume flights, which could have a negative impact on the sales of our aircraft or services.
In addition, the increased volume of flights resulting from AAM and AAM services may result in regulatory changes for integration into the airspace systems applicable to our operations. We may be unable to comply with such regulatory changes at all or do so in a timely manner, thereby interrupting our operations. Such regulatory changes could also result in increased costs and pricing of our services, reducing demand and adversely impacting our financial performance.
If current airspace and zoning regulations are not modified to increase air traffic capacity, our business could be subject to considerable capacity limitations.
A failure to increase air traffic capacity at and in the airspace serving key markets, including around major airports in the United States, Europe or overseas, could create capacity limitations for the future operations of the third-party operators and could have an indirect material adverse effect on our business, results of operations and financial condition. In particular, delays and disruptions to customers’ services (especially during peak travel periods or adverse weather conditions in certain markets) could be caused by capacity constraints resulting from weaknesses in the relevant airspace systems and air traffic control systems, such as legacy procedures and technologies, or from zoning restrictions that limit flight volumes at existing airports or prevent the construction of new air traffic infrastructure.
31
Changes in government regulations imposing additional requirements and restrictions on our manufacturing and other operations could increase costs and result in delays and disruptions.
Aerospace manufacturers are subject to extensive regulatory and legal requirements that involve significant compliance costs. The CAA, the EASA or the FAA may issue regulations relating to aircraft that could require significant expenditures in the design, production or operation of the aircraft. Implementation of the requirements created by such regulations may result in increased costs for us and delays in our manufacturing and other operations.
Additional laws, regulations, taxes, and airport rates and charges have been proposed from time to time that could significantly increase the time and cost of our operations, impact our customers’ services or generally reduce the demand for air travel. If adopted, these measures could reduce revenue and increase costs. We cannot assure you that these and other laws or regulations enacted in the future will not harm our business.
We are subject to stringent export and import control laws and regulations. Unfavorable changes in these laws and regulations or licensing policies, our failure to secure timely government authorizations under these laws and regulations, or our failure to comply with these laws and regulations could have a material adverse effect on our business, financial condition and results of operation.
Our business may be subject to stringent U.K., U.S. and other applicable import, export and re-export control laws. We, and our suppliers, are required to import and export our products, software, technology and services, as well as run our operations in full compliance with such laws and regulations. Similar laws that impact our business exist in other jurisdictions. Pursuant to these trade control laws and regulations, we are required, among other things, to (i) determine the proper licensing jurisdiction and export classification of products, software, and technology, and (ii) where necessary, obtain licenses or other forms of government authorization to engage in the conduct of our business. The authorization requirements may include the need to obtain export licenses or similar permissions from the relevant governmental regulators in order to export or re-export controlled products, software or technology, including to release such controlled goods to foreign person employees and other foreign persons, and to ensure compliance with the terms of such licenses or permissions. These foreign trade controls may prohibit, restrict or regulate our ability to, directly or indirectly, export, deemed export, re-export, deemed re-export or transfer certain hardware, technical data, technology, software or services to certain countries and territories, entities and individuals and for end uses. U.K., U.S. or other applicable trade control laws and regulations may also change or lead to reclassifications of our products or technologies. A number of our key suppliers, including Honeywell, Leonardo, Rolls-Royce and GKN, are based in, or have substantial engineering resources located in, the U.S. and are also actively involved in the defense industry. Due to the cutting-edge nature of our industry and aircraft, the U.S., U.K. or other governments, could make key technologies that we, or our suppliers, are developing or are intending to use, subject to export control legislation, including the U.S. International Traffic in Arms Regulations or the Export Administration Regulations (the “EAR”).
The inability to secure and maintain necessary export licenses and other authorizations, or the failure to comply with the terms of licenses that we have obtained, could negatively impact our ability to compete successfully or to operate our business as planned. In February 2022, we determined that we inadvertently released certain technology controlled under the EAR to up to four individual employees of a third party without appropriate authorization under the EAR. Such access was terminated immediately upon discovery, an internal review was commenced and, acting on advice of specialist legal counsel, we submitted an initial voluntary self-disclosure to the U.S. Commerce Department’s Office of Export Enforcement (“OEE”) in April 2022 followed by a final voluntary self-disclosure in December 2022. In January 2023 we received a letter from the OEE confirming that it believed the referenced conduct constituted a violation(s) of the Export Control Reform Act of 2018, 50 U.S.C. 4801-4852 ct and/or the EAR; but that the OEE had decided not to refer this matter for criminal or administrative prosecution and was closing the matter with the issuance of the warning letter. The warning letter will become part of Vertical Aerospace's record and will be considered if future violations occur. There can be no assurance we will be successful in our future efforts to secure and maintain necessary licenses, registrations, or other U.K., U.S. or other relevant government regulatory approvals. If we, or our suppliers, are found to be in violation of these laws and regulations, it could result in civil and criminal, monetary and non-monetary penalties, the loss of export or import privileges, debarment and reputational harm.
32
We are subject to anti-corruption, anti-bribery, anti-money laundering, economic and trade sanctions and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition and results of operations.
We are subject to certain anti-corruption, anti-bribery, anti-money-laundering, and economic and trade sanctions laws, including those that are administered by the U.K., EU, U.S. and United Nations Security Council, and other relevant governmental authorities.
We are also subject to the Bribery Act, FCPA, and the U.S. PATRIOT Act, as well as the laws of the other countries in which we conduct our activities. The FCPA prohibits us and our officers, directors, employees, and agents and business partners acting on our behalf, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or otherwise securing an improper advantage to obtain or retain business. The FCPA further requires companies listed on U.S. stock exchanges to make and keep books and records that accurately reflect transactions and dispositions of assets and to maintain a system of internal accounting controls. The Bribery Act also prohibits:
| (i) | “commercial bribery” of private parties, in addition to bribery involving domestic or foreign officials; |
| (ii) | the acceptance of bribes, as well as the giving of bribes, and |
| (iii) | “facilitation payments,” meaning generally low-level payments designed to secure or expedite routine governmental actions or other conduct to which persons are already under obligations to perform. |
The Bribery Act also creates a corporate offence of the failure to prevent bribery by our employees, officers, directors and other third parties acting on our behalf, to which it is a defense to maintain “adequate procedures” designed to prevent such acts of bribery.
We also are subject to the jurisdiction of various governments and regulatory agencies around the world, which may bring our personnel and agents into contact with public officials responsible for issuing or renewing permits, licenses or approvals or for enforcing other governmental regulations. As we increase our global sales and business, we may engage with partners and third-party intermediaries to market our aircraft and obtain necessary permits, licenses and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities (in addition to private customers). We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners and agents, even if we do not authorize such activities.
Our customers may be subject to sanction laws of the U.K., EU, and U.S., and other applicable jurisdictions, such as those administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the United Nations Security Council, His Majesty’s Treasury and other relevant sanctions authorities, which may prohibit the sale of products or provision of services to embargoed jurisdictions (“Sanctioned Countries”) or to individuals and entities targeted by such sanctions (“Sanctioned Parties”). If we are found to be in violation of any applicable sanctions regulations, it can result in significant fines or penalties and possible incarceration for responsible employees and managers, as well as reputational harm and loss of business.
33
We have in place internal controls commensurate with our stage of development, and as our business matures and evolves, we intend to implement further necessary controls, policies, procedures and systems designed to promote compliance with anti-corruption, anti-money laundering, export control, economic and trade sanctions and other trade laws. Despite our compliance efforts and activities, there can be no assurance that our employees or representatives will comply with the relevant laws or with our policies, procedures, systems and controls, or that our internal controls will effectively detect and prevent all violations of applicable law by our employees, consultants, agents or other third-parties acting on our behalf, and we may be held responsible. Non-compliance or even suspected non-compliance with anti-corruption, anti-money laundering, export control, economic and trade sanctions and other trade laws could subject us to whistleblower complaints, investigations, prosecution, or other enforcement actions, which could lead to disclosures, sanctions, settlements, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage and other collateral consequences. If any subpoenas or investigations are initiated, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be materially harmed. Responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense and compliance costs and other professional fees. As a general matter, enforcement actions and sanctions could harm our business, financial condition and results of operations.
We may need to initiate or defend against intellectual property infringement or misappropriation claims, which may be time-consuming and expensive and, if adversely determined, could limit our ability to sell our aircraft or otherwise operate our business.
Companies, organizations or individuals, including our competitors, may own or obtain proprietary intellectual property rights such as patents and designs that could prevent or limit our ability to make, use, develop or deploy our aircraft, which could make it more difficult for us to operate our business. In addition, organizations or individuals, including our competitors, hold or maintain rights in copyright, confidential information and trade secrets.
We, or our partners and/or suppliers, may receive inquiries and claims from owners of such proprietary intellectual property rights, copyright, confidential information and trade secrets, inquiring whether, or alleging that, we, or our partners and/or suppliers, infringe upon or have misappropriated their rights. Dealing with these inquiries or claims, even if the allegations are unsuccessful or unsubstantiated, could result in substantial costs, demand on management resources and damage to our reputation.
As a result of any court determination that we have infringed upon or misappropriated a third-party’s rights, or as a result of settlement of such claims, we and our partners and/or suppliers may be required to do one or more of the following:
| ● | cease development, sales or use of our products that incorporate the asserted rights; |
| ● | pay substantial damages; |
| ● | divert significant resources towards litigation or dispute resolution; |
| ● | if available, obtain a license from the owner of a successfully asserted intellectual property right, which license may not be available on reasonable terms (including royalties); or |
| ● | re-design one or more aspects or systems of our aircraft or other offerings to avoid ongoing infringement of rights. |
Any inquiry, allegation or claim of intellectual property infringement or misappropriation against us or any of our partners and/or supplies, whether or not successful, could harm our business, prospects, financial condition and operating results.
34
We may be unable to protect our proprietary information and intellectual property rights from unauthorized use by third parties.
Our success depends, in part, on our ability to protect our proprietary information and intellectual property rights, including in or in relation to certain technologies deployed in our aircraft. To date, we have relied on trade secrets and confidentiality to protect our proprietary information and have applied for a number of patents (currently pending) in the United States, the United Kingdom and European territories covered by the European Patent Convention. The agreements that we enter into, or will enter into in the future, with our partners, suppliers, consultants and other third parties include relevant provisions to protect our intellectual property rights and proprietary information including non-disclosure, assignment or license terms, as well as take other measures such as limiting access to our trade secrets and other confidential information and including intellectual property ownership and confidentiality clauses in our employment contracts. We intend to continue to rely on these and other means, including patent protection, in the future. However, the steps we take to protect our intellectual property and proprietary information may be inadequate comprehensively to protect our technologies, and unauthorized parties may attempt to copy aspects of our intellectual property or obtain and use information that we regard as proprietary and, if successful, may harm our ability to compete, accelerate the development programs of our competitors, and/or result in a deteriorated competitive position in the market. Moreover, our non-disclosure agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to ours, and there can be no assurance that our competitors or third parties will comply with the terms of these agreements, or that we will be able to successfully enforce such agreements or obtain sufficient remedies if they are breached. Additionally, there can be no assurance that the intellectual property rights we own or license will provide competitive advantages or will not be challenged, revoked, invalidated, opposed or circumvented by our competitors.
Further, obtaining and maintaining patent and design protection can be costly, and we may choose not to, or may fail to, pursue or maintain such forms of protection for each and every part of our technology in the United States, United Kingdom or other jurisdictions in which we may operate in the future, which could harm our ability to maintain our competitive advantage in such jurisdictions. It is also possible that we will fail to identify patentable aspects of our technology before it is too late to obtain patent protection, that we will be unable to devote the resources to file and obtain grant of all patent applications for such technology, or that we will inadvertently lose protection for failing to comply with all procedural, documentary, payment and similar obligations during the patent prosecution process. The laws of some countries do not protect proprietary rights or confidential information to the same extent as the laws of the United States or the United Kingdom, and mechanisms for enforcement of intellectual property rights and breaches of confidence in some foreign countries may be inadequate to prevent other parties from infringing our proprietary intellectual property or misappropriating our proprietary information. To the extent we expand our international activities, our exposure to unauthorized use of our technologies and proprietary information, and the limitations to our ability to prevent this, may increase. We may also fail to detect unauthorized use of our intellectual property or proprietary information or be required to expend significant resources to monitor and protect our intellectual property rights and third party uses thereof, including engaging in litigation, which may be costly, time-consuming, and divert the attention of management and resources, and may not ultimately be successful. If we fail to meaningfully establish, maintain, protect our proprietary information and enforce our intellectual property rights, our business, financial condition and results of operations could be adversely affected.
Risks Related to Ownership of Our Securities
The price of our securities may be volatile, and the value of our securities may decline.
We cannot predict the prices at which our ordinary shares and our warrants will trade. The market price of our ordinary shares and our warrants may fluctuate substantially and may be lower than the current market price. In addition, the trading price of our ordinary shares and our warrants is likely to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our ordinary shares and/or warrants as you might be unable to sell your securities at or above the price you paid. Factors that could cause fluctuations in the trading price of our securities include the following:
| ● | actual or anticipated fluctuations in our financial condition or results of operations; |
| ● | variance in our financial performance from expectations of securities analysts; |
| ● | changes in the pricing of our products and services; |
| ● | changes in our projected operating and financial results; |
35
| ● | delays in the certification or production of our aircraft; |
| ● | changes in laws or regulations applicable to our platform; |
| ● | changes in senior management or key personnel; |
| ● | announcements by us or our competitors of significant business developments, acquisitions or new offerings; |
| ● | significant data breaches, disruptions to or other incidents involving our platform; |
| ● | our involvement in litigation; |
| ● | conditions or developments affecting the eVTOL industry; |
| ● | future sales of our ordinary shares by us or our shareholders, as well as the anticipation of lock-up releases; |
| ● | the trading volume of securities; |
| ● | changes in the anticipated future size and growth rate of our markets; |
| ● | sales and short-selling of our ordinary shares; |
| ● | publication of research reports or news stories about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; |
| ● | general economic and market conditions; and |
| ● | other events or factors, including those resulting from war (including the ongoing war between Russia and Ukraine), incidents of terrorism, global pandemics or responses to these events. |
Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may also negatively impact the market price of our securities. In addition, technology stocks have historically experienced high levels of volatility. In the past, companies who have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.
A market for our ordinary shares and/or warrants may not develop or be sustained, which would adversely affect the liquidity and price of our ordinary shares and/or warrants.
An active trading market for our ordinary shares and/or warrants may never develop or, if developed, it may not be sustained. In addition, the price of our ordinary shares and warrants can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our ordinary shares and/or warrants become delisted from NYSE and are quoted on the OTC Bulletin Board (an inter-dealer automated quotation system for equity securities that is not a national securities exchange), the liquidity and price of our ordinary shares and/or warrants may be more limited than if we were quoted or listed on the NYSE, Nasdaq or another national securities exchange. You may be unable to sell your ordinary shares and/or warrants unless a market can be established or sustained.
36
If we do not meet the expectations of equity research analysts, if they do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.
The trading market for our ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our results of operations are below the estimates or expectations of public market analysts and investors, the price of our ordinary shares could decline. Moreover, the price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
Our issuance of additional share capital in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other shareholders.
We expect to issue additional share capital in the future (including through our Equity Subscription Line) that will result in dilution to all other shareholders. We have granted, and expect we will continue to grant equity awards to employees and directors under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may make or receive investments in companies, solutions or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional share capital may cause shareholders to experience significant dilution of their ownership interests and the per share value of our ordinary shares to decline.
We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our ordinary shares.
We do not intend to pay any cash dividends in the foreseeable future, and any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, you may need to rely on sales of our ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on your investment.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our securities less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We will remain an emerging growth company until the earliest of: (1) December 31, 2026; (2) the last day of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates.
We cannot predict if investors will find our securities less attractive if we choose to rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities, and the price of our securities may be more volatile.
37
We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, although we are subject to the laws of the Cayman Islands and regulations with regard to certain of these matters and intend to furnish certain comparable quarterly information on Form 6-K. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. As a result of all of the above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2023. In the future, we would lose our foreign private issuer status if (1) more than 50% of our outstanding voting securities are owned by U.S. residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules of the NYSE. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer.
As we are a “foreign private issuer” and intend to follow certain home country corporate governance practices, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.
The NYSE’s corporate governance rules require listed companies to comply with a number of corporate governance standards. As a foreign private issuer, we are permitted, and we intend, to follow certain home country corporate governance practices in lieu of the several of such NYSE requirements, provided that we disclose the requirements we are not following and describe the corporate governance practices of the Cayman Islands that we are following.
For example, as long as we rely on the foreign private issuer exemptions under the rules of the NYSE, a majority of the directors on our board of directors are not required to be independent directors, our compensation committee is not required to be comprised entirely of independent directors, we are not required to have a nominating and corporate governance committee composed entirely of independent directors, our audit committee is not required to have at least three members, our independent directors are not required to meet without executive management present, and shareholder approval is neither required for equity compensation plans and material revisions to those plans nor the issuance of more than 1% of our outstanding ordinary shares (including derivative securities thereof) in either number or voting power, the issuance of 20% or more of our outstanding ordinary shares (including derivative securities thereof) in either number or voting power or an issuance that would result in a change of control. Therefore, our board of directors’ approach to governance and securities issuances may be different from that of a board of directors consisting of a majority of independent directors, and, as a result, the management oversight of our Company may be more limited than if we were subject to all of the NYSE corporate governance standards and shareholder approval requirements.
We may in the future elect to follow home country practices with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.
38
As a “controlled company” within the meaning of the NYSE’s corporate governance rules, we are permitted to, and we intend to, rely on exemptions from certain of the NYSE corporate governance standards, including the requirement that a majority of our board of directors consist of independent directors.
In the event we no longer qualify as a foreign private issuer, we intend to rely on the “controlled company” exemption under the NYSE corporate governance rules. A “controlled company” under the NYSE corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group or another company. Our principal shareholder controls a majority of the voting power of our outstanding ordinary shares making us a “controlled company” within the meaning of the NYSE corporate governance rules. As a controlled company, we would be eligible to, and, in the event we no longer qualify as a foreign private issuer, we intend to, elect not to comply with certain of the NYSE corporate governance standards, including the requirement that a majority of directors on our board of directors are independent directors and the requirement that our compensation committee and our nominating and corporate governance committee consist entirely of independent directors.
Accordingly, our shareholders may not have the same protection afforded to shareholders of companies that are subject to all of the NYSE corporate governance standards, and the ability of our independent directors to influence our business policies and affairs may be reduced.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company, which we expect to further increase after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel are not experienced in managing a public company and are required to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will continue to incur as a public company or the specific timing of such costs.
We have previously identified material weaknesses in our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or we otherwise fail to maintain an effective system of internal controls in the future, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner.
Prior to the Business Combination, we were a private company with limited accounting and financial reporting personnel and other supervisory resources, including a lack of an established audit committee to oversee the financial reporting process and our internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with the applicable accounting standards, which for us, is IFRS. As a result of being a public company, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by our management on, among other things, the effectiveness of our internal control over financial reporting in our annual reports on Form 20-F. This assessment needs to include disclosures of any material weaknesses identified by our management in our internal control over financial reporting.
In connection with the preparation and audit of our consolidated financial statements, as previously disclosed, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. For a description of the material weaknesses identified, as well as management’s remediation actions and plans to date, see “Item 15. Controls and Procedures.”
39
Our remediation efforts may not enable us to avoid material weaknesses in our internal control over financial reporting in the future. In addition, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation. We anticipate investing significant resources to enhance and maintain our financial controls, reporting system and procedures over the coming years. We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to these material weaknesses in our internal control over financial reporting nor that they will prevent or avoid potential future material weaknesses. We cannot assure you that all of our existing material weaknesses have been identified, or that we will not in the future identify additional material weaknesses. If we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404.
If we fail to achieve and maintain an effective internal control environment, we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures, or comply with existing or new reporting requirements. Any failure to report our financial results on an accurate and timely basis could result in material misstatements in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our businesses, financial condition, results of operations and prospects, as well as the trading price of our ordinary shares may be materially and adversely affected. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
As a result of being a public company, we are obligated to develop and maintain proper and effective internal controls over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our securities.
As discussed above, we identified certain material weaknesses in connection with the preparation of our consolidated financial statements for the year ended December 31, 2022. If not remediated, the continued presence of these or other material weaknesses and/or significant deficiencies in any future financial reporting periods could result in financial statement errors that, in turn, could lead to errors in our financial reports, delays in our financial reporting, and that could require us to restate our operating result. Investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities could be materially and adversely affected. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems and controls to accommodate such changes. Additionally, if these new systems, controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could materially and adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting. Moreover, our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post-implementation issues that may arise.
We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective and identify material weaknesses, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our securities could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies could also restrict our future access to the capital markets.
40
The growth and expansion of our business places a continuous, significant strain on our operational and financial resources. Further growth of our operations to support our customer base, our information technology systems and our internal controls and procedures may not be adequate to support our operations. As we continue to grow, we may not be able to successfully implement requisite improvements to these systems, controls and processes, such as system access and change management controls, in a timely or efficient manner. Our failure to improve our systems and processes, or their failure to operate in the intended manner, whether as a result of the growth of our business or otherwise, may result in our inability to accurately forecast our revenue and expenses, or to prevent certain losses. Moreover, the failure of our systems and processes could undermine our ability to provide accurate, timely and reliable reports on our financial and operating results and could impact the effectiveness of our internal control over financial reporting. In addition, our systems and processes may not prevent or detect all errors, omissions or fraud.
We are a holding company with no operations of our own and, as such, depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments, if any.
As a holding company, our principal source of cash flow will be distributions or payments from our operating subsidiaries. Therefore, our ability to fund and conduct our business, service our debt and pay dividends, if any, in the future will depend on the ability of our subsidiaries and intermediate holding companies to make upstream cash distributions or payments to us, which may be impacted, for example, by their ability to generate sufficient cash flow or limitations on the ability to repatriate funds whether as a result of currency liquidity restrictions, monetary or exchange controls or otherwise. Our operating subsidiaries and intermediate holding companies are separate legal entities, and although they are directly or indirectly wholly owned and controlled by us, they have no obligation to make any funds available to us, whether in the form of loans, dividends or otherwise. To the extent the ability of any of our subsidiaries to distribute dividends or other payments to us is limited in any way, our ability to fund and conduct our business, service our debt and pay dividends, if any, could be harmed.
We may be characterized as a PFIC for U.S. federal income tax purposes, which may cause adverse U.S. federal income tax consequences to U.S. investors.
A non-U.S. corporation generally will be treated as a PFIC for U.S. federal income tax purposes, in any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. If we are a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as defined in under “Material U.S. Federal Income Tax Considerations”) of ordinary shares or warrants, such U.S. Holder may be subject to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. We are an early stage company and do not expect to realize revenue until our aircraft are manufactured and delivered to our customers. Until we generate revenue, our PFIC status would largely depend on whether we earn non-passive income, such as government grants, and whether the amount of such non-passive income exceeds 25% of our gross income for the relevant taxable year.
Even after we start generating revenue, our PFIC status would depend on, among other things, the composition of the income, assets and operations of us and our subsidiaries, and there can be no assurances that we will not be treated as a PFIC in any future taxable year. In addition, our PFIC status may be impacted by our market capitalization, which may fluctuate significantly. Moreover, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that the IRS will not take a contrary position or that a court will not sustain such a challenge by the IRS. Furthermore, if a U.S. Holder holds our ordinary shares and/or warrants and we are a PFIC during such U.S. Holder’s holding period, unless the U.S. Holder makes certain elections, we will continue to be treated as a PFIC with respect to such U.S. Holder, even if we cease to be a PFIC in future taxable years.
For a further discussion, see Item 10.E. “Material Tax Considerations —Material U.S. Federal Income Tax Considerations—U.S. Holders—Passive Foreign Investment Company Rules.” U.S. Holders of our ordinary shares and/or warrants are strongly encouraged to consult their own advisors regarding the potential application of these rules to us and the ownership of our ordinary shares and/or warrants.
41
We are controlled by our majority shareholder, whose interests may conflict with ours or yours in the future.
Stephen Fitzpatrick is our majority shareholder, Chief Executive Officer and a member of our board of directors, and, as of December 31, 2022, held approximately 70% of the voting power of our outstanding share capital. Even if and when Mr. Fitzpatrick ceases to own a majority of the outstanding ordinary shares, for so long as he continues to own a significant percentage of our ordinary shares, he may still be able to significantly influence or effectively control the composition of our board of directors and the approval of actions requiring shareholder approval through his voting power. Accordingly, for such period of time, Mr. Fitzpatrick may have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, for so long as he continues to own a significant percentage of the outstanding ordinary shares, Mr. Fitzpatrick may be able to cause or prevent a change of control of us or a change in the composition of our board of directors and could preclude any acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a premium for your ordinary shares as part of a sale of us and ultimately might affect the market price of our ordinary shares.
We may issue additional ordinary shares through our Equity Subscription Line, upon the exercise of outstanding Public Warrants, the Convertible Notes Warrants and the Initial Virgin Atlantic Warrants, and upon the exercise of the options granted pursuant to the 2021 Incentive Plan and the EMI Option Agreements, all of which would increase the number of shares eligible for future resale in the public market and result in dilution to our shareholders.
As of December 31, 2022, we had sold approximately 1.1 million ordinary shares of the 20 million ordinary shares registered for resale under the Equity Subscription Line. As of December 31, 2022, 15,264,935 Public Warrants were issued and outstanding, with each warrant entitling the registered holder to purchase one ordinary share at a price of $11.50 per share (subject to adjustment). The warrants became exercisable 30 days after the completion of the Business Combination and will expire at 5:00 p.m., New York City time, five years after the completion of the Business Combination or earlier upon redemption or liquidation. We have also adopted the 2021 Incentive Plan and entered into the EMI Option Agreements with certain of our employees, pursuant to which 32,113,424 ordinary shares have been authorized to be issued. The number of ordinary shares authorized to be issued will be increased on January 1 of each calendar year from 2022 through 2032, by an amount equal to the lesser of (A) 5% of the ordinary shares outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of ordinary shares as determined by our board of directors. The Convertible Senior Secured Notes also may be converted at any time prior to the close of business on the second scheduled trading day immediately before the maturity date of the Convertible Senior Secured Notes, which would result in the issuance of additional ordinary shares. The Convertible Notes Warrants and the Initial Virgin Atlantic Warrants issued to the Convertible Senior Secured Notes Investor and Virgin Atlantic, respectively, immediately after the Closing of the Business Combination are also exercisable for up to 6,625,000 ordinary shares, with an exercise price of $11.50 per share or $10.00 per share, respectively (subject to adjustment). To the extent additional ordinary shares are sold through the Equity Subscription Line, the warrants or options are exercised, the Convertible Senior Secured Notes are converted, or awards are made under the 2021 Incentive Plan, additional ordinary shares will be issued, which will result in dilution to our shareholders and increase the number of ordinary shares eligible for resale in the public market. Sales of substantial numbers of such securities in the public market or the fact that such securities may be exercised could adversely affect the market price of our securities.
The Public Warrant Agreement and the agreement governing the Convertible Notes Warrants designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of the Public Warrants and the Convertible Notes Warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with Vertical.
The Public Warrant Agreement and the agreement governing the Convertible Notes Warrants (the “Convertible Notes Warrant Agreement”) provide that, subject to applicable law, (i) any action, proceeding or claim against Vertical arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that Vertical irrevocably submits to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
42
Notwithstanding the foregoing, these provisions of the Public Warrant Agreement and the Convertible Notes Warrant Agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in any of the Public Warrants and/or the Convertible Notes Warrants shall be deemed to have notice of and to have consented to the forum provisions in our warrant agreement. If any action, the subject matter of which is within the scope of the forum provisions of the Public Warrant Agreement and the Convertible Notes Warrant Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of the Public Warrants and/or the Convertible Notes Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.
This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Vertical, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Public Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.
If Vertical does not maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the Public Warrants and there is a conversion right under the terms of the Public Warrant Agreement, then holders will only be able to exercise the Public Warrants on a “cashless basis.”
If Vertical does not maintain a current and effective prospectus relating to our ordinary shares issuable upon exercise of the Public Warrants and there is a conversion right under the terms of the Public Warrant Agreement, at the time that holders wish to exercise such Public Warrants, then they will only be able to exercise them on a “cashless basis.” As a result, the number of ordinary shares that holders will receive upon exercise of the Public Warrants will be fewer than it would have been had such holders exercised their Public Warrants for cash. Under the terms of the Public Warrant Agreement, Vertical has agreed to use commercially reasonable efforts to maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the Public Warrants until the expiration of the Public Warrants. However, we cannot assure you that we will be able to do so in a timely manner or at all. If we are unable to continue to maintain a current and effective prospectus, and there is a conversion right existing under the terms of the Public Warrant Agreement, the potential “upside” of the holder’s investment in Vertical may be reduced.
Item 4.Information on the Company.
A.History and Development of the Company
Vertical Aerospace Ltd., or “Vertical,” is an exempted company with limited liability under the Companies Act incorporated under the laws of the Cayman Islands on May 21, 2021. Exempted companies are Cayman Islands companies whose operations are conducted mainly outside the Cayman Islands. Vertical was formed for the sole purpose of effectuating the Business Combination, which was consummated on December 16, 2021.
Prior to the Business Combination, Vertical had no material assets and did not conduct any material activities other than those incidental to its formation and the matters contemplated by the Business Combination Agreement, such as the making of certain required securities law filings. Upon the closing of the Business Combination, Vertical became the direct parent of VAGL, a manufacturer that designs, manufactures and sells zero operating emission eVTOL (as defined below) aircraft.
For an overview of the history of VAGL, see “—B. Business Overview—Our History.”
The principal executive office of Vertical is Unit 1 Camwal Court, Chapel Street, Bristol BS2 0UW, United Kingdom, and the telephone number of Vertical is +44 117 457 2094. Our agent for service of process in the United States is Cogency Global Inc., whose address is 122 East 42nd Street, 18th Floor, New York, New York 10168.
43
The website address of Vertical is https://vertical-aerospace.com. The information contained on the website does not form a part of, and is not incorporated by reference into, this Annual Report. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, such as Vertical, at http://www.sec.gov.
For a description of our principal capital expenditures and divestitures for the three years ended December 31, 2022 and for those currently in progress, see “Item 5. Operating and Financial Review and Prospects.”
B.Business Overview
Overview
Our purpose is to revolutionize the way we travel, in a more sustainable world. We are a global aerospace and technology company that is pioneering zero-emissions aviation, focused on designing, manufacturing and selling a zero operating emission eVTOL aircraft for use in the AAM market, using the most cutting-edge technology from the aerospace, automotive and energy industries.
Founded in 2016, we come from a deep aerospace and automotive mindset and have already designed, built and flown two prototype eVTOL aircraft in 2018 and 2019. We are currently developing, and are progressing towards the certification of, our flagship eVTOL, the VX4, which has undergone the first stages of its flight test campaign. We are targeting the VX4 to be capable of transporting a pilot and up to four passengers, traveling distances of up to 100 miles, and achieving cruise speeds of 150 miles per hour (“mph”), while producing minimal noise and zero operating emissions.
The VX4 aircraft is being designed around existing certifiable technology, as well as certain novel technology such as the batteries and powertrain, using an experienced team that has previously certified and supported the development of over 30 aircraft and propulsion systems around the world. We are currently one of the only eVTOL designers and original equipment manufacturers (“OEM”) actively pursuing certification from the CAA or the EASA with a winged vehicle. We aim to have our aircraft certified to the same safety standards as commercial airlines, rather than the significantly lower standards to which similarly sized helicopters are currently certified. The EASA also confirmed that it will concurrently validate the CAA certification for the VX4, which means the certification and validation process will run simultaneously in both jurisdictions, with both regulators using Special Conditions (SC)-VTOL basis for certification of new eVTOL aircraft. By achieving certification of our VX4 eVTOL aircraft from the CAA and the EASA, we will be able to leverage the work done with our home regulator in order to have the certification validated by other regulators where we intend to operate, including the FAA.
We are developing a sophisticated eVTOL ecosystem that allows us to focus on providing a high-quality experience. Our in-house expertise covers design, certification, assembly and manufacture, pilot experience, end-user experience and base platform performance. We aim to sell globally certified eVTOL aircraft to a variety of customers, including commercial airlines, aircraft leasing companies, business aviation, existing helicopter operators as well as new operators in the AAM market, providing both OEM sales and aftermarket services to our customers.
44
We have forged strong relationships with industry-leading players to develop the various components of our aircraft. We are co-developing our powertrain and flight controls systems with Rolls-Royce and Honeywell, respectively, to unlock maximum performance with safe and simple to operate controls, reducing pilot workload and thereby reducing pilot training and operating costs. We collaborated with Microsoft to create our digital systems for our aircraft, which should provide rich data sets as well as deliver a truly cloud-connected aircraft. This capability will enable us to further streamline and create more efficiencies across our manufacturing processes, aircraft operations and maintenance. Our proprietary battery system utilizes small-format cylindrical cells to provide high power density while at the same time, being low-cost and highly reliable, as well as utilizing safety features to ensure safety across all operations. We have selected Molicel to supply high power cylindrical cells for our VX4, as Molicel specializes in demanding, high-performance application of its batteries, with its technology already in use across space, advanced automotive and power tool applications. We are collaborating with Hanwha on the development and supply of electric actuator systems tailored for the VX4, as Hanwha has a long-established expertise in aerospace technology and flight critical actuator systems development across a broad portfolio of civil and defense aerospace and space applications. Our advanced propeller system uses four tilting propellers at the front of the aircraft and four stowable propellers at the rear to enable high efficiency in all phases of flight and support a vehicle noise signature that we believe will be less than 70dBA in hover, the same as low-level city traffic, and less than 50dBA in cruise, which is likely to be unnoticeable in an urban environment. We are working with Solvay, one of the world’s leading chemical and advanced materials companies, to ensure that our materials and composites are high-quality and sustainably sourced. Our electrical wiring interconnection systems (“EWIS”) and wings for our aircraft are being developed by one of the leading aerospace engineering companies, GKN Aerospace. We’ve also taken advantage of GKN Aerospace’s integration expertise as we used its Global Technology Centre to assemble the majority of the first VX4 prototype’s airframe. We are partnering with Leonardo, which has long-established experience in composite aerostructure development, to design, test, manufacture and supply the carbon composite fuselage for our VX4 aircraft. Combined, these features provide a flexible design to address different markets and a scalable design to facilitate manufacturing. We are also working together with CAE, a market leader in flight simulation and training, to develop a best-in-class training program. CAE will be the exclusive training device provider, tailoring the high-fidelity, next-generation flight simulation training device for the VX4 aircraft. We believe these relationships will allow us to provide superior products at scale, while maintaining a lean cost structure and taking advantage of both internal and external research and development synergies.
Our ability to develop industry-leading aircraft is rooted in our team’s depth of talent, experience and culture. Our senior team includes proven entrepreneurs and technical expertise handpicked from the aerospace and advanced automotive industries. The complementary skill sets of our leadership team are critical to the success of the aircraft designs and our business.
We aim to be one of the leading eVTOL aircraft OEMs for commercial airlines, aircraft leasing companies, business aviation, existing helicopter operators as well as new operators in the AAM market, providing both OEM sales and aftermarket services to our customers. We also believe there is a potential market to provide OEM sales to a variety of industries beyond traditional airline and helicopter customers, such as tourism, where there is an opportunity to replace existing transportation options like minibuses, and the cargo and logistics industry, where there is potential to partner with global logistics firms and large retail customers. There is a further opportunity to generate revenue from other sectors such as emergency services, as eVTOL aircraft can be used for emergency patient and supplies transport, particularly in densely populated areas or military logistics transport, among other potential uses. We plan to explore the potential development of versions of the VX4 for such scenarios. Our strategy is to forge partnerships in key markets with partners that have existing demand and are local trusted brands with market-specific knowledge. We believe that by partnering with such market players, we can extend their business models and build a market ecosystem that will allow us to expand our proposition over time. Our focus on system integration and establishment of an industrial supply chain is expected to enable rapid scaling of production of our aircraft.
As noted elsewhere in this Annual Report, we have recently strengthened our management team, introducing additional highly experienced and senior leaders to direct our progress towards certification, manufacturing and entry into service of our VX4. This includes the appointments in 2023 of John Martin as Chief Financial Officer, after a 30-year career in senior operational and financial management roles of large, international businesses, David King as Chief Engineer, having held executive engineering roles at Leonardo, Bell and Boeing, and Eduardo Dominguez Puerta as Programme Lead, driving the programme delivery of the VX4, in addition to his role as our Chief Commercial Officer. As of the date of this Annual Report, our management team, including these new appointments, is undertaking a review of the timeline for taking the VX4 through to certification, manufacturing and entry into service.
45
Market Opportunity and Marketing Strategy
We believe that deploying a new type of aerial mobility network in cities represents an extensive market opportunity that we expect to expand over time. We intend to seize on the untapped demand for getting into and out of city centers globally, as certain existing travel methods can be impractical, inconvenient or unaffordable. We believe that we have a significant opportunity to meet this untapped demand in the AAM market, with the urban air mobility market currently projected to grow to a total addressable market size of $1 trillion by 2040, according to Morgan Stanley.
We believe that our aircraft will be competitive in several existing sectors for our operator customers, including helicopters, which had a total addressable market of $48.8 billion in 2022 and the ride hailing and taxi sector, which is projected to have revenues of $332.50 billion in 2023 according to Statista Reports.
With high population densities and transit activities, intercity markets are likely to be one of the key growth drivers in the AAM market in the upcoming years. According to our analysis, typical journeys within the targeted range of the VX4 include London to Cambridge or Nice to Monaco. With EU rail having over 8 billion passengers in 2019, representing the high amount of transit opportunities among European cities, we believe this represents a significant opportunity to capitalize on intercity travel.
In addition to inter-city opportunities, we see a number of very attractive hub-spoke markets such as the United Kingdom, where there are 37 towns and cities with populations over 100,000 inhabitants within 100 miles of Heathrow Airport. These towns and cities represent a target population of 7.7 million (excluding London), based on our internal analysis, that could be connected into the Heathrow hub. In addition to high-frequency central business district hub shuttle services such as JFK to Manhattan and Heathrow to London city center, there are a number of high gross domestic product per capita target markets for fast, zero operating emission air taxi services to and from similar airports, representing an attractive market for first and business class propositions.
Our marketing and communications strategy is based upon a three-pronged approach: build awareness of the Vertical brand within our key markets, communicate our business narrative to influential audiences, and build a trusted and credible reputation with our customers, partners and wider audience. Critical to our success so far has been the establishment of a globally recognized partner ecosystem which has been developed through focusing on the goal of technological and design superiority of the VX4, our pathway to certification and unique business model. The intent is to position Vertical as the most attractive OEM to partner with, and that we are building the ecosystem required to make electric aviation a reality.
We also recognize that pioneering electric aviation requires social and political support. As a result, we intend to inspire advocacy from opinion leaders, aerospace industry and regulators by following a purpose-based marketing approach, which includes demonstrating potential use case applications of the VX4 to our audiences with our partners to show the differences our eVTOL can potentially make to everyday travel, as well as demonstrating an appealing design of our product and showcasing the customer journey.
To position Vertical as one of the leading OEM brands, we have deployed our marketing and communications strategy across earned, paid and owned media channels as well as industry events. Our content strategy also focuses on co-developing stories with our partners, including Honeywell, Leonardo and GKN, to leverage their audiences and support our aim of educating and inspiring audiences on the opportunities of electric flight. Our communications function plays a major role in articulating, persuading and inspiring our audiences of the opportunities within eVTOL travel and our business model, while we continue to inform the market of our progress via media outreach, podcasts, film and other broadcast media and keynote speeches at industry-leading conferences and events. Such events will be part of our marketing strategy moving forward, enabling deeper customer relationships and the opportunity to share our flight test progress, demonstrate technological advancements and provide direct access to the Vertical team.
By collaborating and synergizing our marketing with our network of renowned international partners, we intend to continue developing our company reputation through combined marketing activities. Ultimately, the marketing strategy supports delivery of the Vertical message of brand purpose, mission focus and business progress to deliver a cohesive, transparent and fact based company profile to our external stakeholders.
46
Our Business and Strategy
Focus on Certification
Safety is our highest priority. We are working to meet the most stringent aircraft certifications around the world, and our aircraft is being designed with certification in mind from the beginning. We are currently one of the only eVTOL designers and OEMs actively pursuing certification from the CAA or the EASA with a winged vehicle using predominantly already-available technology. We expect to achieve concurrent type certification from the CAA and the EASA for our VX4 aircraft, with validation from the FAA expected to follow thereafter.
We have successfully conducted flight testing of three full scale prototype eVTOL aircraft in the United Kingdom. The VA-X1, our first prototype, was flown in 2018 as our proof of concept aircraft. This was a single seater eVTOL with four electric engines, each inside a ducted fan. The VA-X2 flew in 2019 and successfully demonstrated safe flight with a deliberate “motorout,” which is a critical step in obtaining certification from the CAA. The VA-X2 was a two seater, eight propeller aircraft that was capable of carrying up to 250 kg at speeds of up to 50 mph. In September 2022, we successfully began the first stages of a flight test campaign with our VX4 prototype under approvals from the CAA.
To achieve type certification, new aircraft designs are required to undergo a rigorous assessment of the design where we demonstrate compliance against the strict airworthiness requirements. A type certificate for the aircraft’s design is an essential pre-requisite for any individual aircraft of that design to be issued with a Certificate of Airworthiness from the relevant local airworthiness authority, which, in turn, allows the owner to fly that aircraft. This is a time-consuming and intense process, often extending over several years, which requires extensive ground and in-flight testing with authorities, engineers and flight test pilots across a fleet of multiple aircraft. We believe that we are well placed to meet CAA approval and EASA validation of the Type Certificate, since from the initial design phase, we have been designing our aircraft around meeting the criteria of the CAA and the EASA.
We have been working with the CAA, the EASA and European Organization for Civil Aviation Equipment (“EUROCAE”) to establish the specific design criteria (certification specifications) and means of compliance that apply to eVTOL aircraft. We and our partners participate on several working groups with the EUROCAE, including chairing the EUROCAE eVTOL Working Group Electrical Panel, participating on the electrical, lift/thrust, safety, flight and avionics working groups and having one-on-one discussions with the CAA and the EASA to assist with tailoring and creating the requirements for eVTOL aircraft. By working closely with the CAA and the EASA to obtain certification in our home markets of the United Kingdom and European Union, we believe that the knowledge and expertise that we will gain from obtaining certification in these areas can give us a competitive advantage that we can leverage to assist us with obtaining similar certifications in other global markets.
Many airworthiness authorities around the world have not yet declared their specific certification requirements for eVTOLs; however, we believe it is likely that different jurisdictions will harmonize certification bases, broadly aligning with either the CAA, the EASA or the FAA’s requirements. Given the stringent and rigorous safety requirements of the CAA and the EASA certifications, we believe that our design will meet the certification needs for any jurisdiction of our customers. We believe that our strong strategic partnerships with our technology partners, in particular, Honeywell and Rolls-Royce, who have deep experience and pedigree in certifying against these standards, will give us a competitive advantage over our competitors. We are carefully and intentionally designing our aircraft with these standards in mind.
The VX4: One of the Most Advanced eVTOL Aircraft Globally
The VX4 is our eVTOL aircraft at the center of our go-to-market strategy. After designing, building, testing and flying two earlier prototypes, the VA-X1 and the VA-X2, we unveiled the four passenger VX4 in 2020, which we believe is one of the most advanced eVTOLs globally. The VX4 is being designed to provide for a capacity of up to five people (one pilot, four passengers) and targeting travel distances of up to 100 miles, achieving cruise speeds of 150 mph. In line with our mission to pioneer electric aviation, the VX4 will be fully electric and will produce zero operating emissions in flight. The VX4 has four tilting frontal propellers allowing it to take off vertically. The propellers rotate after takeoff and into flight mode. Based on our internal calculations, its noise levels are expected to be significantly quieter in cruise compared to a helicopter in cruise. The VX4 is also is expected to be orders of magnitude safer than a similarly sized helicopter in line with what we expect from the CAA and the EASA regulations for eVTOL aircraft.
47
The interior of VX4 is being designed to create an outstanding passenger experience with doors on both sides of the aircraft allowing passengers to enter and exit with ease. There will be a separate luggage compartment that we expect will be capable of taking approximately 45 pounds (or 20 kilograms) of luggage per passenger plus additional room for small luggage under each passenger seat, with a total payload of approximately 990 pounds (or 450 kilograms). The VX4 has large side windows, providing spectacular views for the passengers.
Develop Strong eVTOL Ecosystem
Our business model is asset light. We have focused on creating an ecosystem that is a combination of key proprietary components that we have developed internally and strong strategic partnerships with industry leaders in order to design and manufacture the best eVTOL aircraft. We believe that this model will allow us to be more agile, flexible and reactive to future technologies and opportunities, as well as provide competitive user economics, which we expect will allow us to more rapidly scale our production once we have obtained certification.
Creating and Investing in Proprietary Designs and Superior Technology
We have invested and will continue to invest in certain proprietary features of our aircraft, including our battery system and propeller design. Our proprietary battery system utilizes small-format cylindrical cells to provide a high performance, low-cost, highly reliable and sustainable supply chain while ingraining safety features to make them resistant to unsafe operation. Our advanced propeller system uses four tilting propellers at the front of the aircraft and four stowable propellers at the rear to enable high efficiency in all phases of flight, with an impact tolerant and redundant propeller structure that enables commercial aviation safety levels while supporting a vehicle noise signature that we believe will be less than 70dBA in hover, the same as low-level city traffic, and less than 50dBA in cruise, which is likely to be unnoticeable in an urban environment.
Combining Proprietary Systems with Strategic Partners with Industry-Leading Expertise
We believe that our strategic partnerships create a sophisticated eVTOL ecosystem that allows us to focus on creating value for our customers throughout the process. We sought out partnerships with industry leaders across critical components required to successfully design, develop and operate our aircraft. We have established strong collaborations and relationships with Rolls-Royce, Honeywell, Microsoft, Solvay, GKN Aerospace, Leonardo, Molicel and CAE on the industrial side to develop components and support the manufacture our aircraft.
Powertrain — Rolls-Royce
Together with Rolls-Royce, one of the world’s leading industrial technology companies, we plan to co-develop our electrical propulsion unit or powertrain system to be one of the world’s lightest and safest eVTOL powertrains in order to unlock the maximum performance from our VX4. Rolls-Royce has extensive experience in the development and certification of high-criticality aerospace products and an established supply chain that is certified to deliver airworthy components globally and at scale.
Flight Controls — Honeywell
We have partnered with Honeywell, a leading technology and manufacturing company, to develop our next-generation avionics and flight controls that significantly reduce pilot workload. We believe the combination of our advanced flight control systems that have a high level of automation and state-of-the-art cockpit human machine interface will be key to reducing pilot workload, minimizing pilot training and operating costs. Our VX4 uses an advanced control system that is based on the system created for the Lockheed Martin F-35, and the triple-redundant architecture safety features of this system are expected to be certified to the same safety standards as commercial airlines. Our partnership with Honeywell provides us with globally recognized services that encompass the design, development and provision of avionics, fly-by-wire navigation and connectivity solution for eVTOL.
48
Digital Systems — Microsoft
We have collaborated with Microsoft in two key areas: the co-development of cloud architecture and high performance computing. We have co-developed state-of-the-art cloud architecture that will enable enterprise digital services and operational optimization. The combination of the electrification of aviation with advanced flight controls and avionics results in a significant amount of digital information to be collected and transmitted by our aircraft. We believe we have created the foundations to enable highly differentiated service offerings to end-customers and vehicle operators, as well as our own industrial optimization. This includes state-of-the-art aircraft health monitoring, predictive maintenance and smart battery charging systems with advanced diagnostics, aircraft integration with the air traffic management and customer services ecosystems.
Composites — Solvay
We partnered with Solvay, a global leader in materials, solutions and chemicals, to create the full suite of composite materials and adhesives for our aircraft. Solvay brings extensive expertise across aerospace, motorsport and automotive, and Solvay is pioneering the development of advanced composite materials and manufacturing technologies that bring the benefits of lightweight solutions that can be manufactured with a high degree of automation, using the minimum amounts of materials to enable high production rates and low costs. Working closely with Solvay has ensured that our aircraft structure, propellers and battery containment system are not only composed of high quality materials, but also that we are sourcing our materials in a sustainable and innovative way.
Electrical Wiring Interconnection Systems and Wings — GKN Aerospace
We are working together with GKN Aerospace, a provider of cutting-edge components for some of the world’s leading aircraft and helicopters, to create the EWIS and wings for our aircraft. GKN Aerospace designs and manufactures aerospace systems and components for a variety of aircraft and engine manufacturers around the world, and its high-volume production capabilities are expected to help drive the global production of the VX4. We expect that the EWIS and wings provided by GKN Aerospace will contribute to lower costs, weight and emissions of the VX4, as well as help improve the overall performance of our aircraft. We have co-located teams in order to leverage GKN Aerospace’s integration expertise and industrial capability, and we assembled the first VX4 prototype airframe at GKN’s Global Technology Centre in Bristol.
Carbon composite fuselage – Leonardo
Leonardo is the most recent tier-one aerospace company to join our industrial partnership ecosystem. Leonardo is a world leader in advanced composite aerospace structures, producing one-piece barrel sections and horizontal stabilizers for aircraft such as the Boeing 787. Leonardo will bring its technology and scale manufacturing experience to bear in the manufacture of the fuselage for the VX4.
Battery Cells — Molicel
Molicel is a leading manufacturer of lithium-ion cells with more than 40 years of experience in energy research and development. By partnering with Molicel, we have secured supply of high power cylindrical cells for the VX4 through to certification and entry into service. We intend to work with Molicel to increase supply as the VX4 is brought into mass production. Having reviewed the capabilities of many other cell manufacturers before selecting Molicel as our battery partner, we believe Molicel is well placed to meet the current performance and safety requirements of the VX4 and that they will continue to deliver innovation and improved performance over time. We will work with Molicel to ensure its battery cells contribute to the safety, reliability and performance of the VX4, and we expect to have this battery system certified concurrently with the EASA and the CAA. Vertical is currently testing cells supplied by Molicel in our Vertical Energy Centre – our purpose-built facility housing our battery research and manufacture facilities.
Flight Simulation and Pilot Training — CAE
We are working together with CAE, a market leader in flight simulation and training, to develop a best-in-class training program. CAE will be the exclusive training device provider, tailoring the high-fidelity, next-generation flight simulation training device for the VX4 aircraft. The innovative pilot training program is expected to leverage advanced technologies, including mixed reality to enhance the learning experience, and is expected to help shift the training paradigm toward cost-effectiveness and scalability, while ensuring safety, which is paramount to us and our operators.
49
Building Commercial Partnerships for the Future
We have entered into strategic and commercial arrangements with American Airlines, Virgin Atlantic, Marubeni, Iberojet, Avolon, Bristow, Babcock International and FLYINGGROUP in order to further our global route to market strategy.
American Airlines
We launched a partnership with the world’s largest airline, American Airlines, as a cornerstone for our go-to-market deployment in the United States. American Airlines has agreed to pre-order, subject to certain conditions precedent, up to 250 of our aircraft, with an option to order an additional 100 aircraft, which has an aircraft order value of approximately $1 billion to $1.4 billion. We committed to reserve delivery slots for the first 50 aircraft in exchange for a pre-delivery payment to be made upon entering into a master purchase agreement containing the final terms for the purchase of aircraft, which will be released to Vertical upon the satisfaction of certain conditions agreed by the parties, and later be used to set off against the purchase price for the number of aircraft ultimately purchased by American Airlines. Such Pre-Delivery Payment may be refundable in full to American Airlines under certain circumstances. Beyond aircraft sales, we expect to work together with American Airlines on creating an ecosystem to bring AAM to the United States including the necessary infrastructure, route planning, propositions, pricing, certification and regulation. As part of this partnership, American Airlines will benefit from certain equity incentives upon the fulfilment of the commitment to purchase aircraft.
Virgin Atlantic
We also are partnering with Virgin Atlantic in exploring a joint venture for short-haul eVTOL operations in the United Kingdom. The joint venture will look to develop a short-haul eVTOL network, including customer and aircraft operations and infrastructure development. We believe our partnership with Virgin Atlantic will create the blueprint for bringing eVTOL operations to other key global markets around the world. As part of our agreement, Virgin Atlantic has a pre-order option for up to 50 of our aircraft, with an option to order an additional 100 aircraft, which has an aircraft order value of between $0.2 billion and $0.6 billion.
We intend to partner with other existing operators and infrastructure players in other markets to deliver our eVTOL flight services in addition to our existing OEM sales and services operations. We believe this flexible hybrid approach will allow us to access and efficiently capture more of the total addressable market while providing us with end-to-end control over the customer experience to optimize for customer safety, comfort and value.
Marubeni
We are partnering with Marubeni, a leading Japanese integrated trading and investment business conglomerate, to explore sustainable, emissions-free AAM travel solutions in Japan. Marubeni has agreed to pre-order, subject to certain conditions, up to 200 of our aircraft, with an aircraft order value of approximately $800 million. In January 2023, we received a pre-delivery payment from Marubeni for the reservation of aircraft delivery slots for 25 aircraft, which may be refundable in full under certain circumstances. We and Marubeni continue to advance our joint working group to progress the launch ecosystem for eVTOL operations in Japan, which includes other commercial considerations such as route and network planning, vertiport and charging infrastructure requirements and capacity, as well as engaging with other parties interested in launching AAM travel solutions in Japan.
Together with Marubeni, we expect to accelerate our entry into the Japanese market and offer Japanese consumers a safer, faster, cheaper and greener alternative to current short haul options in the country. We believe that with its regulatory advancement and technological advantages, Japan has great potential in terms of commercializing the AAM market. A number of use case application for eVTOLs has been envisioned in Japan, including airport shuttle, inter-city and intra-city travel, aerial medical emergency services, tourism and cross-island flights that will benefit both customers and communities.
50
Iberojet
We launched a partnership with Iberojet, which is part of the Avoris Group, a leading travel group in the Spanish and Caribbean markets, in order to explore business collaboration opportunities in AAM, focusing on inter-island travel in the Balearic Islands and Canary Islands, airport passenger feeder operations and the distribution of long haul customers to touristic destinations to/from resorts and airports. Iberojet has agreed to pre-order, subject to certain conditions, up to 100 aircraft, with an aircraft order value of approximately $400 million. We agreed to create a joint working group with Iberojet to evaluate the foregoing AAM opportunities, as well as collaborate on identifying key regulatory bodies in key markets of anticipated operation; analyzing demand, fleet size, infrastructure and storing requirements; identifying potential infrastructure partners, investors and developers; analyzing public acceptance and environmental requirements.
Avolon
We are partnering with Avolon, the world’s second largest aircraft lessor with an extensive global network of airline and OEM relationships, to further expand our customer base in the AAM market. Avolon has existing, long-standing relationships with over 140 airlines globally and a track record of investing in new, innovative aerospace technology. Avolon will be our global go-to-market partner packaging aircraft, asset financing and services to enable forward thinking, entrepreneurial operators to establish AAM operations in new markets. Pursuant to its partnership agreement with us, Avolon has agreed to pre-order approximately 310 of our aircraft, with an option to purchase up to approximately 190 additional aircraft, with an aircraft order value of between $1.25 billion and $2 billion. On March 29, 2022 Avolon announced that it had placed its entire 500 aircraft pre-ordered from us, with the order book being oversubscribed by 50 aircraft, including 250 aircraft with GOL and Grupo Comporte in Brazil, up to 100 aircraft with Japan Airlines in Japan, a minimum of 100 aircraft with AirAsia, and up to 100 aircraft with Gözen Holding in Turkey. In connection with our partnership, Avolon invested a total of $15 million in the PIPE Financing and we also issued certain equity warrants to Avolon in connection with the Business Combination.
Bristow
We launched a partnership with Bristow, a leading global provider of vertical flight solutions to government and civil organizations, to develop a joint working group to collaborate on identifying key regulatory bodies in key markets of anticipated operation; analyzing demand, fleet size, infrastructure and storing requirements; identifying potential key customers and markets; analyzing public acceptance and environmental requirements. Bristow has agreed to pre-order, subject to certain conditions, up to 50 of our aircraft, with an aircraft order value of up to $200 million. We believe that partnering with Bristow will enable us to accelerate the commercial operation of eVTOLs and effectively disrupt the helicopter market with our zero operating emissions, low operating cost VX4 as an alternative to traditional helicopters.
Babcock International
We launched a partnership with Babcock International, an aerospace, defense and security company, to explore new applications for the VX4. Babcock International has over 35 years of experience in emergency medical services, performing thousands of missions every year globally, and is the largest single operator delivering helicopter emergency services in the U.K. We will work with Babcock International to explore how to use the VX4 in new applications such as aerial emergency medical services and cargo transportation. The VX4 has the potential to transform these types of operations and reduce their carbon impact at a lower overall cost. As part of this partnership, we will also work with Babcock International to develop modular maintenance, repair and overhaul (“MRO”) capabilities to enable cost-effective maintenance of the aircraft in both remote and challenging environments and to maximize availability of the VX4 in service. Leveraging Babcock International’s experience in the defense industry, this partnership will also explore how the eVTOL concept may be expended in the future to support the armed forces with medium-range logistics delivery and casualty evacuation services.
FLYINGGROUP
We are partnering with FLYINGGROUP, one of Europe’s leading business jet operators, to explore the use of the VX4 in the business aviation market. FLYINGGROUP has agreed to pre-order, subject to certain conditions, up to 50 of our aircraft, with an aircraft order value of approximately $200 million. We and FLYINGGROUP continue to advance our joint working group to explore FLYINGGROUP’s application of using the VX4 in the business aviation market, including individual ownership, low volume operation and fractional ownership. The joint working group is also exploring the terms and conditions of an MRO service center, potentially granting FLYINGGROUP the right to perform MRO services for their fleet and to support their private sales.
51
All of the pre-orders held by American Airlines, Virgin and Avolon are treated separately from their investments in our company through the PIPE. For more information about the conditions for each of the pre-orders and pre-order options, as well as the receipt of a pre-delivery payment from Marubeni, please see “Risk Factors — Risks Related to Our Business and Industry — All of the pre-orders we have received for our aircraft are not legally binding, are conditional and may be terminated without penalty at any time by either party. If these orders are cancelled, modified, delayed or not placed in accordance with the terms agreed with each party, our business, results of operations, liquidity and cash flow will be materially adversely affected.”
Targeted Sales Approach
As an OEM, we have built and plan to address an extensive and diverse customer base: (i) airlines that want to extend the passenger experience into their main hubs, creating micro feeders and catchment networks, and transit to city centers and urban areas; (ii) regional airlines that will develop point-to-point routes; (iii) business aviation companies that will complement their offerings with a last-hop service to end destination; (iv) aircraft lessors that will financially support the delivery of business opportunities; and (v) existing helicopter operators that will progressively replace their light segment by our new generation of safer, cheaper and more sustainable aircraft, enabling new operations.
In order to ensure customer and market proximity, we aim to have a global commercial presence. Our regional teams will help us be local, understand regulatory frameworks, co-create business opportunities with our customer base and develop the required ecosystem to achieve success in each market.
Because we are not selling a traditional aircraft, we are actively working to enable the creation of an ecosystem, seeking out local partnerships with our customers and other key industry players in certain strategic markets, with the goal of expanding beyond those particular markets once we have gained the relevant experience.
We are working with local transport and aviation authorities, airspace, infrastructure, energy and mobility providers, together with our partners, to comply with local requirements and ensure that there will be the necessary infrastructure and regulations in place for our aircraft and for our partners’ expected operations. A collective effort will be required of both us and our ecosystem partners in order to develop policies and ensure public acceptance, prepare infrastructure and airspace integration for future operations. We are undertaking demand analysis and network simulation to allow us to anticipate societal and economical value. Our mission and concepts of operation, together with our strategic partnerships across key markets, will help us to ensure the effective integration of our aircraft and ecosystem with other existing transport means and networks.
We have already started executing our sales strategy through our partnerships with American Airlines, Avolon, Bristow, Iberojet, Marubeni, Virgin Atlantic, Babcock International and FLYINGGROUP. We also launched a partnership with Heathrow Airport, one of the world’s top international aviation hubs, to explore how the VX4 could operate at Heathrow Airport. Together with Heathrow Airport, we will collaborate on identifying key regulatory challenges, identifying demand, fleet size and infrastructure requirements for eVTOL to fit into existing airport operations and identify key potential customers and stakeholders. Together with other partners including Ferrovial, who we are cooperating with to create a network of 25 vertiports in the UK, we expect our partnership with Heathrow will help create an ecosystem for sustainable air travel in the United Kingdom. We are working together with all our commercial partners to define the roadmap for the upcoming years that will enable safe entry into service.
We intend to continue sales both through strategic partners that are involved in our business and to other third parties. We have a significant number of pre-orders from our existing customers. Once we have achieved a threshold number of pre-orders, we intend to be more selective in our active pursuit of more pre-orders, in order to apply deeper resource and time to our existing initial customer base.
We will listen to the voices of our customers and analyze potential market opportunities in tourism, cargo, medical and other public services, and eventually develop specific mission variants. We will explore the scaling of our vehicle into increased range and payload.
52
Provide Fulsome After Sales Services
After we deliver our aircraft, we expect to be able to provide significant additional value through our “Aircraft Services” business. Where required, we plan to partner with our customers to operate our aircraft; the expertise and knowledge we will gain through the design, development, certification, manufacture and assembly of our aircraft will be critical to ongoing maintenance of our aircraft. We plan to develop global clusters, aligned to our OEM markets, to support pilot training, battery management and aircraft maintenance. We plan to partner with existing infrastructure players and deliver our eVTOL flight services over the top of existing operations.
Aircraft Services will be defined as an integrated package that will include services such as battery management, pilot training and licensing and general aircraft maintenance. Our aircraft will be highly digital and will generate significant amounts of operational data. In collaboration with Microsoft, we have created a Vertical Cloud to host aircraft data and will be leveraging this to provide aircraft equipment health monitoring, vehicle and fleet operational and maintenance optimization and additional aftermarket services. By the time we launch our Aircraft Services, we expect to also be well advanced in developing pilot simulators as part of our ongoing aircraft certification program, which we will be able to roll out as pilot training services.
One of the most critical components of the VX4 is our battery system, which is being designed in-house, given the unique requirements for eVTOL battery systems. The battery would be certified as part of the aircraft, and therefore, we believe that our OEM sales will drive an aftermarket revenue stream for battery replacements and upgrades. We intend to optimize battery utilization and replacement timing by leveraging the leading smart charging and advanced battery health diagnostics research we are currently undertaking. Furthermore, our battery is being designed for re-use, taking out deteriorated cell packs for second life use in non-aviation, while reusing the valuable aerospace grade electronics and composite battery packs. Once we have developed this technology, we may expand these services into other industries that use similar battery systems, such as the wider electrification of transportation and stationary storage for grid applications.
Carefully Selected Team with Leading Aerospace and Automotive Expertise
We have a highly experienced senior team that includes individuals from the aerospace and advanced automotive industries, led by our Chief Executive Officer and founder, Stephen Fitzpatrick, a leading energy entrepreneur and founder of OVO Energy, Europe’s largest independent energy retailer; Michael Cervenka, our Chief Technology Officer, who previously served as Head of Future Technologies, among other key roles, at Rolls-Royce; John Martin, our Chief Financial Officer, who previously served as Chief Financial Officer and subsequently Chief Executive Officer of the FTSE 100 distribution business Ferguson plc (formerly Wolseley plc); Eduardo Dominguez Puerta, our Programme Lead and Chief Commercial Officer, who previously served as the Chief Executive Officer of Airbus Urban Air Mobility leading all eVTOL-related efforts; and David King, our Chief Engineer, who previously served as the Chief Engineer of the AW609 at Leonardo. We believe that our management team is crucial to our success, including our ability to create proprietary systems and work closely with our strategic partners to bring what we believe will be the best eVTOL aircraft to market.
The complementary skill sets of our handpicked, high-class team are critical to the success of the aircraft designs and our business. We are headquartered in Bristol, which is at the center of the United Kingdom’s aerospace cluster. Our location provides us with a unique access to talent, and this depth of talent places us at the epicenter of the aerospace technical and supply chain ecosystems, which we believe differentiates us from our competitors and increases the barriers to entry.
Designed for Scalable Manufacturing
We are designing our aircraft with a focus on manufacturing and the fastest route to scale from day one. After receiving CAA and EASA certification, we anticipate rapid scaling as a result of the ecosystem we have built with the combination of our proprietary systems and strategic partnerships. We will be responsible for the overall manufacture and assembly of the aircraft and battery system and will leverage our partnerships with Honeywell, Rolls-Royce, Microsoft, Solvay, GKN Aerospace, Leonardo, Molicel and CAE in order to deliver our aircraft as quickly as possible. Our strategy is to work with major aerospace suppliers to enable production ramp-up, which we believe will be a significant differentiator for us.
53
We aim to begin with staged production that will align with pre-orders from our strategic partners. While the components and sub-systems will be manufactured by our supply chain partners, we will carry out final assembly of the battery systems and the overall aircraft in purpose-built facilities. By integrating our partners and suppliers into our manufacturing line, we expect to reduce operating costs while simultaneously spreading risk across the supply chain. This strategic partnership approach will leverage the significant industrialization capabilities in our supply chain ecosystem, allowing us to focus on the assembly of our aircraft and avoid having to make significant investments in individual component and sub-system manufacturing.
We expect that in the near term, there will be significant market demand for eVTOL aircraft as a replacement to helicopters, which we believe will propel further market growth and help to grow new transportation opportunities. We anticipate scaling and growing our production capacity by leveraging the partnership-based ecosystem that we are creating, which we believe will allow us to meet this market demand quickly and efficiently.
We expect to initially produce lower volumes in the early years of production, while continuing to plan for higher volume manufacturing in the future.
Our Focus on Sustainable Manufacturing and Safety
We plan to design our facilities and manufacturing processes to be efficient, safe and sustainable in order to minimize our carbon footprint and encourage us to be leaders in creating environmentally friendly manufacturing practices and aircraft. We have partnered with Solvay and Leonardo, global leaders in composite materials in aerospace, to incorporate lightweight composite materials that allow our aircraft to be lighter, and therefore, more fuel efficient, while also providing a high-quality experience that exceeds that of metal parts.
Attractive Aircraft Unit Economics Driving Adoption
We believe that our VX4 aircraft will offer compelling operating costs across a range of potential missions. We believe our expected low operating costs will enable operators to offer prices at a reduction to existing helicopter ridesharing services, ensuring affordability for passengers and enabling mass adoption. The VX4 is being designed to allow flexibility in operators running both intra-city and intercity missions not just for passenger operations but also potentially cargo, medivac and other use cases. Compared to helicopters, we believe some of the key cost advantages of the VX4 will be: a reduced part count and complexity, lowering maintenance costs; simplified aircraft operations through simpler training and greater accessibility, which can ultimately lead to lower costs; and an expected greater utilization of the aircraft as a result of greater landing site utilization due to reduced noise and lower costs as demand for the aircraft increases over time and they gain more popularity. Benchmarking against existing helicopter ridesharing operations and engaging in dialogue with our key strategic partners provides us with clearer visibility on operational costs.
We believe our low production costs and ability to rapidly scale production to meet customer demands will also help to drive our future OEM sales. Through our collaborative industrial partnerships with key component providers such as Honeywell, Rolls-Royce, GKN Aerospace, Leonardo and Solvay, we have strong confidence in our bottom-up component by component projected cost structure for the VX4. We have a number of certification and early production contracts signed and will negotiate future production contracts that include global aftermarket support and other services to support our production process. These cover an extensive proportion of the cost base of the aircraft and gives us strong certainty of what we can deliver in the future. Moreover, we believe our access through strategic partners to vast aerospace supply chains will allow us to rapidly increase production while maintaining our cost structure. Our strategic aerospace partners have the capabilities to manufacture at scale while meeting stringent aviation technical requirements, which gives us a competitive advantage against competitors with lower-specification automotive partnerships or start-up companies that have chosen to predominantly vertically integrate their manufacturing activities.
Future Market Opportunities
We intend to leverage our expertise and position as a leading eVTOL aircraft OEM to generate revenue by providing services ancillary to our aircraft. We believe there are opportunities to address sectors that are adjacent to our core business, including delivery and logistics as well as emergency services, cargo and military logistics transport applications, as well as selling and servicing battery systems and battery packs in other sectors such as automotive and stationary grid storage. Through our Aircraft Services business, we intend to leverage developments in our battery technologies and alternative methods of energy storage for use in other applications as well as other sectors in the future after we begin manufacturing our aircraft at scale.
54
Our Aircraft Services will include battery management, pilot training and licensing and aircraft maintenance. Our aircraft will use our proprietary battery systems, and we will be able to service battery systems by providing replacement hardware and smart diagnostics that we expect will enable optimum battery charging, operation and maintenance, as well as maintain an inventory of spares to support our aircraft around the world. In addition, our aircraft will be highly digital and will provide significant amounts of operational data that we can use to generate additional revenue for our “Vertical Cloud Services” business.
Government Regulation and Compliance
In the near term, our priorities include working with the CAA, the EASA, the FAA, and other regulators such as the National Civil Aviation Agency of Brazil and the Japan Civil Aviation Bureau in connection with the certification and validation processes of VX4, and working on policy engagements with regulators, decision makers and communities within our key markets.
Certification Processes
Design Certification
The purpose of the aircraft design certification process, known as “type certification,” is to ensure that aircraft are designed and maintained at the highest and most meticulous safety and performance standards. Since 2018, we have engaged with the CAA and the EASA to ensure that our design and our organization will meet each regulator’s requirements for type certification as early as possible in the process. Our path to certification leverages many existing technologies, processes and procedures in order to meet both existing and evolving regulatory standards. Our certification team works on defining the “Means of Compliance” that will be utilized to prove compliance to the CAA, the EASA, the FAA and other regulators based on the agreed certification basis.
To date, two of our prototypes have been flown under CAA’s Operational Authorizations and one of our prototypes has flown under a CAA experimental permit to fly. With respect to the VX4, we have both unpiloted and piloted tests planned for 2023, which we will fly under Operational Authorization. We have submitted our proposed certification basis to the CAA based on the “Special Condition for Small Category Vertical Take-Off and Landing Aircraft,” which establishes the safety requirements the VX4 needs to meet, and expect to formally agree with the CAA the certification basis for the VX4 during 2023. In addition, we will also be required to obtain and maintain a DOA from the CAA in order to be able to hold a type certification. We expect to receive our DOA during 2023, which we believe will cover the full scope required to hold a type certification for a commercial passenger carrying winged eVTOL. We intend to continue working side-by-side with the CAA and the EASA as we design and develop our aircraft. We have also had our certification validation application accepted by the FAA, providing a pathway to type certification and entry into service in North America for the VX4 following certification by the CAA and the EASA.
Production Certification
Aircraft manufacturing is heavily regulated in most markets. When we begin production, we expect to continue to interact with numerous government agencies and entities with respect to our production and quality systems. We are developing the systems and processes needed to obtain the required POA from the CAA and intend to obtain this approval as part of the process of manufacturing conforming aircraft in the lead-up to obtaining a type certificate for the aircraft.
Airspace Integration
Our aircraft are being designed to be operated under current flight rules and regulations with a qualified pilot in command onboard the aircraft. As such, fixed wing and rotary commercial pilots initially will be able to fly our aircraft once they have secured the necessary aircraft type rating approvals. As the eVTOL industry expands, we will work with pilots and regulators to explore opportunities to tailor the types of training required to fly eVTOL aircraft in a safe, effective manner and widen the pool of pilots qualified to safely fly the aircraft.
We also believe there are opportunities to expand ground infrastructure and create air traffic efficiencies, and we expect to work with local authorities and other stakeholders to identify and develop procedures along high-demand routes to support increased scale and operational tempo. In the long term, digital clearance deliveries, airspace authorizations and automated coordination between service providers and operators may be required to further increase airspace scalability. We expect to continue to be involved in the long-term activities to develop community-based concepts and technologies to further enable scaling towards mature and autonomous operations in order to ensure that our aircraft can provide the necessary benefits to our customers, regulators and the communities in which we operate.
55
Joint Working Group and Policy Engagements with Decision Makers
The EASA regulations have significantly matured over the last two years, and our team has been at the forefront of shaping these regulations. In addition, we have established joint working groups with our commercial and strategic partners. Through these groups, we have an ecosystem of partners with expertise or decision-making responsibility in all the key areas needed to bring the VX4 to market, including regulation, infrastructure, air traffic control, finance and operations. This ecosystem provides us with access to deep experience of flight operations and existing networks. This allows us to model the specific requirements in our various markets, including mission routes, developing network mapping, infrastructure needs and services such as pilot training and MRO. We believe these joint working groups are a key component of bringing the VX4 to market and a key differentiator, and we expect to continue engaging with them in the medium to long term.
Noise Regulations
Our aircraft is being designed to minimize noise to enable access not only to existing aviation infrastructure, but to also allow for operations in and out of proposed new vertiports that are nearer to where people want to live and work. We believe our aircraft will have a noise profile of less than 70dBA in hover, the same as low-level city traffic, and less than 50dBA in cruise, which is likely to be unnoticeable in an urban environment.
Research and Development
We conduct extensive research and development to reduce technical risks associated with manufacturing our aircraft. The testing of this aircraft helps us to evaluate candidate system architectures and components for the certified production aircraft. Additionally, we are performing research and development on battery systems and other electric powertrain components in order to maximize the performance of our aircraft.
Intellectual Property
Our success depends, in part, upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we rely on a combination of intellectual property rights, such as patents, patent applications, designs, trademarks and copyrights, confidentiality to protect proprietary information, such as knowhow, expertise and trade secrets, and contracts, such as license agreements, confidentiality and non-disclosure agreements with third parties, employee and contractor disclosure and invention assignment agreements and other similar contractual rights. In particular, unpatented trade secrets in the fields of aerospace and automotive engineering are an important aspect of our business to ensure that our technology remains confidential. We also pursue patent protection when we believe we have developed a patentable invention and the benefits of obtaining a patent outweigh the risks of making the invention public through patent filings.
As of December 31, 2022, we have seven pending patent applications (one in the United Kingdom, two in the United States, two in Europe under the European Patent Convention and two International) covering four inventions. The European patent applications, if granted, can be extended to protect the inventions in any European territory of interest. The International applications can be extended, as applications for examination in each major territory of interest, including the United States, the United Kingdom and Europe, or further afield in China and Japan. The territories will be selected based on a cost-benefit analysis. Our patent applications, most of which are in the public domain, relate to our vehicle configuration, propulsion systems, thermal management, and propeller arrangements.
We regularly review our development efforts to assess the existence and patentability of new inventions, and we will file additional patent applications when we determine it would benefit our business to do so.
Our Employees
As of December 31, 2022, we had 317 full-time employees (including one apprentice employee) and 13 part-time employees. We are actively recruiting new employees as we continue to scale our operations. Our hiring strategy has been to acquire top talent across various disciplines to help us to build our high-quality eVTOL aircraft. As a result, we have assembled what we believe to be a world-class engineering team with extensive experience in certification, aircraft design, systems integration, aerodynamics, noise, electric propulsion, batteries, lightweight composite structures, mechanical systems and manufacturing.
56
Our Competition
We believe that the primary sources of competition for our service are ground-based mobility solutions, other eVTOL developers/operators and local/regional incumbent aircraft charter services.
We believe the primary factors that will drive success in the AAM market include:
| ● | the performance of our eVTOL aircraft relative to both competitive eVTOL aircraft and traditional aircraft, |
| ● | the ability to certify the aircraft and service operation in a timely manner, |
| ● | the ability to manufacture efficiently at scale, |
| ● | the ability to develop or otherwise capture the benefits of next generation technologies, and |
| ● | the ability to deliver products and services to a high-level of quality, reliability and safety. |
While there are differentiated approaches to vehicle designs and business models, we believe that our aircraft and business model offer the highest chance for success on a global scale. Our differentiated aircraft and partner ecosystem position us well to be successful in the global markets.
Seasonality
To date, we have not experienced any pronounced seasonality, but such fluctuations may have been masked by our historical rapid growth.
C. Organizational Structure
The legal name of our company is Vertical Aerospace Ltd. and we are organized under the laws of the Cayman Islands as an exempted company. In connection with the Business Combination, VAGL and Broadstone became wholly-owned subsidiaries of Vertical. VAGL is a private limited company incorporated under the laws of England and Wales. The Company initiated a voluntary liquidation of Broadstone on February 14, 2023 which will be deemed dissolved on May 11, 2023 and thereupon removed from the Cayman Companies Register.
D. Property, Plants and Equipment
Corporate Offices; Test Facilities
Corporate Headquarters
We are headquartered in Bristol, England, which is known as one of the largest aerospace areas in the United Kingdom, where we have our research and development facility. Our facility in Bristol is leased from a third party for a term of ten years expiring in 2028. The lease covers an aggregate of approximately 35,000 square feet.
Vertical Flight Test Centre
We have a dedicated flight test centre located at Cotswold Airport, Kemble, England, United Kingdom. Our facility in Kemble is comprised of two aircraft hangers. One is leased from a third party for a term of five years expiring in 2026, covering an aggregate of approximately 50,000 square feet, the other is leased from a third party for a term of two years expiring in 2025, covering an aggregate of approximately 6,000 square feet.
Vertical Energy Centre
We lease approximately 15,000 square feet located at Severn Road, Avonmouth, Bristol, England for a battery testing facility. The facility is leased from a third party for a term of 10 years, expiring in November 2033.
57
We are subject to laws and regulations concerning the environment, safety matters, and product safety in the countries where we conduct research, development, testing and manufacturing activities or otherwise operate our business, including with respect to our battery testing facility. These requirements include regulation of the handling, manufacture, transportation, use and disposal of materials, including the discharge of pollutants into the environment. See Item 3.D. “Risk Factors — Risks Related to Our Business and Industry — We are subject to many hazards and operational risks that can disrupt our business, including interruptions or disruptions in service at our facilities, which could have a material adverse effect on our business, financial condition and results of operations.”
Additionally, we are beginning the search for specialist facilities for assembly, testing and production of our aircraft.
Financing
We expect to continue to use cash, including the proceeds of the Business Combination, the PIPE Financing, Equity Subscription Line and Convertible Senior Secured Notes to fund our continued expansion.
Item 4A.Unresolved Staff Comments
None.
Item 5.Operating and Financial Review and Prospects
A.Operating Results
You should read the following discussion of our operating and financial review and Annual Report in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report. The following discussion is based on our financial information prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board (“IASB”).
This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this Annual Report. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially from those contained in any forward-looking statements.
Certain information called for by this Item 5, including a discussion of the year ended December 31, 2020 specifically as well as the year-over-year comparison of our 2021 financial performance to 2020 has been reported previously in our Annual Report on Form 20-F for the year ended December 31, 2021 filed on April 29, 2022 under Item 5. “Operating and Financial Review and Prospects.”
Overview
Our purpose is to revolutionize the way we travel, in a more sustainable world. We are a global aerospace and technology company that is pioneering zero-emissions aviation, focused on designing, manufacturing and selling a zero operating emission eVTOL aircraft for use in the AAM market, using the most cutting-edge technology from the aerospace, automotive and energy industries.
Founded in 2016, we come from a deep aerospace and automotive mindset and have already designed, built and flown two prototype eVTOL aircraft in 2018 and 2019. We are currently developing, and are progressing towards the certification of, our flagship eVTOL, the VX4, which has undergone the first stages of its flight test campaign. We are targeting the VX4 to be capable of transporting a pilot and up to four passengers, traveling distances of up to 100 miles, and achieving cruise speeds of 150 mph, while producing minimal noise and zero operating emissions.
58
The VX4 aircraft is being designed around existing certifiable technology, as well as certain novel technology such as the batteries and powertrain, using an experienced team that has previously certified and supported the development of over 30 aircraft and propulsion systems around the world. We are currently one of the only eVTOL designers and OEMs actively pursuing certification from the CAA or the EASA with a winged vehicle. We aim to have our aircraft certified to the same safety standards as commercial airlines, rather than the significantly lower standards to which similarly sized helicopters are currently certified. The EASA also confirmed that it will concurrently validate the CAA certification for the VX4, which means the certification and validation process will run simultaneously in both jurisdictions, with both regulators using Special Conditions (SC)-VTOL basis for certification of new eVTOL aircraft. By achieving certification of our VX4 eVTOL aircraft from the CAA and the EASA, we will be able to leverage the work done with our home regulator in order to have the certification validated by other regulators where we intend to operate, including the FAA.
We are developing a sophisticated eVTOL ecosystem that allows us to focus on providing a high-quality experience. Our in-house expertise covers design, certification, assembly and manufacture, pilot experience, end-user experience and base platform performance. We aim to sell globally certified eVTOL aircraft to a variety of customers, including commercial airlines, aircraft leasing companies, business aviation, existing helicopter operators as well as new operators in the AAM market, providing both OEM sales and aftermarket services to our customers.
We aim to be one of the leading eVTOL aircraft OEMs for commercial airlines, aircraft leasing companies, business aviation, existing helicopter operators as well as new operators in the AAM market, providing both OEM sales and aftermarket services to our customers. We also believe there is a potential market to provide OEM sales to a variety of industries beyond traditional airline and helicopter customers, such as tourism, where there is an opportunity to replace existing transportation options like minibuses, and the cargo and logistics industry, where there is potential to partner with global logistics firms and large retail customers. There is a further opportunity to generate revenue from other sectors such as emergency services, as eVTOL aircraft can be used for emergency patient and supplies transport, particularly in densely populated areas or military logistics transport, among other potential uses. We plan to explore the potential development of versions of the VX4 for such scenarios. Our strategy is to forge partnerships in key markets with partners that have existing demand and are local trusted brands with market-specific knowledge. We believe that by partnering with such market players, we can extend their business models and build a market ecosystem that will allow us to expand our proposition over time. Our focus on system integration and establishment of an industrial supply chain is expected to enable rapid scaling of production of our aircraft.
The Business Combination
On June 10, 2021, we entered into the Business Combination Agreement with Broadstone, which was consummated on December 16, 2021. The Business Combination had a significant impact on our capital structure and operating results, helping to facilitate our product development, manufacturing and commercialization. The most significant change in our reported financial positions was a net increase in cash (as compared to our consolidated balance sheet at June 30, 2021) of approximately $286 million. As a result of the Business Combination, we became a U.S. public company listed on the New York Stock Exchange, which required us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred, and expect to continue to incur, additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources.
Key Factors Affecting Operating Results
Commercialization
The full-scale VX4 prototype has now been built and completed a series of rigorous ground-based tests, including lift, vibration and propeller thrust. In September 2022, we successfully began the first stages of a flight test campaign with our VX4 prototype under CAA approvals. We are now progressing towards the next stages in our flight test program for the VX4 aircraft, which we expect will include piloted flights at increasing altitudes and speeds and demonstration of the transition from vertical lift to horizontal forward flight.
59
We have deployed a sales strategy engaging in direct sales to operator customers and third-party distribution networks. Our salesforce has targeted prospects from a pool of over 5,000 airlines with ICAO codes worldwide that are seeking to capitalize on the growth of the AAM market. As part of this approach, we have entered into arrangements with several commercial partners for multiple pre-orders and pre-order options for our aircraft. Customers include American Airlines, Virgin Atlantic, Avolon, Bristow, Marubeni, Iberojet, FLYINGGROUP as well as (through Avolon’s VX4 placements) Japan Airlines (JAL), Gol, Gözen Holdings and AirAsia. In January 2023, Marubeni made a pre-delivery payment to reserve delivery slots for the first 25 VX4 aircraft of its conditional pre-order of up to 200 aircraft. American Airlines has also committed to pay a pre-delivery payment upon the satisfaction of certain conditions in exchange for the commitment to reserve delivery slots for the first 50 VX4 aircraft of American Airline’s conditional pre-order of up to 250 aircraft, with an option to purchase an additional 100 aircraft. All such pre-orders, options and commitments are not legally binding, conditional and may be terminated without penalty at any time by either party and any pre-delivery payments may be fully refundable upon certain circumstances.
Development of the Advanced Air Mobility Market
We believe that deploying a new type of aerial mobility network in cities represents an extensive market opportunity that we expect to expand over time. We intend to seize on the untapped demand for getting into and out of city centers globally, as certain existing travel methods can be impractical, inconvenient or unaffordable. Our long-term financial performance ultimately depends on the demand such short distance aerial transportation and the growth of the AAM market. We believe that we have a significant opportunity to meet this untapped demand in the AAM market, with the urban air mobility market currently projected to grow to a total addressable market size of $1 trillion by 2040, according to Morgan Stanley. We, and the eVTOL sector more generally, seek to displace the current incumbents by taking market-share and/or benefitting from the incremental growth in demand.
There are two critical factors that will enable us to secure a prominent position in the AAM market: firstly, our ability to develop, certify and manufacture our aircraft, and secondly, the adoption of eVTOL as an alternative mode of transport by both operators and consumers. Our success in development and manufacturing will be dependent on overcoming several challenges around key manufacturing considerations, such as wing borne capability and battery efficacy. We plan to continue to invest in our infrastructure, research and development efforts and workforce to ensure that we will be able to deliver our aircraft to our customers in a timely manner.
While we believe that there will be a significant market for AAM in the future, there is a possibility that consumer resistance may be significant, as there may be misconceptions about eVTOL safety, performance and reliability. Additional factors impacting the pace of adoption of AAM and aerial transportation include but are not limited to: perceptions about eVTOL quality and cost; perceptions about the limited range over which eVTOL may be flown on a single battery charge; the evolution and availability of competing forms of transportation, such as ground or air taxi or ride-hailing services; the development of adequate infrastructure; consumers’ perception about the convenience and cost of transportation using eVTOL relative to ground-based alternatives; and, in particular, improvements in fuel efficiency, autonomy, or electrification of cars. In addition, macroeconomic factors could impact demand for AAM services, particularly if end-user pricing is at a premium to ground-based transportation alternatives. If the market for AAM does not develop as expected, this would impact our ability to generate revenue or grow our business.
Competition
We face immediate competition from other eVTOL manufacturers, suppliers and operators as well as ground-based mobility solutions and local and regional incumbent helicopter and aircraft charter services. While we expect to be one of the pioneering companies to market eVTOL aircraft, we expect this industry to be increasingly competitive, and it is possible that our competitors could launch in one or more markets before us. Even if we are among the first to market, any anticipated advantages may not crystallize if new companies or existing aerospace companies launch competing solutions in the markets in which we intend to operate and/or if any of our competitors obtain large-scale capital investment to speedily scale up their distribution capability. Existing AAM operators may also take actions to protect their customer base, which could prevent us from gaining market share in markets in which we intend to operate. For a more comprehensive discussion, please see Item 3.D. “Risk Factors — Risks Related to Our Business and Industry.”
60
Regulatory Landscape
We are, and will be, subject to significant regulation relating to aircraft safety and testing, accessibility, battery safety and testing and environmental regulation in the United Kingdom, European Union, the United States and other markets. These requirements create additional costs and possibly production delay in connection with design, testing and manufacturing of our aircraft. For more information, see Item 4.B. “Business Overview— Our Regulatory Strategy” and Item 3.D. “Risk Factors — Risks Related to Our Regulatory Environment” in this Annual Report.
Components of Results of Operations
Revenue
We are currently in the research and development phase of our journey to commercialization of eVTOL technology. We have not generated any revenue from design, development, manufacturing, engineering and sale or distribution of our aircraft. We generated revenue in 2021 from the performance of engineering consultancy services; however, these services were ad-hoc and generally undertaken where we could strategically gain knowledge enhancement and skill development. No revenue was generated during the twelve months ended December 31, 2022.
Operating Expenses
Research and Development Expenses
Research and development expenses consist of relevant staff costs, including salary and benefits, third-party engineering consultants, materials, equipment, components and tooling, and program consumables and testing. Costs associated with development projects such as aircraft programs, component programs and software products are expensed rather than capitalized as intangible assets under construction. We expect research and development expenses to increase as we continue to develop our aircraft technology. The accounting policies applied remain consistent with those of the previous financial year and corresponding interim reporting period. For more information about our accounting policy for intangible assets, refer to note 2 in our financial statements included elsewhere in this Annual Report.
Administrative Expenses
Administrative expenses consist of the costs associated with employment of our non-engineering staff, including salary and benefits, the costs associated with our premises, and the depreciation of our fixed assets, including depreciation of “right of use” assets in relation to our leased property. We expect administrative expenses to increase as our overall activity levels increase due to the construction and operation of our final assembly facility and as we hire additional personnel and consultants to support our compliance with the applicable provisions of the Sarbanes-Oxley Act and other SEC rules and regulations.
Administrative expenses also include share-based payment expenses in connection with the 2021 Incentive Plan and the EMI Option Agreements entered into during the year ended December 31, 2022. The EMI Option agreements entered into between the Company and certain employees of the Company and its subsidiaries were replacement option agreements for share options previously granted over shares in “VAGL, the Company’s wholly owned subsidiary, that were exchanged for options of equivalent value over ordinary shares in the Company in connection with the Business Combination, which options are intended to be tax qualifying enterprise management incentive options under Schedule 5 of the UK Income Tax (Earnings and Pensions) Act 2003.
See note 7 to our consolidated financial statements included elsewhere in this Annual Report.
Related Party Administrative Expenses
Related party administrative expenses consists of costs from Imagination Industries Incubator Ltd. (“i3”), which is an entity controlled by Stephen Fitzpatrick, our majority shareholder and CEO. The nature of these costs is the provision of a limited number of flexible desk space at the United House in London.
61
Other Operating Income
Other operating income consists of government grants to support our development activities as well as the research and development credit related to the United Kingdom research and development tax credit scheme.
Total Finance Income
Finance Income
Finance income consist primarily of fair value movements on our convertible loan notes and warrants, interest calculated on lease liabilities and both realized and unrealized foreign exchange movements that have been created due to the fluctuation of exchange rates between the US dollar, euro and the other currencies that we use for our operations.
Related Party Finance Costs
Related party finance costs comprises interest on loans from Imagination Industries Ltd. (“Imagination”), an entity which is controlled by Stephen Fitzpatrick, our majority shareholder and CEO.
Results of Operations
The following table sets forth the consolidated statements of operations in British pounds sterling and as a percentage of revenue for the periods presented.
Year Ended December 31, |
| ||||||
2022 | 2021 |
| |||||
| (in £ thousands) |
| (in £ thousands) |
| % Change |
| |
Revenue |
| — |
| 132 |
| (100) | % |
Cost of sales |
| — |
| (64) |
| (100) | % |
Gross profit |
| — |
| 68 |
| (100) | % |
Research and development expenses |
| (49,129) |
| (24,291) |
| 102 | % |
Administrative expenses |
| (54,806) |
| (264,260) |
| (79) | % |
Related party administrative expenses |
| (83) |
| (108) |
| (23) | % |
Other operating income |
| 5,911 |
| 11,352 |
| (48) | % |
Operating loss |
| (98,107) |
| (277,239) |
| (65) | % |
Finance income |
| 3,732 |
| 32,498 |
| (89) | % |
Related party finance costs |
| — |
| (483) |
| (100) | % |
Total finance income |
| 3,732 |
| 32,015 |
| (88) | % |
Loss before tax |
| (94,375) |
| (245,224) |
| (62) | % |
Income tax expense |
| — |
| — |
| — | |
Net loss |
| (94,375) |
| (245,224) |
| (62) | % |
For the years ended December 31, 2021 and 2022
Revenue
Revenue decreased by £132 thousand, or 100%, from £132 thousand during the year ended December 31, 2021 to £nil during the year ended December 31, 2022. This decrease was due to the disposal of Vertical Aerospace Engineering Ltd. (“VAEL”) in October 2021. All revenue to date has been generated from providing engineering consultancy services to customers through VAEL.
Cost of sales
Cost of sales decreased by £64 thousand, or 100%, from £64 thousand during the year ended December 31, 2021 to £nil during the year ended December 31, 2022. This decrease was due to the disposal of VAEL in October 2021. All revenue to date is generated from providing engineering consultancy services to customers.
62
Gross profit
Gross profit decreased by £68 thousand, or 100%, from £68 thousand during the year ended December 31, 2021 to £nil during the year ended December 31, 2022. Engineering consultancy services were provided that are ancillary and not core to our business. These services are ad-hoc and generally undertaken where we can strategically gain knowledge enhancement and skills development. Consequently, the absolute monetary amounts are small in comparison to our overall cost base, and the margins can vary significantly.
Research and development expenses
Research and development expenses increased by £24,838 thousand, or 102%, from £24,291 thousand during the year ended December 31, 2021 to £49,129 thousand during the year ended December 31, 2022. This increase was primarily due to increased research and testing activity in relation to our aircraft. Specifically, we have increased the number of employees dedicated to research and development activity from 148 to 222 individuals. This has been supplemented with increased specialist research and development consultancy spend as we continue to invest in certain proprietary features of our aircraft, including our battery system and propeller design. We have also incurred a high level of spending with our strategic partners, as we seek to embed their industry-leading expertise within our prototype programme.
Administrative expenses
Administrative expenses decreased by £209,454 thousand, or 79%, from £264,260 thousand during the year ended December 31, 2021 to £54,806 thousand during the year ended December 31, 2022. This decrease was primarily due to the share based payment expense incurred in 2021 in relation to the Business Combination. A total share based payment expense of £111,996 thousand was recognized during the year ended December 31, 2021, which includes £84,712 thousand in relation the capital reorganization. Administrative expenses in 2021 also included an expense of £111,611 thousand relating to the issuance of warrants.
In the year ended December 31, 2022, share-based payment expenses of £23,189 thousand was recognized in relation to the EMI Option Agreements and the 2021 Incentive Plan. Please see note 7 to our consolidated financial statements included elsewhere in this Annual Report for more information on administrative expenses.
Related party administrative expenses
Related party administrative expenses decreased by £25 thousand, or 23%, from £108 thousand during the year ended December 31, 2021 to £83 thousand during the year ended December 31, 2022. This decrease was primarily due to a lower reliance on services provided by i3.
Other operating income
Operating income decreased by £5,441 thousand, or 48%, from £11,352 thousand during the year ended December 31, 2021 to £5,911 thousand during the year ended December 31, 2022.
Income from R&D tax credits increased from £2,388 thousand for the year ended December 31, 2021 to £4,496 thousand for the year ended December 31, 2022, as a result of increased eligible R&D expenditure.
Income from government grants decreased from £8,829 thousand during the year ended December 31, 2021 to £1,415 thousand during the year ended December 31, 2022. In 2020, we applied for a government grant with the United Kingdom’s Aerospace Technology Institute and Innovate U.K. The Initial Demonstration Platforms grant period commenced on October 1, 2020 and ended on September 30, 2022. The receivable installments are recognized in other operating income as the matching sanctioned expenditure is incurred, with a retrospective claim process.
Finance income (net of finance costs)
Finance income decreased by £28,766 thousand, or 89%, from £32,498 thousand during the year ended December 31, 2021 to £3,732 thousand during the year ended December 31, 2022. This reflects fair value gains relating to warrants and Convertible Senior Secured Notes. Please see note 8 to our consolidated financial statements included elsewhere in this Annual Report for more information.
63
Related party finance costs
Related party finance costs decreased by £483 thousand, or 100%, from £483 thousand during the year ended December 31, 2021 to £nil during the year ended December 31, 2022. This decrease was primarily due to no related party financing arrangements remaining in existence.
Off-Balance Sheet Arrangements
We did not have during the period presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
JOBS Act
We are an emerging growth company, as defined in the JOBS Act. We intend to rely on certain reduced reporting and other requirements that are otherwise generally applicable to public companies. As an emerging growth company, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, which would otherwise be required beginning with our second annual report on Form 20-F, and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).
Recent Accounting Pronouncements
Certain new accounting standards and interpretations have been issued by the IASB, but are not yet effective for the December 31, 2022 reporting period and have not been early adopted by Vertical and its subsidiaries. These standards are not expected to have a material impact on the entity in the current or future reporting periods nor on foreseeable future transactions. Please see note 2 to our consolidated financial statements included elsewhere in this Annual Report for more information.
B.Liquidity and Capital Resources
The functional currency of the Company is USD and the functional currency of VAGL is GBP. The financial statements are presented in GBP, which is the Group’s presentation currency. Note that in this section certain narrative financial information is shown in GBP and other information is shown in USD; typically, this is because we have incurred the majority of our costs in the UK and in GBP, while we expect customer payments and any external funding to be raised in USD.
We have incurred net losses since inception and to date have not generated any revenue from the design, development, manufacturing, engineering and sale or distribution of electric aircraft. Commensurate with being in the development phase of our journey to commercialization of the VX4, we have invested heavily in research to support the development of our aircraft. As of December 31, 2022, we had £122.8 million of cash and cash equivalents on hand including short-term deposits. We maintain cash balances with financial institutions in excess of insured limits.
We have prepared a cash flow forecast and have considered our ability to continue as a going concern for the foreseeable future, being at least 12 months following the date of this Annual Report. Within the next 12 months following the date of this Annual Report, we expect our funding requirements to be approximately £90 million, which will be used primarily to fund the creation and testing of the prototype aircraft, support the certification process and invest in additional personnel across both engineering and support functions. Our forecast is based on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect.
We will need to raise additional capital to fund our future operations and remain as a going concern, before we use all of our existing resources. There can be no assurance that we will be able to obtain additional funding on acceptable terms and thus have sufficient funds to meet our funding requirements. As a result, the timely completion of financing is important for our ability to continue as a going concern when we have exhausted our existing resources.
64
These factors indicate that a material uncertainty exists that may raise significant doubt (or substantial doubt as contemplated by PCAOB standards) about our ability to continue as a going concern and therefore we may be unable to realize our assets and discharge our liabilities in the normal course of business. Please refer to note 2 to our consolidated financial statements for the year ended December 31, 2022 included elsewhere in this Annual Report.
Our future capital requirements will depend on many factors, including:
| ● | research and development expenses as we continue to develop our eVTOL aircraft; |
| ● | expenditures in the expansion of our testing and certification capacities; |
| ● | additional operating costs and expenses for production ramp-up and raw material procurement costs; |
| ● | general and administrative expenses as we scale our operations; |
| ● | interest expense from any debt financing activities; and |
| ● | selling and distribution expenses as we build, brand and market our electric aircraft. |
We received approximately $253 million in connection with the Business Combination, which included $94 million in proceeds from the PIPE Investment and $192 million from the Convertible Senior Secured Notes, which consummated substantially simultaneously with the Business Combination, net of transaction costs. In addition, as at December 31, 2022 we had received $8.5 million, and may receive up to approximately a further $87 million net of transaction costs in connection with and over the remaining three-year term of the Equity Subscription Line that commenced on August 5, 2022, which would further support our capital requirements towards our business milestones. see “Equity Subscription Line”.
We have also received conditional pre-orders and pre-order options, including from American Airlines, Avolon, Bristow, Iberojet, Virgin Atlantic and Marubeni, among others. Certain of these pre-orders require that the purchaser pay a pre-delivery payment, which is credited against any future amount due and payable. While the customer’s obligation to pay such pre-delivery payments is subject to various conditions, and they are expected to be refundable in certain circumstances, we expect to receive them prior to delivering aircraft to each customer.
Until we generate sufficient operating cash flow to cover our operating expenses, working capital needs and planned capital expenditures, or if circumstances evolve differently than anticipated, we expect to utilize a combination of available pre-delivery payments, government funding, plus equity and debt financing, to fund any future capital needs. We will need, and intend in 2023, to raise additional capital to fund our future operations and remain as a going concern. If we raise funds by issuing equity securities, there may be dilution to our shareholders. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of ordinary shares. If we raise funds by issuing debt securities, these debt securities may have rights, preferences, and privileges senior to those of preferred and common shareholders. The terms of debt securities or borrowings may impose significant restrictions on our operations. Adequate additional financing may not be available to us on acceptable terms, or at all. The capital markets have in the past, and may in the future, experience periods of upheaval and the availability and cost of equity and debt financing may be impacted by global macroeconomic conditions such as international political conflict, supply chain issues and rising inflation and interest rates. Further, the global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. All of these factors could impact our liquidity and future funding requirements, including but not limited to our ability to raise additional capital when needed on acceptable terms, if at all. The duration of this economic slowdown is uncertain and the impact on our business is difficult to predict.
65
Our principal uses of cash in recent periods have been funding our research and development activities and other personnel costs. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from our customers, the expansion of sales and marketing activities, the timing and extent of spending to support our development efforts. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing we may not be able to raise such financing on acceptable terms or at all. If we are unable to raise additional capital or generate cash flows necessary to continue our research and development and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition. If adequate funds are not available, we may need to reconsider our expansion plans or limit our research and development activities, which could have a material adverse impact on our business prospects and results of operations.
Convertible Senior Secured Notes
On October 26, 2021, we entered into the Convertible Senior Secured Notes Subscription Agreement by and among the Company, Broadstone and the Convertible Senior Secured Notes Investor. Concurrently with the consummation of the Business Combination, pursuant to the terms of the Convertible Senior Secured Notes Subscription Agreement, (i) the Convertible Senior Secured Notes Investor purchased Convertible Senior Secured Notes of and from the Company in an aggregate principal amount of $200,000,000 for an aggregate purchase price of $192,000,000 (the “Purchase Price”), and the Company issued and sold to the Convertible Senior Secured Notes Investor the Convertible Senior Secured Notes in consideration for the payment of the Purchase Price, and (ii) the Company issued to the Convertible Senior Secured Notes Investor the Convertible Notes Warrants.
The Convertible Senior Secured Notes are initially convertible into up to 18,181,820 ordinary shares (excluding any interest, and subject to adjustments as provided in the Indenture) at an initial conversion rate of 90.9091 ordinary shares per $1,000 principal amount of Convertible Senior Secured Note, subject to adjustments to such rate as provided in the Indenture, at any time prior to the close of business on the second scheduled trading day immediately before the maturity date of the Convertible Senior Secured Notes.
Upon the occurrence of a Fundamental Change (as defined in the Indenture), then the Convertible Senior Secured Notes Investor has the right, at its option, to require us to repurchase for cash all or any portion of its Convertible Senior Secured Notes in principal amounts of $1,000 or an integral multiple thereof, at a fundamental change repurchase price equal to the principal amount of the Convertible Senior Secured Notes to be repurchased plus, if repurchased before the second anniversary of issuance, certain make-whole premiums, plus accrued and unpaid interest to, but excluding, the repurchase date.
The Convertible Senior Secured Notes bear interest at the rate of 7.00% per annum if we elect to pay interest in cash or 9.00% per annum if we elect to pay interest in-kind, and interest is paid semi-annually in arrears. As of December 31, 2022, the Company elected to pay all incurred interest in-kind in an amount equal to $18,353 thousand. Upon the occurrence, and during the continuation, of an event of default, an additional 2.00% will be added to the stated interest rate. The Convertible Senior Secured Notes will mature on the fifth anniversary of issuance and will be redeemable at any time by us, in whole but not in part, for cash, at par plus, if redeemed before the second anniversary of issuance, certain make-whole premiums as specified in the indenture governing the Convertible Senior Secured Notes. The Convertible Senior Secured Notes Subscription Agreement also contains other customary representations, warranties, covenants and agreements of the parties thereto.
Equity Subscription Line
On August 5, 2022, we entered into the Purchase Agreement and Nomura Registration Rights Agreement with Nomura. Pursuant to the Purchase Agreement, we have the right to sell to Nomura up to $100 million in aggregate gross purchase price of our newly issued ordinary shares from time to time during the three-year term of the Purchase Agreement (the “Equity Subscription Line”). The purchase price of our ordinary shares that we elect to sell Nomura pursuant to the Purchase Agreement is determined by reference to the volume weighted average price of the ordinary shares (“VWAP”) during an applicable purchase period on the day of the applicable purchase date for which we have timely delivered written notice to Nomura directing it to purchase ordinary shares under the Purchase Agreement, less a fixed 4.25% discount to such VWAP. Sales of ordinary shares pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to Nomura under the Purchase Agreement. Pursuant to the Nomura Registration Rights Agreement, we filed a registration statement with the SEC registering 20 million ordinary shares of the Company to be sold to Nomura under the Purchase Agreement. As of December 31, 2022, we had sold approximately 1.1 million ordinary shares of the 20 million ordinary shares registered for resale under the Equity Subscription Line at a weighted average share price of $7.70, net of transaction costs.
66
UK Future of Flight Funding
During the year ended December 31, 2022, we were awarded £2.3 million funding from the U.K. Government under its Future of Flight Challenge to help to build the UK’s AAM ecosystem.
Aerospace Technology Institute (“ATI”) Grant Funding Programme
VAGL expects to be the recipient of an ATI grant from the U.K. Government totaling up to £14.3 million from the U.K.’s announced aggregate investment of £113 million in hydrogen and all-electric flight technologies across all grant recipients. This grant will be paid in installments over the duration of the project, which is expected to be approximately three years. The grant will be used by the Company to develop a prototype propulsion battery system for aerospace applications, including as part of the Company’s eVTOL aircraft. Receipt of the grant is subject to the issuance by the applicable government agency of the formal grant offer letter and entry into by the Company of a collaboration agreement with a university partner, both of which events the Company expects to occur by March 31, 2023, and is also subject to the terms and conditions of the award set out in the grant offer letter (which include, among others, that the ATI funding will contribute only 50% of the Company’s eligible costs in connection with the prototype battery development).
Cash Flows
The following table presents the summary consolidated cash flow information for the periods presented.
Year Ended December 31, | ||||
| 2022 |
| 2021 | |
(in £ thousands) | ||||
Net cash used in operating activities |
| (103,714) |
| (27,550) |
Net cash used in investing activities |
| (62,957) |
| (3,354) |
Net cash from financing activities |
| 7,249 |
| 244,713 |
Net cash used in operating activities
Net cash used in operating activities increased by £76,164 thousand, or 276%, from £27,550 thousand for the year ended December 31, 2021 to £103,714 thousand for the year ended December 31, 2022. This increase was primarily due to additional spend on research and development activities.
Net cash used in investing activities
Net cash used in investing activities increased by £59,603 thousand, or 1,777%, from £3,354 thousand for the year ended December 31, 2021 to £62,957 thousand for the year ended December 31, 2022. This increase was primarily due to the increase in funds placed on short term deposit.
Net cash from financing activities
Net cash from financing activities decreased by £237,464 thousand, or 97%, from £244,713 thousand for the year ended December 31, 2021 to £7,249 thousand for the year ended December 31, 2022. This decrease was primarily due to proceeds in the year ended December 31, 2021 from the Business Combination including proceeds from the PIPE Financing and from the issuance of the Convertible Senior Secured Notes.
Material Cash Requirements for Known Contractual and Other Obligations
We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the consolidated balance sheet as of December 31, 2022, while others are considered future commitments. Our contractual obligations primarily consist of research and development expenditure incurred in the advancement of our aircraft programme. For information regarding our lease obligations, refer to note 18, Leases to our consolidated financial statements included elsewhere in this Annual Report.
67
C.Research and Development, Patents and Licenses, etc.
See note 7 to our consolidated financial statements included elsewhere in this Annual Report.
D.Trend Information
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events since December 31, 2022 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E.Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with IFRS, as issued by the IASB. In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates. Our critical accounting estimates and judgments are described in note 3, Critical accounting judgements and key sources of estimation uncertainty, to our consolidated financial statements included elsewhere in this Annual Report.
Item 6.Directors, Senior Management and Employees
A.Directors and Senior Management
The following table presents information about our current executive officers, senior management members and board members, including their ages as of the date of this Annual Report:
Name |
| Age |
| Position |
Executive Officers |
|
|
|
|
Stephen Fitzpatrick |
| 45 |
| Chief Executive Officer and Board Member |
John Martin |
| 56 |
| Chief Financial Officer |
Other Senior Management |
|
| ||
Michael Cervenka | 47 | Chief Technology Officer | ||
Eduardo Dominguez Puerta | 44 | Programme Lead and Chief Commercial Officer | ||
David King | 57 | Chief Engineer | ||
Board Members | ||||
Dómhnal Slattery |
| 56 |
| Chairman |
Kathy Cassidy |
| 69 |
| Board Member |
Gur Kimchi |
| 54 |
| Board Member |
Michael Flewitt |
| 60 |
| Board Member |
Vincent Casey |
| 40 |
| Board Member |
Unless otherwise indicated, the current business addresses for our executive officers and the members of our board of directors is c/o Vertical Aerospace Ltd., Unit 1 Camwal Court, Chapel Street, Bristol BS2 0UW, United Kingdom.
Executive Officers
The following is a brief summary of the business experience of our executive officers.
Stephen Fitzpatrick has served as our Chief Executive Officer since our founding in 2016, and as a member of our board of directors since May 2021. Prior to founding the Company, Mr. Fitzpatrick founded OVO Group Ltd., a leading energy supply group that includes Europe’s largest independent energy retailer, and has served as the Group Chief Executive Officer of OVO Group Ltd. since 2008. Mr. Fitzpatrick serves as a director for a number of privately held companies, including Imagination Industries Incubator Limited. Mr. Fitzpatrick holds a Master’s degree in Business and Finance from the University of Edinburgh.
68
John Martin has served as our Chief Financial Officer since February 2023. Prior to joining the Company, Mr. Martin was Chief Financial Officer and subsequently Chief Executive Officer of the FTSE 100 distribution business Ferguson plc (formerly Wolseley plc). Mr. Martin has spent thirty years in senior executive roles in large, international companies including as CFO of FTSE 250 Hays plc, CFO at Travelex Group and Group Controller of The Stationery Office Group and Partner at Alchemy Private Equity Partners. Mr. Martin is currently also a non-executive director of FTSE 100 technology business, Ocado Group plc. Mr. Martin is a Chartered Accountant, having worked at Arthur Andersen for nine years, and holds a Bachelor of Science in Metallurgy and Materials from Imperial College London.
Other Senior Management
Michael Cervenka has served as our Chief Technology Officer since January 2023 and has been on our management team since June 2019. Prior to joining the Company, Mr. Cervenka spent 20 years at Rolls-Royce serving in a number of roles including Head of Future Business Technologies, Program Lead (Civil Large Engine Cost Transformation Program) and Chief Development Engineer (Civil Large Fleet Engines). Mr. Cervenka participated in the Executive Leadership Program at the Tuck School of Business at Dartmouth from 2018 to 2019. Mr. Cervenka also holds a Bachelor of Engineering (First Honors) in Aeronautical Engineering from Bristol University. Mr. Cervenka is a Chartered Engineer, a Fellow of the Royal Aeronautical Society and Member of the Institute of Mechanical Engineers.
Eduardo Dominguez Puerta has served as our Programme Lead since 2022 and our Chief Commercial Officer since 2021. Prior to joining the Company, Mr. Dominguez Puerta spent 20 years at Airbus, where he was Chief Executive Officer of Airbus Urban Air Mobility and led all eVTOL-related efforts, from technologies to operations. Mr. Dominquez Puerta holds a Master’s degree in Mechanical Engineering from ICAI, Universidad Pontificia de Comillas.
David King has served as our Chief Engineer since February 2023. Prior to joining the Company, Mr. King spent thirty years in senior roles at Leonardo, Bell and Boeing. Mr. King’s last role at Leonardo was as Chief Engineer on the AW609, set to be the first new category aircraft to be certified in over 50 years. Mr. King was also Chief Engineer at Bell and launched its commercial helicopter design and certification project, the Bell 525. Mr. King holds a Bachelor of Science in Mechanical Engineering from Lehigh University and a Master of Science in Aeronautics & Astronautics from MIT.
Board Members
The following is a brief summary of the business experience of our non-executive board members.
Dómhnal Slattery has served as the chairman of our board of directors since January 2022. Mr. Slattery is one of the world’s leading aircraft leasing pioneers and has over 30 years of experience in the aircraft leasing industry. From 2010 to 2022, Mr. Slattery served as the Chief Executive Officer of Avolon, a global leader in aircraft leasing. Mr. Slattery has a track record of establishing and scaling industry leading leasing businesses, rapidly building market-leading aircraft leasing platform including the successful establishment of IAMG, RBS Aviation Capital (now SMBC Aviation) and Avolon through three business cycles – from the early 1990s to today. Mr. Slattery has received multiple awards that honor his achievement and contribution to the aviation industry, including the award for “Outstanding Contribution to the Aviation Industry” at the Aviation Industry Awards and the Lewis L Glucksman Award for Ethical Leadership for his contribution to aviation, entrepreneurship and the arts from Glucksman Ireland House NYU. Mr. Slattery holds a Bachelor’s degree from University College Galway and completed the Accelerated Development Program from the London Business School.
69
Kathy Cassidy has served as a member of our board of directors since December 2021. Since 2015, Ms. Cassidy has been a board member for the Goldman Sachs Mutual Funds Complex, where she oversees more than 100 of Goldman’s registered funds. She also chairs the Audit Committee and sits on the Governance and Compliance Committees for the Goldman Sachs Mutual Funds Complex. Ms. Cassidy previously served for thirty years at General Electric in a variety of executive positions, including serving as Senior Vice President and Treasurer for both GE and GE Capital prior to her retirement in 2015. Prior to her time at GE Treasury, Ms. Cassidy held executive leadership positions in Strategic Ventures & Mexico in GE Capital Real Estate, and prior to this, she built the Real Estate Capital Markets Business. Earlier in her career, she served as the CFO for several of GE Capital’s Business Divisions. Ms. Cassidy also served on the GE Capital Board and the GE Corporate Executive Council for ten years. Ms. Cassidy previously served on the University of Connecticut Foundation Board and the S&P Corporate Advisory Board, and she has been a noted speaker at numerous events, symposiums and forums. For more than ten years, Ms. Cassidy served on the board of BuildOn, a not-for-profit, global organization focused on building schools in seven of the most impoverished nations in the world and working with numerous large cities on after-school youth leadership programs in some of the most challenging school districts in the United States. Ms. Cassidy holds both an MBA from Fordham University as well as a B.A. in Economics from the University of Connecticut.
Gur Kimchi has served as a member of our board of directors since December 2021. Mr. Kimchi currently sits on the board of directors for several privately held companies, including Ascent Aerosystems since November 2020. Mr. Kimchi served as Vice President at Amazon.com, Inc. from 2012 to 2020, where he co-founded the Amazon Prime Air delivery-by-drone project and led the organization to its FAA certification as a Part 135 commercial airline. Prior to Amazon, Mr. Kimchi served in a number of different roles at Microsoft where he was integral in the development of key technologies including Virtual Earth & Bing Maps, Contextual & Geosocial search, Cloud Infrastructure, Augmented and Virtual Reality, and Enterprise Communications. Mr. Kimchi is a founding member of the Federal Aviation Administration Drone Advisory Committee and worked in collaboration with the FAA, SESAR, NASA, and ICAO on the development of the Federated Airspace Management Architecture, enabling the safe integration of Unmanned Aircraft Systems and Urban Air Mobility into the airspace around the world.
Michael Flewitt has served as a member of our board of directors since July 2022. Mr. Flewitt previously served as the CEO of McLaren Automotive for eight years until October 2021 and was instrumental in driving McLaren Automotive’s growth to become one of the world’s leading luxury supercar brands. Prior to joining McLaren, Mr. Flewitt spent nine years at Ford as both Vice President, Manufacturing, Ford Europe, and Corporate Officer, Ford Motor Company. Before joining Ford, he held senior manufacturing and operations roles at TWR Group Limited, AutoNova AB (Volvo) and Rolls-Royce and Bentley Motor Cars Limited. Mr. Flewitt an alumnus of Salford University having qualified in Manufacturing and Mechanical Engineering in 1987, completed a post-graduate qualification in Management and Project Management in 1996 and received an Honorary Doctorate from University of Salford in 2017.
Vincent Casey served as our Chief Financial Officer from November 2020 until February 2023, and has served as a member of our board of directors since May 2021. Prior to this period, Mr. Casey has served in a number of roles at OVO Group, a leading energy supply group that includes Europe’s largest independent energy retailers. Mr. Casey has recently returned to OVO Energy in an executive capacity, now serving as the Chief Financial Officer. Mr. Casey sits on the board of directors for a number of privately held companies. Mr. Casey holds a Master of Engineering (First Class Honors) in Mechanical Engineering from the University of Southampton. Mr. Casey is a Chartered Financial Analyst and Chartered Alterative Investment Analyst.
B.Compensation
Executive Officer and Board Member Compensation
Our policies with respect to the compensation of our executive officers are administered by our board of directors in consultation with our compensation committee (as described under “—C. Board Practices—Compensation Committee”). The compensation decisions regarding the Company’s executives are based on the Company’s need to retain those individuals who continue to perform at or above our expectations and to attract individuals with the skills necessary for us to achieve our business plan. We intend to be competitive with other similarly situated companies in its industry.
Equity-based compensation is and is expected to be an important foundation in executive compensation packages. We believe that equity-based compensation can be an important component of the total executive compensation package for maximizing shareholder value while, at the same time, attracting, motivating and retaining high-quality executives.
70
In connection with his role as a member of our board of directors and as an executive officer, Stephen Fitzpatrick does not receive any compensation. In connection with his role as an executive officer, Mr. Martin will receive a combination of cash and equity compensation. Our compensation committee is charged with performing an annual review of our executive officers’ cash and equity compensation to determine whether they provide adequate incentives and motivation to executive officers and whether they adequately compensate the executive officers relative to comparable officers in other companies. In addition to the guidance provided by our compensation committee, we may utilize the services of third parties from time to time in connection with the hiring and compensation awarded to executive employees. This could include subscriptions to executive compensation surveys and other databases.
Dómhnal Slattery will receive cash for his services as a member and chairman of our board of directors. In addition, in connection with Mr. Slattery’s services as a member and chairman of our board of directors, the Company and Mr. Fitzpatrick entered into an option agreement with Mr. Slattery, pursuant to which Mr. Slattery received an option to require Mr. Fitzpatrick to sell and Mr. Slattery to purchase up to an aggregate of 1,175,000 ordinary shares of the Company, with an exercise price of $0.0001 per share, with the option to expire on January 25, 2029. Kathy Cassidy, Michael Flewitt and Gur Kimchi will receive a combination of cash and equity compensation for their services as members of our board of directors. Vincent Casey will receive cash compensation for his service as a member of our board of directors.
Our compensation committee will consider adopting formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and equity compensation, or among different forms of compensation.
For the fiscal year ended December 31, 2022, the aggregate cash compensation paid to the Company’s executive officers was £1,154 thousand and the aggregate cash compensation paid to the Company’s non-executive directors was £479 thousand. For grants of options to our executive officers and directors under our 2021 Incentive Award Plan and under the EMI Option Agreements, see “—Incentive Programs—EMI Option Agreements—Options Granted under the EMI Option Agreements,” and “—Incentive Programs—2021 Incentive Award Plan—Options Granted under the 2021 Incentive Plan.” We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors.
Incentive Programs
EMI Option Agreements
Overview
Certain employees of the Company or its subsidiaries were granted options under option agreements (the “EMI Option Agreements”) which, where permitted, are intended to be tax qualifying enterprise management incentive options under Schedule 5 of the UK Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). The purpose of the EMI Option Agreements was to grant options to recruit or retain eligible employees.
Summary of the EMI Option Agreements
This section summarizes certain principal features of the EMI Option Agreements. The summary is qualified in its entirety by reference to the complete text of the form of EMI Option Agreement attached as Exhibit 4.4 to this Annual Report.
Authorized Shares. 21,656,655 ordinary shares were reserved for issuance pursuant to options granted under the EMI Option Agreements. To the extent that any options granted under the EMI Option Agreements would cause the individual limit specified in paragraph 5 or 6 of Schedule 5 ITEPA to be exceeded, the number of ordinary shares which exceeds the individual limit will form part of a non-qualifying stock option.
71
Awards. The EMI Option Agreements provide for options to be granted over ordinary shares. Share options are rights to purchase ordinary shares at a specified price (the exercise price). The options granted are intended to be EMI Options and are subject to specific restrictions and limitations set out in Schedule 5 ITEPA. The options granted are intended to be EMI Options and are subject to specific restrictions and limitations set out in Schedule 5 ITEPA. Among such restrictions, EMI Options must have an exercise price of not less than the fair market value of an ordinary share on the date of grant. EMI Options will only be granted to eligible employees (employees who work at least 25 hours per week or, if less, 75% of their working time and do not hold a material interest in the company), and will not be exercisable after a period of ten (10) years measured from the date of grant. EMI Options are also subject to individual (a limit of no more than £250,000 (as at the date of grant) worth of shares subject to EMI and CSOP options granted within a three year period) and aggregate (a company limit of no more than £3,000,000 (as at the date of grant) worth of shares (valued at the respective times of grant) subject to unexercised EMI options) limits under paragraphs 5 to 7 (inclusive) of Schedule 5 ITEPA. The options granted under the EMI Option Agreements have been granted pursuant to certain time and performance based vesting conditions.
Transferability of Awards.Subject to any rights of the participant to exercise the option following the participant’s death, the options granted pursuant to the EMI Option Agreements are personal to the participant and will not be capable of being transferred, assigned or charged.
Amendment and Termination. Our board of directors may amend the EMI Option Agreements by resolution provided that (i) no alteration will be effective to cancel or alter adversely any subsisting rights of the participant unless such alteration is made with the prior written consent of the participant; and (ii) no amendment will have effect if it would prevent an option from satisfying the provisions of Schedule 5 ITEPA. Our board of directors may amend the EMI Option Agreements without participant consent, as they consider necessary or desirable in order to make them more effective or easier to administer, comply with or take account of the provisions of any proposed or existing legislation, to take account of any takeover, listing or sale of the Company or to maintain favorable tax or regulatory treatment for the Company or the participant.
Adjustment of Awards. In the event of any variation of the Company’s share capital (which includes any variation in the share capital of the Company arising from any reduction, sub-division, consolidation of capital or issue of shares by way of capitalization of profits or reserves or by way of rights or demerger or any other variation of share capital of the Company on any distribution in specie or any special dividend) the EMI Agreements provide that the number or nominal value of the Shares comprised in the Option and/or the exercise price may be adjusted in such manner as the board of directors may deem appropriate provided that no material increase will be made to the aggregate exercise price in respect of the option. Notice of any adjustments will be given in writing to the participants.
Rights as a Shareholder. A participant will not have any rights as a shareholder as to the shares covered by an option until the holder becomes the record owner of such shares.
Administration. The compensation committee of our board of directors will administer the options granted under the EMI Option Agreements. The decision of the board of directors in relation to any dispute or question affecting the participant or as to any rights or obligations pursuant to the EMI Option Agreements or in relation to their construction or effect will be final and conclusive.
Options Granted Under the EMI Option Agreements
The following executive officers and directors of the Company held EMI Options (both vested and unvested) as of December 31, 2022:
Total | Number of | ||||||||||
Number of | Exercise | Options | |||||||||
Participant |
| Options |
| Grant Date(1) |
| Vesting Date |
| Price |
| Outstanding | |
Vincent Casey | 7,501,407(2) | March 15, 2022 | 100% vested on March 15, 2022 | $ | 0.04 | 7,234,090 | |||||
Michael Cervenka | 5,740,525(3) | March 15, 2022 | Quarterly vesting from July 1, 2021 to June 30, 2025; 100% vested on June 30, 2025 | $ | 0.23 | 5,736,744 | |||||
(1) | During the year ended December 31, 2021, each of Mr. Casey and Mr. Cervenka held share options granted over shares in VAGL. On March 15, 2022, each of Mr. Casey and Mr. Cervenka entered into an option agreement with the Company as a replacement option agreement for share options previously granted over shares in VAGL that were exchanged for options of equivalent value over ordinary shares in the Company. The share amounts and exercise price information in the above table have been adjusted and represent the replacement values. As of December 31, 2021, Mr. Casey held an option over 6,160 shares of VAGL, with an exercise price of £38.22. As of December 31, 2021, Mr. Cervenka held an option over 4,714 shares of VAGL, with an exercise price of £204.00. |
72
(2) | 1,347,295 of the shares subject to the option are subject to certain transfer and other restrictions as set forth in form of EMI Option Agreement attached as Exhibit 4.4 to this Annual Report. |
(3) | 1,031,031 of the shares subject to the option are subject to certain transfer and other restrictions as set forth in form of EMI Option Agreement attached as Exhibit 4.4 to this Annual Report. |
As of December 31, 2022, the following executive officers and directors of the Company had exercised their EMI Options as follows:
| Total |
|
|
| ||||||
Number of | ||||||||||
Options | Exercise | Exercise | Number of Options | |||||||
Participant | exercised | Date | Price | Outstanding | ||||||
Vincent Casey |
| 267,317 | October 17, 2022 | $ | 0.04 |
| 7,234,090 | |||
Michael Cervenka |
| 3,781 | October 17, 2022 | $ | 0.23 |
| 5,736,744 | |||
2021 Incentive Award Plan
Overview
The 2021 Incentive Award Plan (the “2021 Incentive Plan” or the “Plan”) was adopted by the Company’s board of directors on December 9, 2021 and the Company’s shareholders on December 14, 2021. The 2021 Incentive Plan was later amended and restated by the Compensation Committee on January 27, 2023. The 2021 Incentive Plan provides for the grant of share options, conditional awards and/or phantom awards in order to facilitate the grant of cash and equity incentives to its directors, employees (including executive officers) and consultants and its affiliates and to enable it and certain of its affiliates to obtain and retain services of these individuals, which is essential to our long-term success.
Purpose of the 2021 Incentive Plan
The purpose of the 2021 Incentive Plan is to attract, retain and motivate selected employees, consultants and directors through the granting of share-based compensation awards, including without limitation, options, conditional awards, and phantom awards. These may be granted in the form of tax-advantaged awards in certain jurisdictions. We believe that grants of incentive awards are necessary to enable us to attract and retain top talent.
Summary of the 2021 Incentive Plan
This section summarizes certain principal features of the 2021 Incentive Plan. The summary is qualified in its entirety by reference to the complete text of the 2021 Incentive Plan.
Authorized Shares. Under the 2021 Incentive Plan, 12,427,964 ordinary shares are reserved for issuance pursuant to a variety of share-based compensation awards, including options, conditional awards, and phantom awards. The number of shares reserved for issuance under the 2021 Incentive Plan will automatically increase on January 1 of each calendar year from January 1, 2022 through January 1, 2032, by that number of shares equal to the lesser of (i) 5% of the shares of all of the classes of the Company’s ordinary shares outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares as determined by the board of directors of the Company; provided, however that no more than 12,427,964 shares may be issued upon the exercise of incentive share options (“ISOs”). The sum of the grant date fair value of equity-based awards and the amount of any cash-based awards granted to a non-employee director during any calendar year shall not exceed $500,000. The shares covered by the 2021 Incentive Plan may be authorized but unissued shares, treasury shares or shares purchased in the open market.
The following counting provisions will be in effect for the share reserve under the 2021 Incentive Plan:
| ● | to the extent that an award is forfeited, expires, is converted to shares of another person in connection with a recapitalization, reorganization, merger, consolidation, split-up, combination, exchange of shares, spin-off or other similar event, or an award is settled for cash (in whole or in part), any shares subject to the award at such time will be available for future grants of awards under the 2021 Incentive Plan; |
73
| ● | Shares tendered in payment of the exercise price of an option or to satisfy any tax withholding obligation with respect to any award will be available for future grants under the 2021 Incentive Plan; |
| ● | to the extent that shares awarded under the 2021 Incentive Plan are purchased on the open market by the Company with the cash proceeds received from the exercise of options, such shares will be available for future grants under the 2021 Incentive Plan; |
| ● | the payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2021 Incentive Plan; and |
| ● | to the extent permitted by applicable law or any exchange rule, shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any of its affiliates will not be counted against the shares available for issuance under Plan, except as may be required by reason of Section 422 of the Code. |
Administration. Our board of directors, the compensation committee of our board of directors, or another committee authorized by it (the “administrator”) will administer the 2021 Incentive Plan. All decisions of the administrator in connection with the 2021 Incentive Plan and its interpretation and the terms of any awards (including in any dispute) will be final and conclusive. The 2021 Incentive Plan provides that our board of directors may delegate any and all of its rights and powers under the 2021 Incentive Plan.
Eligibility. The 2021 Incentive Plan provides that awards may be granted to individuals who will then be officers, employees or consultants of the Company or any of the Company’s affiliates. The 2021 Incentive Plan further provides that such awards may also be granted to directors of the Company. The administrator determines which of such officers, employees, consultants and directors will be granted awards. No person is entitled to participate in the 2021 Incentive Plan as a matter of right. Only those officers, employees, consultants and directors who are selected to receive grants by the administrator may participate in the 2021 Incentive Plan. Participants are not required to pay money in order to receive awards under the 2021 Incentive Plan, but may be required to pay an exercise price in order to receive the shares underlying their awards.
Awards Available for Grant. The 2021 Incentive Plan provides that the administrator may grant or issue options, conditional awards, or phantom awards. Such awards may be granted in a form that is tax-advantageous in certain jurisdictions. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the award date, the award type, the number of shares of stock subject to the award, the vesting date, in the case of an option the exercise period and any amount payable to exercise the option, any performance conditions, details of any other conditions, whether dividend equivalents will apply, details of any holding period and whether the participant may be required to enter into any election for a particular tax treatment. Vesting provisions require certain conditions to be met, such as continued employment or specified performance goals, before a participant may receive the shares underlying an award or before such shares become freely tradeable and nonforfeitable.
Share Options. Share options are rights to purchase shares at a specified price, if applicable (the exercise price).
Options usually will become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participant’s continued employment or service with the Company or one of its subsidiaries and/or subject to the satisfaction of performance and/or other conditions established by the administrator. The 2021 Incentive Plan provides that options may be granted for any term specified by the administrator that does not exceed ten (10) years from the date of stockholder approval of the 2021 Incentive Plan.
Options may be exercised only by delivering (1) a written notice of exercise in a form approved by the administrator (which may be electronic) complying with the applicable rules established by the administrator, (2) such representations and documents as the administrator, in its sole discretion, deems necessary or advisable, (3) in the event the option is exercised by a person other than the participant, appropriate proof of the right of such person or persons to exercise the option, as determined in the sole discretion of the administrator, and (4) full payment of any exercise price (if applicable) and applicable withholding taxes in the manner permitted by the administrator in accordance with the 2021 Incentive Plan. Additional instructions for exercising share options will be provided separately. Unless otherwise specified by the administrator or as otherwise directed by a participant in writing to the Company, vested options shall be automatically exercised on the last day of their term.
74
The 2021 Incentive Plan allows for the grant of options as U.S. tax-advantaged incentive share options (“ISOs”), but only to employees of the Company and certain subsidiaries. ISOs will be designed in a manner intended to comply with the provisions of Section 422 of the Code and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs will have an exercise price of not less than the fair market value of a Share on the date of grant. ISOs will only be granted to employees, and will not be exercisable after a period of ten (10) years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of the Company’s share capital, the 2021 Incentive Plan provides that the exercise price must be at least 110% of the fair market value of a Share on the date of grant and that the ISO must not be exercisable after a period of five (5) years measured from the date of the grant. Following the exercise of an ISO, a holder must give the Company notice of any disposition of Shares acquired by exercise of an ISO within (a) two years from the date of grant of the ISO or (b) one year after the transfer to the holder of the shares subject to the ISO.
CSOP. The 2021 Incentive Plan allows for the grant of options as UK tax-advantaged “company share options” (“CSOP”), but only to employees of the Company. CSOP awards will be designed in a manner intended to comply with the provisions of Schedule 4 to ITEPA and will be subject to specified restrictions contained in that Act.
Among such restrictions, CSOP awards may only be granted so that the total market value at grant of shares subject to the CSOP award does not exceed £60,000 (£30,000 for CSOPs granted before April 6, 2023). In addition, the CSOP award must be held for a period of 3 years in order to qualify for the relevant CSOP tax treatment. The Company may also impose additional conditions.
Conditional Awards. Conditional awards may be awarded to any eligible individual selected by the administrator, typically without payment of consideration, but subject to vesting conditions based on continued employment or service. Vesting may also be subject to performance and/or other conditions. At the time of grant, the administrator will specify the vesting date for each grant of conditional awards. As soon as practicable following the vesting date, the shares underlying the conditional awards or, in the sole discretion of the administrator, an equivalent amount of cash or a combination of cash and shares, will be transferred to the holder. Recipients of conditional awards generally will have no voting or dividends rights until the shares are transferred; provided, however, the administrator may include a right to receive dividend equivalents on conditional awards.
Macron Awards. The 2021 Incentive Plan allows for the grant of nil-cost conditional share awards as French tax-advantaged “Macron” awards, but only to employees and officers of a French group member who is taxable in France and/or subject to the French social security regime. Macron award will be designed in a manner intended to comply with the French Commercial Code (the “French Code”), and will be subject to specified restrictions contained in the Code.
Among such restrictions, the Macron awards must be granted for no consideration, and the Macron awards must be held for a period of at least 2 years in order to qualify for such tax treatment afforded under the French Code.
SIP Awards. The 2021 Incentive Plan allows for the grant of free shares and dividend shares as UK tax-advantaged “free share awards” and “dividend shares” (“SIP”), but only to UK resident taxpayer employees of a qualifying company. SIP awards will be designed in a manner intended to comply with the provisions of Schedule 2 to ITEPA and will be subject to specified restrictions contained in ITEPA.
Among such restrictions, the value of free share awards granted to eligible employees may not exceed £3,600 in any tax year. In addition, free share awards must be held in a UK trust on behalf of individuals and must be held for a period of between 3 and 5 years to receive the qualifying tax treatment. Dividend shares must be held for a period of 3 years to qualify for such tax treatment afforded under ITEPA.
Phantom Awards. The administrator may grant phantom awards, being a conditional right granted under the 2021 Incentive Plan to receive a cash sum linked to the value of a number of notional shares. Subject to the terms of the 2021 Incentive Plan, the administrator will determine the terms and conditions of each such award, including the term of the award, any exercise or purchase price, performance and/or other conditions, transfer restrictions, vesting conditions and other terms and conditions.
Dividend Equivalents. Awards may be granted subject to dividend equivalents, based on dividends declared on the shares, to be credited as of dividend payment dates during the period between the date the dividend equivalents are granted to a holder and vesting or exercise, as applicable. The 2021 Incentive Plan provides that dividend equivalents may be settled in cash or shares and at such times as determined by the administrator. Dividend equivalents with respect to an award will only be paid to the holder to the extent that the vesting conditions are subsequently satisfied and the award vests.
75
Overriding Discretion. The board of directors may reduce (including to zero) the extent to which an award will vest if it considers the extent of vesting would not otherwise be appropriate, including when considering:
| ● | the wider performance of the Company group; |
| ● | the conduct, capability or performance of the participant; |
| ● | the experience of stakeholders; |
| ● | any windfall gains; |
| ● | the total value that would otherwise be received by the participant compared to the maximum value that the award was intended to deliver; or |
| ● | any other reason at the discretion of the board of directors. |
Investigations. If an investigation is ongoing that might lead to malus and/or clawback being triggered in relation to a participant’s award, then, unless the board of directors decide otherwise:
| ● | the award will not vest; |
| ● | if it’s an option, exercise will be suspended; and |
| ● | where relevant, the award will not be settled, |
until the investigation is concluded.
Dealing Restrictions. If any dealing restrictions would prohibit the exercise of an option, delivering or arranging delivery of stock or cash to settle an award and/or the participant from selling stock, including if required to discharge tax, then:
| ● | any exercise will take effect as soon as practicable after the dealing restrictions cease to apply; |
| ● | if an exercise period would otherwise end before the dealing restrictions cease to apply, it will be extended to end 30 days after the dealing restrictions to apply; and |
| ● | the delivery of stock or cash to settle an award will not occur until the dealing restrictions cease to apply, |
unless the board of directors decides otherwise.
Holding Period. An award may be granted subject to a holding period following the date of vesting or exercise. If a holding period applies, the stock generally may not be transferred, assigned or otherwise disposed of during the holding period.
Leaving. Where a participant leaves before vesting the award will lapse on the date the participant leaves. If a participant leaves after vesting, in the case of an option, the option will be exercisable for a period of 6 months (12 in the case of the participant’s death) from the date the participant leaves (or such longer period as the board of directors decides) and will then lapse, unless otherwise determined by the board of directors.
Adjustment of Awards. In the event of a variation in the issued stock capital of Company, stock dividend or distribution, or any other transaction which the board of directors decides will materially affect the value of the stock the 2021 Incentive Plan provides that the administrator may make equitable adjustments, if any, to reflect such change with respect to:
| ● | the aggregate number and kind of shares that may be issued under the 2021 Incentive Plan, including adjustments to limits on the maximum number of shares that may be issued; |
| ● | the number and kind of shares (or other securities and property) subject to outstanding awards; |
76
| ● | the terms and conditions of outstanding awards (including without limitation, any applicable performance targets or criteria with respect to such awards); |
| ● | the grant or exercise price per share for any outstanding awards; and |
| ● | the number and kind of shares (or other securities or property) for which automatic grants are subsequently to be made to new and continuing non-employee directors in accordance with any non-employee director equity compensation policy. |
If the board of directors determines that an adjustment of an award is not practicable or appropriate, then it may determine that an award will vest on such terms as it determines.
Corporate events
Change of Control. Where a person obtains control of the Company as a result of making an offer to acquire stock, any awards which would vest, if applicable, in the 12 months following such change of control will vest on such date as the board of directors determines. Such awards will vest:
| ● | to the extent that the board of directors determines any applicable conditions have been satisfied, unless the board of directors determines otherwise; and |
| ● | the board of directors will have discretion to take into account any other factors it believes to be relevant in determining the extent to which an award will vest in the circumstances, |
and to the extent the award does not vest it will lapse. Where an option vests or was already vested it will be exercisable for a period of 6 months, or such other period as the board of directors decides, from the relevant event and then will lapse.
Schemes of arrangement and winding up. Where a court sanctions a compromise or arrangement in connection with the acquisition of stock, of a voluntary liquidation of the Company commences, or an order is made for the winding up of the Company, awards will vest on such date as the board of directors determines unless otherwise determined by the board of directors. Such awards will vest:
| ● | to the extent that the board of directors determines any applicable conditions have been satisfied, unless the board of directors determines otherwise; and |
| ● | the board of directors will have discretion to take into account any other factors it believes to be relevant in determining the extent to which an award will vest in the circumstances, |
and to the extent the award does not vest it will lapse. Where an option vests or was already vested it will be exercisable for a period of 6 months, or such other period as the board of directors decides, from the relevant event and then will lapse.
Exchange of Awards. Where a change of control or scheme of arrangement is expected to or does apply, or in connection with an internal reorganization, the board of directors may decide that awards will be exchanged for new awards, subject to the consent of the acquiring company, on the relevant event.
No Rights as Employee. Nothing in the 2021 Incentive Plan or in any award agreement forms part of a participant’s contract of employment or alters it, if applicable. The rights and obligations arising from any employment or former employment relationship are separate from, and are not affected by, the 2021 Incentive Plan. Participation in the 2021 Incentive Plan does not create any right to, or expectation of, employment.
Transferability of Awards. Awards are not transferable and a participant’s award will lapse if the participant transfers, assigns, charges or otherwise disposes of the award or any of the rights in respect of it, whether voluntarily or involuntarily (other than to that participant’s personal representatives on death).
Mobile Participants. If a participant moves from one jurisdiction to another or becomes tax resident in a different jurisdiction and, as a result, there may be adverse legal, regulatory, tax or administrative consequences for the participant and/or a member of the group in connection with an award then the board of directors may adjust that participant’s award so that the award is on such terms, subject to such conditions and over such stock as the board of directors may consider appropriate.
77
Certain Restrictions on Resale. If the participant is not considered the Company’s “affiliate,” as defined under the Securities Act, he or she may resell the shares acquired under the 2021 Incentive Plan without restriction. If the participant is considered the Company’s “affiliate,” which is likely if he or she is an officer, director or significant shareholder of the Company, he or she may resell such shares in compliance with the requirements of Rule 144 under the Securities Act without registration; however, the participant will be subject to the volume limitation restrictions set forth in Rule 144 under the Securities Act.
If, however, the participant is aware of material inside information regarding the Company or any aspect of the Company’s business, the participant cannot lawfully sell Shares, whether purchased through the 2021 Incentive Plan or otherwise, before the information has been disseminated by the Company to the public. Generally, “material inside information” is information that is both important to the Company (e.g., would likely impact the Company’s share price) and nonpublic (not yet disclosed through press releases, newspaper articles or otherwise to the public which buys and sells securities).
Tax Withholding. The Company may: (i) withhold such amounts from a participant and retain some or all of it; (ii) sell some or all of the shares to which a participant is entitled under the 2021 Incentive Plan on behalf of the participant; (iii) allow the participant to deliver a written or electronic notice for a market sell order with a broker with instructions for the broker to pay a sufficient portion of the net proceeds to the Company to satisfy any tax withholding; (iv) reduce some of the shares to which the participant is entitled under the 2021 Incentive Plan on behalf of the participant or make such other withholding arrangements as it considers necessary or desirable to meet any liability for taxation, to collect any outstanding exercise price and to meet any applicable dealing and/or currency exchange costs and other associated costs.
Malus and Clawback. Under the 2021 Incentive Plan, all awards (including any proceeds, gains or other economic benefit actually or constructively received by a participant upon any receipt or exercise of an award or upon the receipt or resale of any shares underlying the award) shall be subject to the Company’s Malus and Clawback Policy, as amended from time to time, including any provisions adopted to comply with the requirements of applicable law (including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act).
Changing the Plan and Termination. The 2021 Incentive Plan provides that the board of directors or the compensation committee, as applicable, may change the 2021 Incentive Plan at any time and from time to time; provided that, no change of the 2021 Incentive Plan shall generally, without the consent of the holder, materially and adversely affect any rights or obligations under any award theretofore granted or awarded. If a proposed change would be to the material disadvantaged of one or more participants in respect of existing rights under the 2021 Incentive Plan, then the board of directors will obtain the written consent of the affected participant or will invite each disadvantaged participant to indicate whether or not they approve the change and the majority of the participants who were invited and who make an indication approve the change. The board of directors does not need participant consent for any minor changes which are to: (i) benefit the administration of the 2021 Incentive Plan, (ii) comply with or take account of a change in legislation; and/or (iii) obtain or maintain favorable tax, exchange control or regulatory treatment of any member of the Company group or any present or future participant.
The 2021 Incentive Plan will generally require the Company to obtain shareholder approval to: (i) increase the limits imposed on the maximum number of shares available under the 2021 Incentive Plan, (ii) reduce the price per share of any outstanding option, (iii) in some circumstances, the cancellation of any option in exchange for cash or another award, or (iv) make any change which requires shareholder approval under applicable laws, including the rules of the New York Stock Exchange.
Expiration Date. The 2021 Incentive Plan will expire on, and no award will be granted pursuant to the 2021 Incentive Plan after December 14, 2031 (or such earlier date the Board decides). Any award that will be outstanding on the expiration date of the 2021 Incentive Plan will remain in force according to the terms of the 2021 Incentive Plan and the applicable award agreement.
Awards Granted Under the 2021 Incentive Plan
The following executive officers and directors of the Company held awards (both vested and unvested) as of December 31, 2022:
Total Number | Number of | |||||||
of | Shares/Options | |||||||
Participant |
| Shares/Options |
| Grant Date |
| Vesting Date |
| Outstanding |
Kathy Cassidy | 12,500 | December 16, 2022 | December 19, 2022 | 7,500 | ||||
Mike Flewitt | 6,250 | December 16, 2022 | December 19, 2022 | 6,250 |
78
Malus and Clawback Policy
We believe in maintaining a culture of focused, diligent and responsible management that discourages conduct detrimental to our growth. Consistent with that belief, our board of directors has adopted a “malus and clawback” policy to provide the board of directors with the discretion to recover cash incentives, equity awards or other compensation of at-fault employees.
Insurance and Indemnification
Insofar as indemnification of liabilities arising under the Securities Act may be permitted to executive officers and board members or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
C.Board Practices
Board of Directors
Our board of directors consists of six directors, three of whom, Kathy Cassidy, Gur Kimchi and Michael Flewitt, qualify as independent directors as defined in the NYSE listing requirements. Mr. Slattery serves as the chairman of the board of directors. Directors can be elected by an ordinary resolution of the shareholders. In addition, directors may be appointed either to fill a vacancy arising from the resignation of a former director or as an addition to the existing board by the affirmative vote of a simple majority of the directors present and voting at a board meeting. A director may be removed by a special resolution of the shareholders (i) for cause (as such term is defined in the Amended and Restated Memorandum and Articles of Association), or (ii) where the board of directors makes a determination that removal of a director is in the best interests of the Company. Each of our directors holds office until he or she resigns or is removed from office.
A director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he/she may be interested therein and if he/she does so, his/her vote shall be counted and he/she may be counted in the quorum at any meeting of the directors at which any such contract or proposed contract or arrangement is considered. Our board of directors may exercise all of the powers to borrow money, to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock or other securities whenever money is borrowed or as security for any of our debt, liability or obligation or of any third party. None of our directors has a service contract with us that provides for benefits upon termination of service as a director.
Duties of Board Members and Conflicts of Interest
Under Cayman Islands law, directors and officers owe the following fiduciary duties:
| ● | duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; |
| ● | duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; |
| ● | directors should not improperly fetter the exercise of future discretion; |
| ● | duty to exercise powers fairly as between different sections of shareholders; |
| ● | duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests; and |
| ● | duty to exercise independent judgment. |
In addition to the above, directors also owe a duty of care which is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and the general knowledge skill and experience of that director.
79
As set out above, directors have a duty not to put themselves in a position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position. However, in some instances what would otherwise be a breach of this duty can be forgiven and/or authorized in advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the Articles or alternatively by shareholder approval at general meetings.
Audit Committee
The audit committee, which consists of Kathy Cassidy and Michael Flewitt, assists the board in overseeing our accounting and financial reporting processes and the audits of our financial statements. Kathy Cassidy serves as Chairperson of the committee. The audit committee consists exclusively of members of our board who are financially literate, and Kathy Cassidy is considered an “audit committee financial expert” as defined by the SEC. Our board has determined that Kathy Cassidy and Michael Flewitt satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act. The audit committee is governed by a charter that is available on our investor relations website at investor.vertical-aerospace.com. The information contained on our website is not incorporated by reference in this Annual Report.
The audit committee is responsible for, among other things:
| ● | retaining and terminating our independent auditors; |
| ● | pre-approving audit and non-audit services to be provided by the independent auditors and related fees and terms; |
| ● | overseeing our accounting and financial reporting processes; |
| ● | overseeing audits of financial statements; |
| ● | preparing report with respect to the audited financial statements for inclusion in our annual reports; |
| ● | reviewing with management and the independent auditor its annual audited financial statements prior to filing to the SEC; |
| ● | assessing annually the independence of the auditor and the auditor’s internal quality-control procedures; |
| ● | discussing with the independent auditor any audit problems or difficulties and resolving disagreements between management and the independent auditor regarding financial reporting; |
| ● | discussing our policies with respect to risk assessment and risk management; |
| ● | establishing procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters; and |
| ● | designing and implementing our internal audit function and overseeing the internal audit function after its establishment. |
The audit committee meets at least once during each fiscal quarter. The audit committee meets separately, periodically, with management, with the independent auditor, with the personnel primarily responsible for the design and implementation of the internal audit function, and with the internal auditor after the internal audit function has been established.
Compensation Committee
The compensation committee, which consists of Kathy Cassidy and Vincent Casey, assists the board in determining executive officer compensation. Kathy Cassidy serves as Chairperson of the committee. The compensation committee is governed by a charter that is available on our investor relations website at investor.vertical-aerospace.com. The information contained on our website is not incorporated by reference in this Annual Report.
80
The compensation committee is responsible for, among other things:
| ● | identifying, reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and evaluating the Chief Executive Officer’s performance in light of these objectives and goals; |
| ● | reviewing and setting compensation for our other executive officers; |
| ● | reviewing and making recommending to the Board regarding director compensation; |
| ● | reviewing and approving or making recommendations to the board of directors regarding our incentive compensation plans. |
Nominating and Corporate Governance Committee
The nominating and corporate governance committee, which consists of Dómhnal Slattery and Michael Flewitt, assists our board of directors in identifying individuals qualified to become members of our board consistent with criteria established by our board and in developing our corporate governance principles. Michael Flewitt serves as Chairperson of the committee. The nominating and corporate governance committee is governed by a charter that is available on our investor relations website at investor.vertical-aerospace.com. The information contained on our website is not incorporated by reference in this Annual Report.
The nominating and corporate governance committee is responsible for, among other things:
| ● | identifying and recommending to the board of directors for its approval nominees for election of directors; |
| ● | reviewing annually the board committee structure and recommending to the board of directors for its approval directors to serve as members of each committee; |
| ● | overseeing annual self-evaluations of the board of directors and management; and |
| ● | reviewing and reassessing the adequacy of corporate governance guidelines and recommending proposed changes to the board of directors for approval. |
Certification Committee
The certification committee, which consists of Gur Kimchi and Michael Flewitt, assists our board of directors in its oversight of the successful and timely achievement of regulatory certification of the VX4 aircraft and provides guidance to our senior engineering personnel. Gur Kimchi serves as the Chairman of the committee. Our board of directors has adopted a certification committee charter setting forth the responsibilities of the committee. The members of the certification committee are appointed, and may be removed, by the board of directors with or without cause.
D. | Employees |
As of December 31, 2022, we had 330 employees (including one apprentice employee and 13 part-time employees), reflecting an increase from 237 employees as of December 31, 2021. The majority of our employees are based in the United Kingdom.
81
The table below sets out the number of employees by category:
| As of December 31, | |
Department | 2022 | |
Production, supply chain and operations |
| 37 |
Finance |
| 14 |
Innovation management and research and development |
| 222 |
Sales and Marketing |
| 7 |
Other(1) |
| 50 |
Total |
| 330 |
| (1) | Other includes IT, employees in our facilities (as described below), quality and human resources, among others. |
In line with industry standards in the country of employment, our employees maintain a range of relationships with union groups, although none of our employees are represented by a recognized labor union.
We have never experienced labor-related work stoppages or strikes and believe that our relations with our employees are satisfactory.
E.Share Ownership
For information regarding the share ownership of directors and officers, see Item 7.A. “Major Shareholders and Related Party Transactions—Major Shareholders.” For information as to our equity incentive plans, see Item 6.B. “Directors, Senior Management and Employees—Compensation—Incentive Programs.”
F.Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
Item 7.Major Shareholders and Related Party Transactions
A.Major Shareholders
The following table sets forth information relating to the beneficial ownership of our ordinary shares as of March 1, 2023 by:
| ● | each person, or group of affiliated persons, known by us to beneficially own 5% or more of our outstanding ordinary shares; |
| ● | each of our executive officers and our board of directors; and |
| ● | all of our executive officers and our board of directors as a group. |
The number of ordinary shares beneficially owned by each entity, person, executive officer or board member is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of March 1, 2023 through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares held by that person.
Unless otherwise indicated below, the address for each beneficial owner listed is Vertical Aerospace Ltd., Unit 1 Camwal Court, Chapel Street, Bristol BS2 0UW, United Kingdom.
82
For further information regarding material transactions between us and principal shareholders, see Item 7.B. “Major Shareholders and Related Party Transactions—Related Party Transactions.”
Name of beneficial owner(1) |
| Number |
| %(2) |
5% or Greater Shareholders |
| |||
Mudrick Capital Management L.P. (3) | 23,850,244 |
| 10.0% | |
American Airlines Inc.(4) |
| 11,250,000 |
| 5.3% |
Executive Officers and Board Members |
|
| ||
Stephen Fitzpatrick(5) |
| 150,552,010 |
| 70.3% |
John Martin |
| — |
| — |
Vincent Casey(6) |
| 6,221,209 |
| 2.8% |
Kathy Cassidy |
| 7,500 | * | |
Gur Kimchi | — |
| — | |
Dómhnal Slattery(7) |
| 3,213,415 |
| 1.5% |
Michael Flewitt(8) |
| 6,250 |
| * |
All executive officers and board members as a group (7 persons) (9) |
| 159,882,884 |
| 72.5% |
* | Indicates beneficial ownership of less than 1% of the total outstanding ordinary shares. |
| (1) | Except as otherwise indicated, and subject to applicable community property laws, we believe based on the information provided to us that the persons named in the table have sole voting and investment power with respect to all ordinary shares beneficially owned by them. |
| (2) | Percentage of outstanding shares is based on 214,211,021 of our ordinary shares, issued and outstanding as of March 1, 2023. |
| (3) | Based on information reported in a Schedule 13G/A filed on December 22, 2022 and other information known to the Company. Consists of: (a) 19,850,244 ordinary shares representing Convertible Senior Secured Notes Shares, and (b) the 4,000,000 ordinary shares issuable upon conversion of the Convertible Notes Warrants. The table above excludes 8,378,809 ordinary shares representing the maximum number of Convertible Senior Secured PIK Shares that may still be issuable to certain funds, investors, entities or accounts that are managed, sponsored or advised by Mudrick Capital Management, L.P. or its affiliates pursuant to the Convertible Senior Secured Subscription Agreement. Jason Mudrick is the founder, general partner and Chief Investment Officer of Mudrick Capital Management, L.P. Mr. Mudrick, through Mudrick Capital Management, L.P., is responsible for the voting and investment decisions relating to such Ordinary Shares. Each of the aforementioned entities and individuals disclaims beneficial ownership of the ordinary shares held of record by any other entity or individual explicitly named in this footnote except to the extent of such entity or individual’s pecuniary interest therein, if any. The address of each of the entities and individuals explicitly named in this footnote is c/o Mudrick Capital Management, L.P., 527 Madison Avenue, 6th Floor, New York, NY 10022. |
| (4) | Based on information reported in a Schedule 13G filed on December 21, 2021, American Airlines Inc. and American Airlines Group Inc. have shared voting and dispositive power over 11,250,000 of our ordinary shares. American Airlines Inc. is a wholly owned subsidiary of American Airlines Group Inc. As a result, American Airlines Group Inc. may be deemed to share beneficial ownership of the Shares held of record by American Airlines, Inc. The business address of both entities is 1 Skyview Drive, Fort Worth, Texas 76155. |
| (5) | Consists of 150,552,010 ordinary shares held directly by Mr. Fitzpatrick. This number includes 1,175,000 outstanding ordinary shares that are subject to an option to purchase such ordinary shares granted by Mr. Fitzpatrick to Dómhnal Slattery, none of which options had been exercised by Mr. Slattery as of March 1, 2023. |
| (6) | Consists of options to purchase 6,221,209 ordinary shares held by Mr. Casey that are exercisable within 60 days of March 1, 2023. |
| (7) | Consists of (i) 3,095,915 ordinary shares held by Maples Trustee Services (Cayman) Limited as the trustee of Avolon e Trust II, for which Mr. Slattery controls the voting and disposition of the ordinary shares, and (ii) an option to purchase 117,500 ordinary shares granted to Mr. Slattery by Stephen Fitzpatrick, which shares are currently held directly by Mr. Fitzpatrick, that are exercisable within 60 days of March 1, 2023. |
83
| (8) | Consists of options to purchase 6,250 ordinary shares held by Mr. Flewitt that are exercisable within 60 days of March 1, 2023. |
| (9) | Comprised of (i) 153,655,425 ordinary shares, and (ii) 6,227,459 ordinary shares underlying options that are exercisable within 60 days of March 1, 2023, which excludes the 117,500 ordinary shares underlying the option granted to Mr. Slattery by Mr. Fitzpatrick that are exercisable within 60 days of March 1, 2023, which had not been exercised by Mr. Slattery as of December 31, 2022, and were held directly by Mr. Fitzpatrick as of such date. |
The table above does not include the ordinary shares underlying the Virgin Atlantic Commercial Warrant Shares, the American Commercial Warrant Shares and the Avolon Commercial Warrant Shares because these securities are not exercisable within 60 days of this Annual Report.
Significant Changes in Ownership
To our knowledge, other than as disclosed in the table above, our other filings with the SEC, public disclosure, including without limitation Schedule 13 filings, and this Annual Report, there has been no significant change in the percentage ownership held by any major shareholder, with a holding of 5% or greater, since January 1, 2020.
Difference in Voting Rights
All of the Company’s ordinary shares have the same voting rights and no major shareholder of the Company has different voting rights.
Securities Held in the Host Country
Based on a review of the information provided to us by our transfer agent, as of December 31, 2022, there were 30 registered holders of our ordinary shares, 6 of which are United States registered holders (including Cede & Co., the nominee of the Depository Trust Company), holding approximately 15.68% of our outstanding ordinary shares. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held by brokers or other nominees.
Arrangements for Change in Control
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of the Company.
B.Related Party Transactions
The following is a description of our related party transactions since January 1, 2020.
Office Space Agreement with Imagination Industries Incubator Limited
VAGL entered into an office space agreement with i3 on January 1, 2022, pursuant to which i3 provides a dedicated number of desk space at the United House office in London to Vertical for £83,000 per annum. i3 is indirectly owned by Mr. Fitzpatrick, our Chief Executive Officer, director and majority shareholder.
John Martin contractual arrangement
On January 26, 2023, John Martin entered into an employment agreement with the Company to serve as Chief Financial Officer (the “CFO Employment Agreement”), effective as of February 20, 2023. Pursuant to the CFO Employment Agreement, which, among other things, specifies the compensation payable to Mr. Martin for his service, Mr. Martin agreed that by February 6, 2024, he will invest an aggregate amount of not less than $300,000 in the Company by acquiring from the Company, via one or more transactions, newly issued ordinary shares or such other securities as may be determined by the Company, at the then current market value.
84
Intercompany Loan Facility with Imagination Industries Limited
VAGL entered into an intercompany loan facility agreement with Imagination Industries Limited (“IIL”) on July 1, 2020 (the “Intercompany Loan Facility”). The terms of the Intercompany Loan Facility provide that Vertical may borrow from IIL such amounts in British pounds sterling as may be agreed from time to time. Interest on the outstanding balance of any loans under the Intercompany Facility accrue at a rate of 7% per annum. On December 31, 2020, the outstanding amount under the Intercompany Loan Facility was £6,309,000. On March 10, 2021, the Intercompany Loan Facility was amended to provide for interest to accrue at a rate of 30% per annum for all amounts advanced by IIL under the Intercompany Loan Facility, including past amounts. At the same time, VAGL agreed to repay £737,000 of the loan and reallocate the remaining amount due under the Intercompany Loan Facility, or £9,000,000, to Mr. Fitzpatrick. VAGL settled the loan by issuing 23,220 newly issued class A ordinary shares in the share capital of VAGL to Mr. Fitzpatrick. As of December 31, 2021, there were no amounts outstanding under the Intercompany Loan Facility. IIL is wholly owned by Mr. Fitzpatrick, our Chief Executive Officer, director and majority shareholder.
Intercompany Services Agreement with Imagination Industries Incubator Limited
VAGL entered into an intercompany services agreement with i3 on July 1, 2020 (the “Intercompany Services Agreement”), which was subsequently amended. Pursuant to the Intercompany Services Agreement, i3 provides finance department services and monthly payroll services to Vertical for approximately £9,000 per month. For the years ended December 31, 2020 and 2021, VAGL paid £144,000 and £108,000, respectively, to i3 for services provided under the Intercompany Services Agreement. The Intercompany Services Agreement expired on December 31, 2021. i3 is indirectly owned by Mr. Fitzpatrick, our Chief Executive Officer, director and majority shareholder.
Relationship with Stephen Fitzpatrick
On October 22, 2021, VAGL entered into an agreement with Mr. Fitzpatrick (the “October Loan Agreement”) pursuant to which Mr. Fitzpatrick agreed to provide an aggregate amount of $5 million. Pursuant to the terms of the October Loan Agreement, VAGL agreed to repay Mr. Fitzpatrick, in whole, through the issuance of 500,000 ordinary shares at a price of $10.00 per ordinary share, which repayment was settled on December 15, 2021.
Relationship with OVO Group Ltd.
OVO Group Ltd. (“OVO”) is controlled by Mr. Fitzpatrick. Mr. Fitzpatrick, our Chief Executive Officer and a member of our board of directors, currently serves as the Group Chief Executive Officer of OVO, and Vincent Casey, our former Chief Financial Officer and a member of our board of directors, currently serves as the Chief Financial Officer of OVO. During 2021, we and OVO had an informal arrangement in which we received certain services from OVO, which primarily included sharing an office space in London. We did not pay any fees to OVO under this arrangement. The arrangement was terminated as of December 31, 2021.
PIPE Investment
The Company and Broadstone previously entered into Subscription Agreements with certain PIPE Investors (including American, Avolon, Stephen Fitzpatrick and the Sponsor) pursuant to which, among other things, the PIPE Investors agreed to purchase on the Closing Date an aggregate of 9,400,000 ordinary shares at a price equal to $10.00 per share for an aggregate purchase price of $94,000,000 on the terms and subject to the conditions set forth therein (the “PIPE Financing”). The PIPE Financing closed concurrently with the Business Combination.
American currently owns more than 5% of our issued and outstanding ordinary shares. Mr. Slattery, the chairman of our board of directors served as the Chief Executive Officer of Avolon until July 2022 and controls the voting and disposition of the ordinary shares held by Maples Trustee Services (Cayman) Limited as the trustee of Avolon e Trust II.
Registration Rights Agreement
At the closing of the Business Combination, the Company entered into the Registration Rights Agreement with American, Avolon Warrantholders, the Sponsor and the VAGL Shareholders (collectively, the “Holders”), pursuant to which, subject to certain requirements and customary conditions, the Holders may demand at any time or from time to time, that the Company file a registration statement with the U.S. Securities and Exchange Commission to register certain securities of the Company held by such Holders.
85
The VAGL Shareholders include Mr. Fitzpatrick our Chief Executive Officer, director and majority shareholder, and Mr. Casey, our former Chief Financial Officer and a member of our board of directors.
American SPA
At the closing of the Business Combination, pursuant to the terms of the American SPA in connection with the Business Combination Agreement, American sold its 5,804 Class Z ordinary shares of Vertical Aerospace Group Ltd., our wholly-owned subsidiary, to the Company in consideration for 6,125,000 ordinary shares.
Lock-Up Agreements
At the closing of the Business Combination, each of (i) the VAGL Shareholders, (ii) the Sponsor, (iii) the Avolon Warrantholders and (iv) American entered into lock-up agreements with the Company.
The VAGL Shareholder Lock-Up Agreement
The VAGL Shareholder Lock-Up Agreement contains certain restrictions on transfer with respect to 90% of the ordinary shares received by the VAGL Shareholders pursuant to the Business Combination Agreement, and excludes shares purchased in the public market or in the PIPE Financing. Such restrictions begin at the Closing and end on the third anniversary of the Closing, with 30% of such Ordinary Shares being released from such restrictions on each anniversary of the Closing, subject to the earlier release of such restrictions if at any time the closing price of ordinary shares equals or exceeds $15.00 per share for any 20 trading days within any 30-trading day period commencing on or after the two-year anniversary of Closing.
The VAGL Shareholder Lock-Up Agreement also contains restrictions on voting rights, pre-emption rights, dividends and other rights as our shareholder, over Earn Out Shares, being 20% of the ordinary shares held by the VAGL Shareholders immediately following the Closing. Such restrictions in respect of the Earn Out Shares are released as to 50% on the date the closing price of ordinary shares equals or exceeds $15.00 per share for any 20 trading days within any 30-trading day period and as to 50% on the date the closing price of ordinary shares equals or exceeds $20.00 per share for any 20 trading days within any 30-trading day period. If such dates do not occur prior to the fifth-year anniversary of the Closing then such ordinary shares will be forfeited and surrendered to us for cancellation and for nil consideration.
The Sponsor Lock-Up Agreement
The Sponsor Lock-Up Agreement contains certain restrictions on transfer with respect to 90% of the Ordinary Shares received by the Sponsor pursuant to the Business Combination Agreement, and excludes shares purchased in the public market or in the PIPE Financing. Such restrictions begin at the Closing and end on the third anniversary of the Closing, with 30% of such ordinary shares being released from such restrictions on each anniversary of the Closing, subject to the earlier release of such restrictions if at any time the closing price of ordinary shares equals or exceeds $15.00 per share for any 20 trading days within any 30-trading day period commencing on the two-year anniversary of Closing.
The American Lock-Up Agreement
The American Lock-Up Agreement contains certain restrictions on transfer with respect to 90% of the ordinary shares received by American pursuant to the American SPA, and excludes shares purchased in the public market or in the PIPE Financing. Such restrictions begin at the Closing and end on the third anniversary of the Closing, with 30% of such ordinary shares being released from such restrictions on each anniversary of the Closing, subject to the earlier release of such restrictions if at any time the closing price of ordinary shares equals or exceeds $15.00 per share for any 20 trading days within any 30-trading day period commencing on or after the two-year anniversary of the Closing.
American beneficially owned more than 5% of our outstanding ordinary shares as of December 31, 2022.
86
The Avolon Lock-Up Agreements
The Avolon Lock-Up Agreements contain certain restrictions on transfer with respect to 90% of the ordinary shares represented by Warrant A1 and Warrant A2 (as defined in the Avolon Warrant Instrument) received by the Avolon Warrantholders pursuant to the Avolon Warrant Instrument. Such restrictions begin at the Closing and end on the third anniversary of the Closing, with 30% of the ordinary shares held by the Avolon Warrantholders being released from such restrictions on each anniversary of the Closing, subject to the earlier release of such restrictions if at any time the closing price of ordinary shares equals or exceeds $15.00 per share for any 20 trading days within any 30-trading day period commencing on the twoyear anniversary of Closing.
Mr. Slattery, the chairman of our board of directors, served as the Chief Executive Officer of Avolon until July 2022 and controls the voting and disposition of the ordinary shares held by Maples Trustee Services (Cayman) Limited as the trustee of Avolon e Trust II.
Convertible Senior Secured Notes
On October 26, 2021, we entered into the Convertible Senior Secured Notes Subscription Agreement with Mudrick Capital Management L.P. (“Mudrick”), pursuant to which, concurrently with the consummation of the Business Combination, (i) Mudrick purchased Convertible Senior Secured Notes of and from the Company in an aggregate principal amount of $200,000,000 for an aggregate Purchase Price of $192,000,000, and the Company issued and sold to Mudrick the Convertible Senior Secured Notes in consideration for the payment of the Purchase Price, and (ii) the Company issued to Mudrick 4,000,000 Convertible Notes Warrants.
The Convertible Senior Secured Notes are initially convertible into up to 18,181,820 ordinary shares (excluding any interest, and subject to adjustments as provided in the Indenture) at an initial conversion rate of 90.9091 ordinary shares per $1,000 principal amount of Convertible Senior Secured Note, subject to adjustments to such rate as provided in the Indenture, at any time prior to the close of business on the second scheduled trading day immediately before the maturity date of the Convertible Senior Secured Notes. If Mudrick elects to convert all of the Convertible Senior Secured Notes into ordinary shares, Mudrick will own more than 5% of our ordinary shares based on the current number of ordinary shares issued and outstanding.
Upon the occurrence of a Fundamental Change (as defined in the Indenture), then Mudrick has the right, at its option, to require us to repurchase for cash all or any portion of its Convertible Senior Secured Notes in principal amounts of $1,000 or an integral multiple thereof, at a fundamental change repurchase price equal to the principal amount of the Convertible Senior Secured Notes to be repurchased plus, if repurchased before the second anniversary of issuance, certain make-whole premiums, plus accrued and unpaid interest to, but excluding, the repurchase date.
The Convertible Senior Secured Notes bears interest at the rate of 7.00% per annum if we elect to pay interest in cash or 9.00% per annum if we elect to pay interest in-kind, and interest is paid semi-annually in arrears. As of December 31, 2022, the Company elected to pay all incurred interest in-kind in an amount equal to $18,353 thousand. Upon the occurrence, and during the continuation, of an event of default, an additional 2.00% will be added to the stated interest rate. The Convertible Senior Secured Notes will mature on the fifth anniversary of issuance and will be redeemable at any time by us, in whole but not in part, for cash, at par plus, if redeemed before the second anniversary of issuance, certain make-whole premiums as specified in the indenture governing the Convertible Senior Secured Notes. Subject to the terms of the indenture governing the Convertible Senior Secured Notes, Broadstone and VAGL provided full and unconditional guarantees under the Convertible Senior Secured Notes upon consummation of the Business Combination. The Convertible Senior Secured Notes Subscription Agreement also contains other customary representations, warranties, covenants and agreements of the parties thereto.
Relationship with Dómhnal Slattery
On January 27, 2022, we and Mr. Fitzpatrick entered into an option agreement with Mr. Slattery, the chairman of our board of directors, pursuant to which, subject to Mr. Slattery’s continued service as chairman of our board of directors throughout the vesting period and other terms set out therein, Mr. Fitzpatrick granted Mr. Slattery options to require Mr. Fitzpatrick to sell and Mr. Slattery to purchase up to an aggregate of 1,175,000 ordinary shares of the Company for an exercise price of $0.0001 per share, with the option to expire on January 25, 2029.
87
Director and Officer Indemnification
Our Amended and Restated Memorandum and Articles of Association provides for indemnification and advancement of expenses for our directors and officers to the fullest extent permitted under Cayman Islands laws, subject to certain limited exceptions. We have entered into indemnification agreements with each of our directors.
Policies and Procedures for Related Person Transactions
Our board has adopted a written related party transaction policy to set forth the policies and procedures for the review and approval or ratification of related party transactions. Under our related party transaction policy, any related party transaction, including all relevant facts and circumstances, must be reviewed and approved or ratified by the audit committee. Such review shall assess whether if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party, the extent of the related party’s interest in the transaction and shall also take into account the conflicts of interest and/or corporate opportunity provisions of our organizational documents and Code of Business Conduct and Ethics and, where the related party involves a director or director nominee, whether the related party transaction will impair the director or director nominee’s independence under the rules and regulations of the SEC and NYSE.
C.Interests of Experts and Counsel
Not applicable.
Item 8.Financial Information
A.Consolidated Statements and Other Financial Information
Consolidated Financial Statements
See Item 18. “Financial Statements.”
Legal or Arbitration Proceedings
From time to time, we may be involved in various claims and legal proceedings related to claims arising out of our operations. We are not currently a party to any material legal proceedings, including any such proceedings that are pending or threatened, of which we are aware.
Dividend Policy
We have never declared or paid any cash dividend, and do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. Our board of directors has sole discretion whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant.
In the year ended December 31, 2022, we did not declare or pay any dividends.
B.Significant Changes
None.
Item 9.The Offer and Listing
A.Offer and Listing Details
Our ordinary shares and warrants commenced trading on the NYSE on December 16, 2021. Prior to that date, there was no public trading market for our ordinary shares or warrants.
88
B.Plan of Distribution
Not applicable.
C.Markets
Our ordinary shares and warrants are listed on the NYSE under the symbols “EVTL” and “EVTLW,” respectively.
D.Selling Shareholders
Not Applicable.
E.Dilution
Not applicable.
F.Expenses of the Issue
Not applicable.
Item 10.Additional Information
A.Share Capital
Not applicable.
B.Memorandum and Articles of Association
A copy of our Amended and Restated Memorandum and Articles of Association is attached as Exhibit 1.1 to this Annual Report. The information called for by this Item is set forth in Exhibit 2.9 to this Annual Report and is incorporated by reference into this Annual Report.
C.Material Contracts
Except as disclosed in “Item 4. Information on the Company” or “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” or elsewhere in this Annual Report (including the Exhibits), we are not currently, nor have we been for the past two years immediately preceding this Annual Report, party to any material contract, other than contracts entered into in the ordinary course of business.
D.Exchange Controls
There are currently no exchange control regulations in the Cayman Islands applicable to us or our shareholders.
89
E.Taxation
The following summary contains a description of certain Cayman Islands, United Kingdom and U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares and warrants, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase ordinary shares or warrants. The summary is based upon the tax laws of the Cayman Islands, United Kingdom and United States, and regulations thereunder as of the date hereof, which are subject to change.
Material Cayman Islands Tax Considerations
The following discussion is a summary of the material Cayman Islands tax considerations relating to the purchase, ownership and disposition of our ordinary shares. There is, at present, no direct taxation in the Cayman Islands and interest, dividends and gains payable to us will be received free of all Cayman Islands taxes. We have received an undertaking from the Financial Secretary of the Cayman Islands to the effect that, for a period of twenty years from the date of the undertaking, no law that thereafter is enacted in the Cayman Islands imposing any tax or duty to be levied on profits, income or on gains or appreciation, or any tax in the nature of estate duty or inheritance tax, will apply to any property comprised in or any income arising under the Company, or to the shareholders thereof, in respect of any such property or income.
No stamp duty in the Cayman Islands is payable in respect of the issue of any ordinary shares or an instrument of transfer in respect of an ordinary share.
Material United Kingdom Tax Considerations
The following discussion is a summary of the material United Kingdom tax considerations relating to the purchase, ownership and disposition of our ordinary shares.
The following statements are of a general nature and do not purport to be a complete analysis of all potential U.K. tax consequences of acquiring, holding and disposing of ordinary shares. They are based on current U.K. tax law and on the current published practice of Her Majesty’s Revenue and Customs (“HMRC”) (which may not be binding on HMRC), as of the date of this Annual Report, all of which are subject to change, possibly with retrospective effect. They are intended to address only certain U.K. tax consequences for holders of ordinary shares who are tax resident in (and only in) the U.K. (or, in the case of corporate holders, who are not residents but carry on business in the U.K. through a branch, agency or permanent establishment with which their investment in the Company is connected), and in the case of individuals, domiciled in (and only in) the U.K. (except where expressly stated otherwise) who are the absolute beneficial owners of the ordinary shares and any dividends paid on them and who hold the ordinary shares as investments (other than in an individual savings account or a self-invested personal pension). They do not address the U.K. tax consequences which may be relevant to certain classes of holders of ordinary shares such as traders, brokers, dealers, banks, financial institutions, insurance companies, investment companies, collective investment schemes, tax-exempt organizations, trustees, persons connected with us or our group, persons holding their ordinary shares as part of hedging or conversion transactions, holders of ordinary shares who have (or are deemed to have) acquired their ordinary shares by virtue of an office or employment, and holders of ordinary shares who are or have been our officers or employees or a company forming part of our group. The statements do not apply to any holder of ordinary shares who either directly or indirectly holds or controls 10% or more of our share capital (or class thereof), voting power or profits.
The following is intended only as a general guide and is not intended to be, nor should it be considered to be, legal or tax advice to any particular prospective subscriber for, or purchaser of, ordinary shares. Accordingly, prospective subscribers for, or purchasers of, ordinary shares who are in any doubt as to their tax position regarding the acquisition, ownership and disposition of ordinary shares or who are subject to tax in a jurisdiction other than the U.K. should consult their own tax advisers.
The following discussion does not consider the United Kingdom tax considerations relating to the purchase, ownership or disposition of the Public Warrants.
The Company
It is the intention of the directors to conduct our affairs so that our central management and control is exercised in the U.K.. As a result, we are expected to be treated as resident in the U.K. for U.K. tax purposes. Accordingly, we expect to be subject to U.K. taxation on our income and gains, except where an exemption applies.
90
Taxation of Dividends
Withholding Tax
We will not be required to withhold U.K. tax at source when paying dividends. The amount of any liability to U.K. tax on dividends paid by us will depend on the individual circumstances of a holder of ordinary shares.
Income Tax
An individual holder of ordinary shares who is resident for tax purposes in the U.K. may, depending on his or her particular circumstances, be subject to U.K. tax on dividends received from the Company. Dividend income is treated as the top slice of the total income chargeable to U.K. income tax. An individual holder of ordinary shares who is not resident for tax purposes in the U.K. should not be chargeable to U.K. income tax on dividends received from us unless he or she carries on (whether solely or in partnership) any trade, profession or vocation in the U.K. through a branch or agency to which the ordinary shares are attributable. There are certain exceptions for trading in the U.K. through independent agents, such as some brokers and investment managers.
All dividends received by a U.K. resident individual holder of ordinary shares from us or from other sources will form part of the holder’s total income for income tax purposes and will constitute the top slice of that income. For the tax year 2022/23, a nil rate of income tax will apply to the first £2,000 of taxable dividend income received by the holder of ordinary shares in a tax year. Income within the nil rate band will be taken into account in determining whether income in excess of the nil rate band falls within the basic rate, higher rate or additional rate tax bands. Where the dividend income is above the £2,000 dividend allowance, the first £2,000 of the dividend income will be charged at the nil rate and any excess amount will be taxed at 8.75% to the extent that the excess amount falls within the basic rate tax band, 33.75% to the extent that the excess amount falls within the higher rate tax band and 39.35% to the extent that the excess amount falls within the additional rate tax band. The basic rate, higher rate and additional rates of dividend taxation will remain the same for the tax year 2023/24, however the nil rate band will reduce to £1,000, and for the tax year 2024/25 the nil rate band will further reduce to £500.Corporation Tax
Corporate holders of ordinary shares which are resident for tax purposes in the U.K. should not be subject to U.K. corporation tax on any dividend received from us so long as the dividends qualify for exemption (as is likely) and certain conditions are met (including anti-avoidance conditions). Corporate holders of ordinary shares who are not resident in the U.K. will not generally be subject to U.K. corporation tax on dividends unless they are carrying on a trade, profession or vocation in the U.K. through a permanent establishment in connection with which the ordinary shares are used, held, or acquired.
A holder of ordinary share who is resident outside the U.K. may be subject to non-U.K. taxation on dividend income under local law.
Taxation of Capital Gains
U.K. Resident Holders of ordinary shares
A disposal or deemed disposal of ordinary shares by an individual or corporate holder of ordinary shares who is tax resident in the U.K. may, depending on the holder’s circumstances and subject to any available exemptions or reliefs, give rise to a chargeable gain or allowable loss for the purposes of U.K. taxation of chargeable gains.
Any chargeable gain (or allowable loss) will generally be calculated by reference to the consideration received for the disposal of ordinary shares less the allowable cost to the holder of acquiring such ordinary shares.
The applicable tax rates for individual holders of ordinary shares realizing a gain on the disposal of ordinary shares for the tax year 2022/23 is, broadly, 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers. These rates have not changed for the tax year 2023/24. The applicable tax rates for corporate holders of ordinary shares realizing a gain on the disposal of ordinary shares for the tax year 2022/23 is, broadly, 19%. This rate will increase to, broadly, 25% from April 1, 2023.
91
Non-U.K. Resident Holders of ordinary shares
Holders of ordinary shares who are not resident in the U.K. and, in the case of an individual holder, not temporarily non-resident, should not be liable for U.K. tax on capital gains realized on a sale or other disposal of ordinary shares unless such shares are used, held or acquired for the purposes of a trade, profession or vocation carried on in the U.K. through a branch or agency or, in the case of a corporate holder, through a permanent establishment. Holders of ordinary shares who are not resident in the U.K. may be subject to non-U.K. taxation on any gain under local law.
Generally, an individual holder of ordinary shares who has ceased to be resident in the U.K. for tax purposes for a period of five years or less and who disposes of ordinary shares during that period may be liable on their return to the U.K. to U.K. taxation on any capital gain realized (subject to any available exemption or relief).
U.K. Stamp Duty (“stamp duty”) and U.K. Stamp Duty Reserve Tax (“SDRT”)
The following statements are intended as a general guide to the current position relating to stamp duty and SDRT and apply to any holders of ordinary shares irrespective of their place of tax residence.
No stamp duty will be payable on the issue of ordinary shares.
Stamp duty will in principle be payable on any instrument of transfer of ordinary shares that is executed in the U.K. or that relates to any property situated, or to any matter or thing done or to be done, in the U.K.. An exemption from stamp duty is available on an instrument transferring ordinary shares where the amount or value of the consideration is £1,000 or less and it is certified on the instrument that the transaction effected by the instrument does not form part of a larger transaction or series of transactions in respect of which the aggregate amount or value of the consideration exceeds £1,000. Holders of ordinary shares should be aware that, even where an instrument of transfer is in principle subject to stamp duty, stamp duty is not required to be paid unless it is necessary to rely on the instrument for legal purposes, for example to register a change of ownership or in litigation in a U.K. court.
Provided that ordinary shares are not registered in any register maintained in the U.K. by or on behalf of us and are not paired with any shares issued by a U.K. incorporated company, the issue or transfer of (or agreement to transfer) ordinary shares will not be subject to SDRT. We currently do not intend that any register of ordinary shares will be maintained in the U.K..
Material U.S. Federal Income Tax Considerations
The following discussion is a summary of the material U.S. federal income tax considerations for U.S. Holders (as defined below) of the ownership and disposition of our ordinary shares and Public Warrants. This discussion applies only to our ordinary shares and Public Warrants that are held as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment).
The following does not purport to be a complete analysis of all potential tax considerations arising in connection with the ownership and disposal of our ordinary shares and Public Warrants. The effects and considerations of other U.S. federal tax laws, such as estate and gift tax laws, alternative minimum or Medicare contribution tax consequences and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Code, Treasury regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect the tax consequences discussed below. We have neither sought nor will seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS will not take or a court will not sustain a contrary position to that discussed below regarding the tax consequences discussed below.
This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances. In addition, it does not address consequences relevant to holders subject to special rules, including, without limitation:
| ● | banks, insurance companies, and certain other financial institutions; |
| ● | regulated investment companies and real estate investment trusts; |
| ● | brokers, dealers or traders in securities; |
92
| ● | traders in securities that elect to mark to market; |
| ● | tax-exempt organizations or governmental organizations; |
| ● | U.S. expatriates and former citizens or long-term residents of the United States; |
| ● | persons holding our ordinary shares and/or Public Warrants as part of a hedge, straddle, constructive sale, or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
| ● | persons subject to special tax accounting rules as a result of any item of gross income with respect to our ordinary shares and/or Public Warrants being taken into account in an applicable financial statement; |
| ● | persons that actually or constructively own 5% or more (by vote or value) of the outstanding issued ordinary shares; |
| ● | “controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax; |
| ● | S corporations, partnerships or other entities or arrangements treated as partnerships or other flow-through entities for U.S. federal income tax purposes (and investors therein); |
| ● | U.S. Holders having a functional currency other than the U.S. dollar; |
| ● | persons who hold or received our ordinary shares and/or Public Warrants, as the case may be, pursuant to the exercise of any employee share option or otherwise as compensation; and |
| ● | tax-qualified retirement plans. |
For purposes of this discussion, a “U.S. Holder” is any beneficial owner of our ordinary shares and/or Public Warrants that is for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation) created or organized under the laws of the United States, any state thereof, or the District of Columbia; |
| ● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| ● | a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a “United States person” (within the meaning of Section 7701(a)(30) of the Code) for U.S. federal income tax purposes. |
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our ordinary shares and/or Public Warrants, the tax treatment of an owner of such entity will depend on the status of the owners, the activities of the entity or arrangement and certain determinations made at the partner level. Accordingly, entities or arrangements treated as partnerships for U.S. federal income tax purposes and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THE U.S. FEDERAL INCOME TAX CONSEQUENCE OF OWNING OUR ORDINARY SHARES AND/OR PUBLIC WARRANTS TO ANY PARTICULAR HOLDER WILL DEPEND ON THE HOLDER’S PARTICULAR TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES, OF ACQUIRING, HOLDING, AND DISPOSING OF OUR ORDINARY SHARES AND/OR PUBLIC WARRANTS.
93
Distributions on Ordinary Shares
Subject to the PFIC rules discussed below, the gross amount of distributions made by us (if any) with respect to the ordinary shares generally will be includable in a U.S. Holder’s gross income as foreign-source dividend income in the year actually or constructively received by such U.S. Holder, but only to the extent that such distributions are paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Distributions to a U.S. Holder in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in the ordinary shares and thereafter as capital gain. In the event we make distributions to U.S. Holders of ordinary shares, we may or may not calculate our earnings and profits under U.S. federal income tax principles. We do not currently intend to calculate our earnings and profits under U.S. federal income tax principles. U.S. Holders should therefore assume that all cash distributions will be reported as ordinary dividend income, even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain. The amount of any distribution of property other than cash will be the fair market value of that property on the date of distribution. U.S. Holders should consult their own tax advisors to determine whether and to what extent they will be entitled to foreign tax credits in respect of any dividend income received.
With respect to non-corporate U.S. Holders (including individuals, estates, and trusts), dividends received with respect to our ordinary shares may be considered “qualified dividend income” subject to lower capital gains rates, provided that (1) the ordinary shares are readily tradable on an established securities market in the United States or we are eligible for the benefits of the income tax treaty between the United States and the United Kingdom, (2) we are not a PFIC (as discussed below) for either our taxable year in which the dividend was paid or the preceding taxable year and (3) certain holding period requirements are met. In this regard, the ordinary shares will generally be considered to be readily tradable on an established securities market in the United States if they are listed on the NYSE, as we intend the ordinary shares will continue to be. U.S. Holders should consult their own tax advisors regarding the availability of the lower rate for the dividends paid with respect to the ordinary shares.
Subject to certain exceptions, dividends paid by us with respect to the ordinary shares will generally constitute foreign-source “passive category income” and will not be eligible for the dividends-received deduction generally allowed to corporate U.S. Holders in respect of dividends received from U.S. corporations.
Sale or Other Taxable Disposition of Ordinary Shares and Public Warrants
Subject to the PFIC rules discussed below, upon a sale or other taxable disposition of the ordinary shares and/or Public Warrants, a U.S. Holder generally will recognize a capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in such ordinary shares and/or Public Warrants. A U.S. Holder’s adjusted tax basis in such ordinary shares and/or Public Warrants generally will be such U.S. Holder’s purchase price for the ordinary shares and/or Public Warrants. Any such gain or loss generally will be U.S.-source gain or loss and will be treated as long-term capital gain or loss if the U.S. Holder’s holding period in the ordinary shares and/or Public Warrants exceeds one year. Non-corporate U.S. Holders (including individuals) generally will be subject to U.S. federal income tax on long-term capital gain at preferential rates. The deductibility of capital losses is subject to significant limitations.
Any such gain or loss recognized generally will be treated as U.S. source gain or loss. U.S. Holders are urged to consult their own tax advisor regarding the ability to claim a foreign tax credit and the application of the income tax treaty between the United States and the United Kingdom to such U.S. Holder’s particular circumstances.
Exercise or Lapse of a Public Warrant
Except as discussed below with respect to the cashless exercise of a warrant, a U.S. Holder generally will not recognize gain or loss upon the acquisition of an ordinary share on the exercise of a Public Warrant for cash. A U.S. Holder’s tax basis in ordinary shares received upon exercise of the warrant generally should be an amount equal to the sum of the U.S. Holder’s tax basis in the Public Warrant exercised therefore and the exercise price. The U.S. Holder’s holding period for an ordinary share received upon exercise of the Public Warrant will begin on the date following the date of exercise (or possibly the date of exercise) of the warrant and will generally not include the period during which the U.S. Holder held the warrant. If a Public Warrant is allowed to lapse unexercised, a U.S. Holder that has otherwise received no proceeds with respect to such warrant generally will recognize a capital loss equal to such U.S. Holder’s tax basis in such warrant.
94
The tax consequences of a cashless exercise of a Public Warrant are not clear under current U.S. federal income tax law. A cashless exercise may be tax-deferred, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either situation, a U.S. Holder’s basis in the ordinary shares received would equal the U.S. Holder’s basis in the warrants exercised therefor. If the cashless exercise is not treated as a realization event, a U.S. Holder’s holding period in the ordinary shares would be treated as commencing on the date following the date of exercise (or possibly the date of exercise) of the warrants. If the cashless exercise were treated as a recapitalization, the holding period of the ordinary shares would include the holding period of the warrants exercised therefor.
It is also possible that a cashless exercise of a Public Warrant could be treated in part as a taxable exchange in which gain or loss would be recognized in the manner set forth above under “ —Sale or Other Taxable Disposition of Ordinary Shares and Public Warrants.” In such event, a U.S. Holder could be deemed to have surrendered warrants equal to the number of ordinary shares having an aggregate fair market value equal to the exercise price for the total number of warrants to be exercised. The U.S. Holder would recognize capital gain or loss in an amount generally equal to the difference between (i) the fair market value of the Public Warrants deemed surrendered and (ii) the U.S. Holder’s tax basis in such warrants deemed surrendered. In this case, a U.S. Holder’s tax basis in the ordinary shares received would equal the sum of (i) U.S. Holder’s tax basis in the Public Warrants deemed exercised and (ii) the exercise price of such warrants. A U.S. Holder’s holding period for the ordinary shares received in such case generally would commence on the date following the date of exercise (or possibly the date of exercise) of the warrants.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise of warrants, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their own tax advisors regarding the tax consequences of a cashless exercise of Public Warrants.
Possible Constructive Distributions
The terms of each Public Warrant provide for an adjustment to the number of ordinary shares for which the warrant may be exercised or to the exercise price of the warrant in certain events. An adjustment which has the effect of preventing dilution generally is not taxable. A U.S. Holder of a Public Warrant would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the holder’s proportionate interest in our assets or earnings and profits (for instance, through an increase in the number of ordinary shares that would be obtained upon exercise of such warrant) as a result of a distribution of cash or other property such as other securities to the holders of the ordinary shares which is taxable to the holders of such shares as described under “ —Distributions on ordinary shares” above. Such constructive distribution would generally be subject to tax as described under that section in the same manner as if the U.S. Holder of such warrant received a cash distribution from us equal to the fair market value of such increased interest. However, it is unclear whether a distribution treated as a dividend deemed paid to a non-corporate U.S. Holder would be eligible for the lower applicable long-term capital gains rates as described above under “—Distributions on Ordinary Shares.”
Passive Foreign Investment Company
We will be classified as a PFIC within the meaning of Section 1297 of the Code, for any taxable year if either: (1) at least 75% of the gross income of the Company is “passive income” for purposes of the PFIC rules or (2) at least 50% of the value of our assets (determined on the basis of a quarterly average) produce or are held for the production of passive income. For this purpose, we will be treated as owning the proportionate share of the assets, and earning the proportionate share of the income, of any other corporation in which we own, directly or indirectly, 25% or more measured by value of the stock. We are an early stage company and do not expect to realize revenue until our manufacturing operations are in production. Until we generate revenue, our PFIC status would largely depend on whether we earn non-passive income, such as government grants, and whether the amount of such non-passive income exceeds 25% of our gross income for the relevant taxable year. While not clear, taking into account our income, assets and market capitalization, we believe that we were not a PFIC for the taxable year that ended on December 31, 2022. Even after we start generating revenue, our PFIC status would depend on, among other things, the composition of the income, assets and operations of us and our subsidiaries and there can be no assurances that we will not be treated as a PFIC again in any future taxable year. Moreover, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that the IRS will not take a contrary position or that a court will not sustain such a challenge by the IRS.
95
If we are considered a PFIC for any taxable year that a U.S. Holder holds ordinary shares or Public Warrants, we would continue to be treated as a PFIC with respect to such U.S. Holder’s investment unless (i) we ceased to be a PFIC and (ii) the U.S. Holder made a “deemed sale” election under the PFIC rules. If such election is made, a U.S. Holder will be deemed to have sold its ordinary shares and/or Public Warrants at their fair market value on the last day of the last taxable year in which we are classified as a PFIC, and any gain from such deemed sale would be subject to the consequences described below. After the deemed sale election, the ordinary shares or Public Warrants with respect to which the deemed sale election was made will not be treated as shares or warrants in a PFIC unless we subsequently become a PFIC.
For each taxable year that we are treated as a PFIC with respect to a U.S. Holder’s ordinary shares or Public Warrants, the U.S. Holder will be subject to special tax rules with respect to any “excess distribution” (as defined below) received and any gain realized from a sale or disposition (including a pledge) of its ordinary shares or warrants (collectively the “Excess Distribution Rules”), unless the U.S. Holder makes a valid QEF election or mark-to-market election as discussed below. Distributions received by a U.S. Holder in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or the U.S. Holder’s holding period for the ordinary shares will be treated as excess distributions. Under the Excess Distribution Rules:
| ● | the excess distribution or gain (including gain on a sale of disposition of warrants) will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares or warrants; |
| ● | the amount allocated to the current taxable year, and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are a PFIC, will be treated as ordinary income; and |
| ● | the amount allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
Under the Excess Distribution Rules, the tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of the ordinary shares or warrants cannot be treated as capital gains, even though the U.S. Holder holds the ordinary shares or warrants as capital assets.
Once we are a PFIC, U.S. Holders may also be subject to the Excess Distribution Rules with respect to subsidiaries and other entities which we may hold, directly or indirectly, that are PFICs (collectively, “Lower-Tier PFICs”). There can be no assurance that we do not own, or will not in the future acquire, an interest in a subsidiary or other entity that is or would be treated as a Lower-Tier PFIC. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
If we are a PFIC, a U.S. Holder of ordinary shares (but generally not warrants) may avoid taxation under the Excess Distribution Rules described above by making a “qualified electing fund” (“QEF”) election. However, a U.S. Holder may make a QEF election with respect to its ordinary shares only if we provide U.S. Holders on an annual basis with certain financial information specified under applicable U.S. Treasury regulations. Because we do not intend to provide such information, however, the QEF Election will not be available to U.S. Holders with respect to our ordinary shares and a QEF election is not available with respect to warrants.
96
Alternatively, a U.S. Holder of “marketable stock” (as defined below) may make a mark-to-market election for its ordinary shares to elect out of the Excess Distribution Rules discussed above if we are treated as a PFIC. If a U.S. Holder makes a mark-to-market election with respect to its ordinary shares, such U.S. Holder will include in income for each year that we are treated as a PFIC with respect to such ordinary shares an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of the U.S. Holder’s taxable year over the adjusted basis in the ordinary shares. A U.S. Holder will be allowed a deduction for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. However, deductions will be allowed only to the extent of any net mark-to-market gains on the ordinary shares included in the U.S. Holder’s income for prior taxable years. Amounts included in income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent the amount of such loss does not exceed the net mark-to-market gains for such ordinary shares previously included in income. A U.S. Holder’s basis in the ordinary shares will be adjusted to reflect any mark-to-market income or loss. If a U.S. Holder makes a mark-to-market election, any distributions we make would generally be subject to the rules discussed above under “ —Distributions on Ordinary Shares,” except the lower rates applicable to qualified dividend income would not apply. U.S. Holders of Public Warrants will not be able to make a mark-to-market election with respect to their Public Warrants.
The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. The ordinary shares, which are listed on NYSE, are expected to qualify as marketable stock for purposes of the PFIC rules, but there can be no assurance that ordinary shares will be “regularly traded” for purposes of these rules. Because a mark-to-market election is generally not available for equity interests in any Lower-Tier PFICs, a U.S. Holder will continue to be subject to the Excess Distribution Rules with respect to its indirect interest in any Lower-Tier PFICs as described above, even if a mark-to-market election is made for the ordinary shares.
If a U.S. Holder does not make a mark-to-market election (or a QEF election) effective from the first taxable year of a U.S. Holder’s holding period for the ordinary shares in which we are a PFIC, then the U.S. Holder generally will remain subject to the Excess Distribution Rules. A U.S. Holder that first makes a mark-to-market election with respect to the ordinary shares in a later year will continue to be subject to the Excess Distribution Rules during the taxable year for which the mark-to-market election becomes effective, including with respect to any mark-to-market gain recognized at the end of that year. In subsequent years for which a valid mark-to-mark election remains in effect, the Excess Distribution Rules generally will not apply. A U.S. Holder that is eligible to make a mark-to-market with respect to its ordinary shares may do so by providing the appropriate information on IRS Form 8621 and timely filing that form with the U.S. Holder’s tax return for the year in which the election becomes effective. U.S. Holders should consult their own tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any Lower-Tier PFICs.
A U.S. Holder of a PFIC may be required to file an IRS Form 8621 on an annual basis. U.S. Holders should consult their own tax advisors regarding any reporting requirements that may apply to them if we are a PFIC.
U.S. Holders are strongly encouraged to consult their tax advisors regarding the application of the PFIC rules to their particular circumstances.
Information Reporting and Backup Withholding
Information reporting requirements may apply to distributions received by U.S. Holders of ordinary shares, and the proceeds received on sale or other taxable the disposition of ordinary shares and/or Public Warrants effected within the United States (and, in certain cases, outside the United States), in each case other than U.S. Holders that are exempt recipients (such as corporations). Backup withholding may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (generally on an IRS Form W-9 provided to the paying agent of the U.S. Holder’s broker) or is otherwise subject to backup withholding. Any distributions with respect to ordinary shares and proceeds from the sale, exchange, redemption or other disposition of ordinary shares and/or Public Warrants may be subject to information reporting to the IRS and possible U.S. backup withholding. U.S. Holders should consult their own tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
97
Information returns may be filed with the IRS in connection with, and Non-U.S. Holders may be subject to backup withholding on amounts received in respect of, a Non-U.S. Holder’s disposition of their ordinary shares and/or Public Warrants, unless the Non-U.S. Holder furnishes to the applicable withholding agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-8ECI, as applicable, or the Non-U.S. Holder otherwise establishes an exemption. Distributions paid with respect to ordinary shares and proceeds from the sale of other disposition of ordinary shares and/or Public Warrants received in the United States by a Non-U.S. Holder through certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding unless such Non-U.S. Holder provides proof an applicable exemption or complies with certain certification procedures described above, and otherwise complies with the applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding generally may be credited against the taxpayer’s U.S. federal income tax liability, and a taxpayer may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for a refund with the IRS and furnishing any required information.
F.Dividends and Paying Agents
Not applicable.
G.Statement by Experts
Not applicable.
H.Documents on Display
We are subject to the informational requirements of the Exchange Act. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. The SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. We are required to make certain filings with the SEC. The SEC maintains an internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.
We also maintain an Internet website at https://vertical-aerospace.com. Through our website, we will make available, free of charge, the following documents as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC: our annual reports on Form 20-F; our reports on Form 6-K; amendments to these documents; and other information as may be required by the SEC. The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this Annual Report.
I.Subsidiary Information
Not applicable.
J.Annual Report to Security Holders
Not applicable.
Item 11.Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks primarily consist of market risk, credit risk and liquidity risk as follows. For further discussion and sensitivity analysis of these risks, see note 26 to our consolidated financial statements, which are included elsewhere in this Annual Report.
98
Item 12.Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13.Defaults, Dividend Arrearages and Delinquencies
None.
Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds
See “Item 10—Additional Information—B. Memorandum and Articles of Association” for a description of the rights of securities holders, which remain unchanged.
Item 15.Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022. Based on the material weaknesses described below, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of December 31, 2022, our disclosure controls and procedures were not effective. Notwithstanding the identified material weaknesses, our Chief Executive Officer and Chief Financial Officer have concluded that the consolidated financial statements included elsewhere in this Annual Report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the material weaknesses described below, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has concluded that, as of December 31, 2022, our internal control over financial reporting was not effective.
Previously Identified Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements may not be prevented or detected on a timely basis.
As reported in our Annual Report on Form 20-F for the year ended December 31, 2021, we previously identified material weaknesses in our internal control over financial reporting, driven by the lack of a sufficient number of trained professionals with an appropriate level of accounting knowledge, training and experience, which lead to our inability to:
| ● | design and maintain controls over the segregation of duties between the creation and posting of journal entries and preparation and review of account reconciliations; |
| ● | design and maintain formal accounting policies, procedures, and controls (including information technology general controls) across multiple processes; and |
99
| ● | analyze, record, review and disclose complex accounting matters timely and accurately. |
These material weaknesses remain unremediated as of December 31, 2022.
Remediation Activities and Plans
During 2022, we have implemented, and will continue to identify and implement, appropriate steps to remediate the material weaknesses described above. The specific actions taken and planned additional actions are described below.
New roles and responsibilities have been implemented to reduce the risk created by limited segregation of duties in some areas. A second independent director was added to our Audit Committee, now comprising two independent directors, which committee is responsible for the oversight of our accounting and financial reporting processes.
We have enhanced the staffing, capabilities and resources of our finance and accounting function. These internal resources have been supplemented with additional external advice, which will continue to provide ongoing support in regard to complex accounting matters, judgmental areas and changes in accounting standards. This includes appointing an independent internal audit function and designing an internal audit plan.
Regarding information technology general controls, we implemented a new Enterprise Resource Planning system, introduced detailed user profiling, and added user access segregation and monitoring as well as incident and change management workflows. As our operations grow in size, scope and complexity, we will need to continuously improve and upgrade our systems and infrastructure to offer an increasing number of features and functionalities, including inventory management and warehouse management, while maintaining and improving the reliability and integrity of our systems and infrastructure.
During 2022, the Company made significant progress on many of its remedial actions surrounding the material weaknesses identified as of December 31, 2021. However, many of these remedial actions, most importantly the new control activities, were not fully designed and implemented and/or operating contemporaneously and continuously as of December 31, 2022, and therefore the material weaknesses were not fully remediated at year-end. The Company plans to refine the design of many of the controls and evaluate and monitor whether they are operating effectively during 2023.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies.”
Change in Internal Control Over Financial Reporting
Except for the remediation efforts described above taken to address the material weaknesses, there were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16.[Reserved]
Item 16A.Audit Committee Financial Expert
Our board of directors has determined that Kathy Cassidy, a member of our audit committee, is a “financial expert,” as defined in Item 16A of Form 20-F. Ms. Cassidy is “independent,” as defined in Rule 10A-3 under the Exchange Act. For a description of Ms. Cassidy’s experience, see Item 6.A. “Directors, Senior Management and Employees—Executive Officers and Board Members.”
100
Item 16B.Code of Ethics
We have adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all our directors, officers and employees, including our principal executive, principal financial and principal accounting officers. Our Code of Conduct addresses, among other things, conflicts of interest, corporate opportunity requirements, confidentiality, competition and fair dealing, financial matters and external reporting, our funds and assets, as well as the process for reporting violations of the Code of Conduct and employee misconduct. Our Code of Conduct is intended to meet the definition of “code of ethics” under Item 16B of Form 20-F under the Exchange Act.
We intend to disclose on our website any amendment to, or waiver from, a provision of our Code of Conduct that applies to our directors or executive officers to the extent required under the rules of the SEC or NYSE. Our Code of Conduct is available on our website at investor.vertical-aerospace.com. The information contained on our website is not incorporated by reference in this Annual Report.
Item 16C.Principal Accountant Fees and Services
PricewaterhouseCoopers LLP (PCAOB ID 876) acted as our independent registered public accounting firm for the fiscal years ended December 31, 2022 and 2021.
The table below sets out the total amount billed to us by PricewaterhouseCoopers LLP for services performed in the years ended December 31, 2022 and 2021, and breaks down these amounts by category of service:
2022 | 2021 | |||
| £’000 |
| £’000 | |
Audit Fees |
| 425 |
| 406 |
Audit Related Fees |
| 282 |
| 1,175 |
Tax Fees |
| — |
| — |
All Other Fees |
| — |
| — |
Total |
| 707 |
| 1,581 |
Audit Fees
Audit fees for the years ended December 31, 2022 and 2021 were related to the audit of our consolidated and subsidiary financial statements and other audit or interim review services provided in connection with statutory and regulatory filings or engagements.
Audit Related Fees
Audit related services provided in the year ended December 31, 2022 related to periodic reports, other documents filed with the SEC, and comfort letters and consents issued in connection with securities offerings. Audit related fees for the year ended December 31, 2021 were primarily related to services in connection with the consummation of the Business Combination and our NYSE listing.
Pre-Approval Policies and Procedures
The advance approval of the Audit Committee or the chairperson thereof, to whom approval authority has been delegated, is required for all audit and non-audit services provided by our auditors.
All services provided by our auditors are approved in advance by either the Audit Committee or the chairperson thereof, to whom authority has been delegated, in accordance with the Audit Committee’s pre-approval policy.
Item 16D.Exemptions from the Listing Standards for Audit Committees
Not applicable.
101
Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F.Change in Registrant’s Certifying Accountant
None.
Item 16G.Corporate Governance
We are a “foreign private issuer” As a “foreign private issuer,” as defined by the SEC, we are permitted to follow home country corporate governance practices, instead of certain corporate governance practices required by the NYSE for domestic issuers. We believe the following to be the significant differences between our corporate governance practices and those applicable to U.S. companies under the NYSE listing standards.
We intend to follow corporate governance practices as contained in the Companies Act and other Cayman Islands laws and regulations in lieu of NYSE corporate governance rules as follows, none of which is required under the laws of the Cayman Islands:
| ● | We do not intend to follow Section 303A.01 of the NYSE Listed Company Manual (“NYSE Rules”), which requires that a listed company must have a majority of independent directors; |
| ● | We do not intend to follow Section 303A.03 of the NYSE Rules, which requires that non-management directors of a listed company must meet a regularly scheduled executive sessions without management; our non-management directors may choose to meet in executive sessions at their discretion; |
| ● | We do not intend to follow Section 303A.04 of the NYSE Rules, which requires that a listed company must have a nominating/corporate governance committee composed entirely of independent directors; |
| ● | We do not intend to follow Section 303.A05 of the NYSE Rules, which requires that a listed company have a compensation committee composed entirely of independent directors and that they satisfy the additional independence requirements specific to compensation committee membership set for in Rule 303A.02(a)(ii); and |
| ● | We do not intend to follow Section 303A.07(a) of the NYSE Rules, which requires that a listed company have an audit committee that is composed of at least three members. |
Section 312.03 of the NYSE Rules also requires that a listed company obtain, in specified circumstances, (1) shareholder approval to adopt or materially revise equity compensation plans, as well as (2) shareholder approval prior to an issuance (a) of more than 1% of its ordinary share (including derivative securities thereof) in either number or voting power to related parties, (b) of more than 20% of its outstanding ordinary share (including derivative securities thereof) in either number or voting power or (c) that would result in a change of control, none of which requires shareholder approval under the laws of the Cayman Islands. We intend to follow home country law in determining whether shareholder approval is required.
Section 302 of the NYSE Rules also requires that a listed company hold an annual shareholders’ meeting for holders of securities during each fiscal year. We may follow home country law in determining whether and when such shareholders’ meetings are required.
We may in the future decide to use other foreign private issuer exemptions with respect to some or all of the other requirements under the NYSE Rules. Following our home country governance practices may provide less protection than is accorded to investors under the NYSE listing requirements applicable to domestic issuers.
We intend to take all actions necessary for us to maintain compliance as a foreign private issuer under the applicable corporate governance requirements of the Sarbanes-Oxley Act of 2002, the rules adopted by the SEC and NYSE listing standards. Because we are a foreign private issuer, our directors and senior management are not subject to short-swing profit and insider trading reporting obligations under Section 16 of the Exchange Act. They will, however, be subject to the obligations to report changes in share ownership under Section 13 of the Exchange Act and related SEC rules.
102
Item 16H.Mine Safety Disclosure
Not applicable.
Item 16I.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 17.Financial Statements
We have provided financial statements pursuant to Item 18.
Item 18.Financial Statements
The audited consolidated financial statements as required under Item 18 are attached hereto starting on page F-1 of this Annual Report. The audit report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, is included herein preceding the audited consolidated financial statements.
103
Item 19.Exhibits
List all exhibits filed as part of the registration statement or annual report, including exhibits incorporated by reference.
Incorporation by Reference | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit No. |
| Description |
| Form |
| File No. |
| Exhibit |
| Filing |
| Filed / | |
1.1 | Amended and Restated Memorandum and Articles of Association of Vertical Aerospace Ltd. | 6-K | 001-41169 | 1.1 | 12/16/2021 | ||||||||
2.1 | Specimen Ordinary Share Certificate of Vertical Aerospace Ltd. | F-4 | 333-257785 | 4.2 | 7/9/2021 | ||||||||
2.2 | F-4 | 333-257785 | 4.4 | 7/9/2021 | |||||||||
2.3 | 20-F | 001-41169 | 2.3 | 4/29/2022 | |||||||||
2.4 | F-1 | 333-262207 | 4.8 | 1/18/2022 | |||||||||
2.5 | 20-F | 001-41169 | 2.5 | 4/29/2022 | |||||||||
2.6 | F-1 | 333-266643 | 4.6 | 8/8/2022 | |||||||||
2.7 | 20-F | 001-41169 | 4.8 | 4/29/2022 | |||||||||
2.8 | F-4 | 333-257785 | 10.20 | 11/1/2021 | |||||||||
2.9 | * | ||||||||||||
4.1 | 20-F | 001-41169 | 4.2 | 4/29/2022 | |||||||||
4.2 | Form of Subscription Agreement, by and among Vertical and the subscribers party thereto. | F-4 | 333-257785 | 10.6 | 7/9/2021 | ||||||||
4.3†† | * | ||||||||||||
4.4†† | Form of Vertical Aerospace Ltd. Replacement Enterprise Management Incentive Option Agreements. | S-8 | 333-263815 | 4.4 | 3/24/2022 | ||||||||
4.5 | Call Option Agreement dated December 16, 2021, by and among American and VAGL. | 20-F | 001-41169 | 4.12 | 4/29/2022 | ||||||||
4.6 | F-4 | 333-257785 | 10.15 | 8/24/2021 | |||||||||
4.7 | F-4 | 333-257785 | 10.16 | 8/24/2021 | |||||||||
4.8 | F-4 | 333-257785 | 10.17 | 8/24/2021 | |||||||||
4.9 | 6-K | 001-41169 | 10.1 | 12/16/2021 | |||||||||
4.10†† | F-1 | 333-262207 | 10.23 | 1/18/2022 | |||||||||
4.11†† | 20-F | 001-41169 | 4.22 | 4/29/2022 | |||||||||
4.12 | * | ||||||||||||
4.13 | F-1 | 333-266643 | 10.19 | 8/8/2022 | |||||||||
8.1 | * | ||||||||||||
12.1 | Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | * | |||||||||||
12.2 | Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | * | |||||||||||
104
Incorporation by Reference | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit No. |
| Description |
| Form |
| File No. |
| Exhibit |
| Filing |
| Filed / | |
13.1 | Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ** | |||||||||||
13.2 | Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ** | |||||||||||
15.1 | Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm. | * | |||||||||||
101.INS | Inline XBRL Instance Document. | * | |||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | * | |||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | * | |||||||||||
101.DEF | Inline XBRL Taxonomy Definition Linkbase Document. | * | |||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | * | |||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | |||||||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | * | |||||||||||
* | Filed herewith. |
** | Furnished herewith. |
†† | Indicates a management contract or compensatory plan. |
Certain agreements filed as exhibits to this Annual Report contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and that may not be reflected in such agreements. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements.
105
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Vertical Aerospace Ltd. | ||
Date: March 22, 2023 | |||
By: | /s/ Stephen Fitzpatrick | ||
Name: | Stephen Fitzpatrick | ||
Title: | Chief Executive Officer | ||
106
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID |
| F-2 |
F-3 | ||
F-4 | ||
F-5 | ||
F-6 | ||
F-7 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Vertical Aerospace Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial position of Vertical Aerospace Ltd. and its subsidiaries (the “Group”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt about the Group’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Group has incurred net losses from operations and net cash outflows from operating activities since its inception and will need to raise additional capital to fund its future operations, and has stated that these events or conditions indicate that a material uncertainty exists that may cast significant doubt (or raise substantial doubt as contemplated by PCAOB standards) on the Group’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
March 22, 2023
We have served as the Group’s auditor since 2017.
F-2
Vertical Aerospace Ltd
Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2022, December 31, 2021 and December 31, 2020
| Note |
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 | £ 000 | ||||||
Revenue |
| 5 | — |
| |
| | |
Cost of sales |
| — | ( |
| ( | |||
Gross profit |
| — | |
| | |||
Research and development expenses |
| 7 | ( |
| ( |
| ( | |
Administrative expenses |
| 7 | ( |
| ( |
| ( | |
Related party administrative expenses |
| 7 | ( |
| ( |
| ( | |
Other operating income |
| 6 | |
| |
| | |
Operating loss |
| ( | ( |
| ( | |||
Finance income/(costs) |
| 8 | |
| |
| ( | |
Related party finance costs |
| 8 | — |
| ( |
| ( | |
Total finance income/(costs) |
| 8 | |
| |
| ( | |
Loss before tax |
| ( | ( |
| ( | |||
Income tax expense |
| 10 | — |
| — |
| ( | |
Net loss for the period |
| ( | ( | ( | ||||
Foreign exchange translation differences | | ( | — | |||||
Total comprehensive loss for the year | ( | ( |
| ( | ||||
£ |
| £ |
| £ | ||||
Basic and diluted loss per share | 9 | ( |
| ( |
| ( |
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
F-3
Vertical Aerospace Ltd
Consolidated Statement of Financial Position as at December 31, 2022 and December 31, 2021
|
| December 31, |
| December 31, | ||
Note | 2022 | 2021 | ||||
£ 000 | £ 000 | |||||
Current Assets |
|
|
|
| ||
Non-current assets |
|
|
|
| ||
Property, plant and equipment |
| 11 | |
| | |
Right of use assets |
| 12 | |
| | |
Intangible assets |
| 13 | |
| | |
|
| | ||||
Current assets |
|
|
| |||
Trade and other receivables |
| 15 | |
| | |
Financial assets at amortised cost | | — | ||||
Restricted cash | 14 | | — | |||
Cash at bank |
| 14 | |
| | |
| | |||||
Total assets |
|
| |
| | |
Equity |
|
|
| |||
Share capital |
| 16 | |
| | |
Other reserve |
| 16 | |
| | |
Share premium | 16 | | | |||
Accumulated deficit |
|
| ( |
| ( | |
Total equity |
|
| |
| | |
Non-current liabilities |
|
|
| |||
Lease liabilities |
| 18 | |
| | |
Provisions |
| 19 | |
| | |
Derivative financial liabilities | 24 | | | |||
Trade and other payables |
| 20 | |
| | |
|
| | ||||
Current liabilities |
|
|
| |||
Lease liabilities |
| 18 | |
| | |
Warrant liabilities | 21 | | | |||
Trade and other payables |
| 20 | |
| | |
Loans from related parties |
| 17 | — |
| — | |
|
| | ||||
Total liabilities |
|
| |
| | |
Total equity and liabilities |
|
| |
| |
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
F-4
Vertical Aerospace Ltd
Consolidated Statement of Cash Flows for the Year Ended December 31, 2022, December 31, 2021 and December 31, 2020
| Note |
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 | £ 000 | ||||||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss for the period |
| ( |
| ( |
| ( | ||
Adjustments to cash flows from non-cash items |
|
|
| |||||
Depreciation and amortization |
| 11,13 | |
| |
| | |
Depreciation on right of use assets |
| 12 | |
| |
| | |
Finance (income)/costs |
| 8 | ( |
| ( |
| | |
Related party finance costs |
| 8 | — |
| |
| | |
Share based payment transactions |
| 7 | |
| |
| | |
Warrant expense | 7 | — | | — | ||||
Net exchange differences |
| — |
| |
| — | ||
Income tax expense | 10 | — |
| — |
| | ||
Goodwill impairment | | — | — | |||||
| ( |
| ( |
| ( | |||
Working capital adjustments |
|
|
| |||||
Increase in trade and other receivables |
| 15 | ( |
| ( |
| ( | |
(Decrease)/Increase in trade and other payables |
| 20 | ( |
| |
| | |
Net cash flows used in operating activities |
| ( |
| ( |
| ( | ||
Cash flows from investing activities | ||||||||
Increase in deposits | 14 | ( | — | — | ||||
Acquisitions of property plant and equipment |
| 11 | ( |
| ( |
| ( | |
Acquisition of intangible assets |
| 13 | ( |
| ( |
| ( | |
Rent guarantee deposits | 14 | ( | — | — | ||||
Deferred consideration proceeds/(payments) |
| — |
| |
| ( | ||
Net cash flows used in investing activities |
| ( |
| ( |
| ( | ||
Cash flows from financing activities |
|
|
| |||||
Proceeds from convertible loan notes | 24 | — | | — | ||||
Proceeds from related party borrowings |
| 27 | — |
| |
| | |
Repayment of related party borrowings |
| 27 | — |
| ( |
| — | |
Payments to lease creditors | 18 | ( | ( | ( | ||||
Proceeds from related party investment | 27 | — | | — | ||||
Cash acquired as part of Business Combination | 7 | — | | — | ||||
Proceeds from PIPE |
| — |
| |
| — | ||
Proceeds from equity subscription line | | — | — | |||||
Movement in net parent investment |
| — |
| — |
| | ||
Net cashflows generated from financing activities |
| |
| |
| | ||
Net (decrease)/increase in cash at bank |
| ( |
| |
| ( | ||
Cash at bank as at January 1 |
|
| |
| |
| | |
Effect of foreign exchange rate changes | | ( | — | |||||
Cash at bank as at December 31 | | | |
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
F-5
Vertical Aerospace Ltd
Consolidated Statement of Changes in Equity for the Year Ended December 31, 2022, December 31, 2021 and December 31, 2020
| Share |
| Other |
| Net parent |
| Accumulated |
| ||
capital | reserves | investment | deficit | Total | ||||||
£ 000 | £ 000 | £ 000 | £ 000 | £ 000 | ||||||
At January 1, 2020 |
| — |
| — |
| |
| — |
| |
Total comprehensive loss |
| — |
| — |
| ( |
| ( |
| ( |
Share based payment transactions | — | — | — | | | |||||
Movement in net parent investment |
| — |
| — |
| |
| — |
| |
Transfer to Other reserves | — | | ( | — | — | |||||
At December 31, 2020 |
| — |
| |
| — |
| ( |
| ( |
|
| Share |
| Share |
| Other |
| Accumulated |
| |||
Note | capital | premium | reserves | deficit | Total | |||||||
£ 000 | £ 000 | £ 000 | £ 000 | £ 000 | ||||||||
At January 1, 2021 |
|
| — |
| — |
| |
| ( |
| ( | |
Loss for the year | — | — | — | ( | ( | |||||||
Translation differences | — | — | ( | — | ( | |||||||
Total comprehensive loss |
|
| — |
| — |
| ( |
| ( |
| ( | |
Share based payment transactions |
| 23 |
| — |
| — |
| — |
| |
| |
Share acquisition |
| 16 |
| |
| — |
| |
| — |
| |
PIPE investment |
| 16 |
| — |
| |
| — |
| — |
| |
Capital reorganization |
| 7 |
| — |
| |
| — |
| — |
| |
Issuance of warrants |
| 21 |
| — |
| |
| |
| — |
| |
At December 31, 2021 |
|
| |
| |
| |
| ( |
| |
|
| Share |
| Share |
| Other |
| Accumulated |
| |||
Note | capital | premium | reserves | deficit | Total | |||||||
£ 000 | £ 000 | £ 000 | £ 000 | £ 000 | ||||||||
At January 1, 2022 | | | | ( | | |||||||
Loss for the year | — | — | — | ( | ( | |||||||
Translation differences |
|
| — |
| — |
| |
| — |
| | |
Total comprehensive loss |
|
| — |
| — |
| |
| ( |
| ( | |
Exercise of warrants and options |
| 21 | — |
| |
| ( |
| — |
| | |
Reclassification of warrants | 21 | — | — | | — | | ||||||
Share issuances under equity subscription line | 16 | — | | — | — | | ||||||
Share based payment transactions |
| 23 | — |
| |
| |
| ( |
| | |
At December 31, 2022 |
| |
| |
| |
| ( |
| |
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
F-6
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022
1General information
Vertical Aerospace Ltd (the “Company”, or the “Group” if together with its subsidiaries) is incorporated under the Companies Law (as amended) of the Cayman Islands. The address of its principal executive office is: Unit 1 Camwal Court, Bristol, United Kingdom. The Group’s main operations are in the United Kingdom and these financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£’000) except where otherwise indicated.
These financial statements were authorised for issue by the Board of Directors on March 20, 2023.
Principal activities
The principal activity of the Company and its wholly owned subsidiary, Vertical Aerospace Group Ltd (“VAGL”), is the development and commercialization of vertical take-off and landing electrically powered aircraft (“eVTOL”). VAGL became a subsidiary of the Company on December 15, 2021 as part of the capital reorganization. Prior to December 15, 2021, the Company was a shell company with no active trade or business, and all relevant assets and liabilities, as well as income and expenses, were borne by VAGL. Therefore the comparatives of 2020 in these consolidated financial statements reflects the financial position and results of operations of VAGL.
2Significant accounting policies
Presentation of these financial statements
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, as modified by the revaluation of certain financial assets and liabilities (including derivative financial instruments) which are recognized at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies.
The functional currency of the Company is US Dollars (‘$’ or ‘USD’) and the functional currency of VAGL is pounds sterling (‘£’ or ‘GBP’). The financial statements are presented in pounds sterling (‘£’ or ‘GBP’), which is the Group’s presentation currency. Items included in the financial statements are measured using the currency of the primary economic environment in which the entity and its subsidiaries operate (“the functional currency”). Cumulative translation adjustments resulting from translating foreign functional currency financial statements into GBP are reported within other reserves.
All amounts are presented in and rounded to the nearest thousand unless otherwise indicated. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.
Basis of consolidation
Vertical Aerospace Ltd is the parent of the Group and has
The consolidated financial statements incorporate the financial positions and the results of operations of the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of the subsidiaries are prepared for the same reporting period as the Company using consistent accounting policies. Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated.
F-7
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
The capital reorganization
On December 15, 2021 the Company consummated the capital reorganization whereby the Company acquired all the ordinary shares of VAGL in consideration for the issuance of ordinary shares in the Company, by way of a share for share exchange.
At the same time Broadstone Acquisition Corp., (“Broadstone”, a Cayman Islands exempted company), a special purpose acquisition company, was acquired by the Group.
This Business Combination is accounted for as a capital reorganization in accordance with IFRS. Under this method of accounting, Broadstone is treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination is treated as the equivalent of the VAGL issuing shares at the closing of the Business Combination for the net assets of Broadstone as of the closing date, accompanied by a recapitalization.
The reorganization was accounted for within the scope of IFRS 2. Accordingly, during the year ended December 31, 2021 the Company recorded a one-time non-cash expense of £
Summary of significant accounting policies and key accounting estimates
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Going concern
Management has prepared a cash flow forecast for the Group and has considered the ability for the Group to continue as a going concern for the foreseeable future, being at least 12 months after approving these financial statements.
The Group is currently in the research and development phase of its journey to commercialisation of eVTOL technology. Commensurate with being in the development phase, the Group has invested heavily in research to support the development of its aircraft. The Group is not currently generating revenue and has incurred net losses and net cash outflows from operating activities since inception. As of December 31, 2022, the Group had £
Within the next 12 months following the date of this Annual Report, management expects the funding requirements to be approximately £
The Group will need to raise additional capital to fund its future operations and remain as a going concern, before the Group uses all of its existing resources. There can be no assurance that the Group will be able to obtain additional funding on acceptable terms and thus have sufficient funds to meet Group’s funding requirements. As a result, the timely completion of financing is important for the Group’s ability to continue as a going concern when it has exhausted its existing resources.
F-8
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
The dependency on raising additional capital indicates that a material uncertainty exists that may cast significant doubt (or raise substantial doubt as contemplated by PCAOB standards) on the Group’s ability to continue as a going concern and therefore the Group may be unable to realise the assets and discharge the liabilities in the normal course of business. The consolidated financial statements have been prepared assuming that the Group will continue as a going concern, which contemplates the continuity of operations, realisation of assets and the satisfaction of liabilities in the ordinary course of business and do not include any adjustments that would result if the Group were unable to continue as a going concern.
Changes in accounting policy
The Group adopted the following amendments for the first time during the period commencing January 1, 2022:
| ● | Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); |
| ● | Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); |
| ● | Annual Improvements to IFRS Standards 2018-2020; and |
| ● | References to Conceptual Framework (Amendments to IFRS 3). |
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
No accounting standards and interpretations that have been published but not effective for periods ending December 31, 2022 have been early adopted by the Group or are expected to have a material impact on the Group.
Government grants
Government grants are recognised as Other operating income and are recognised in the period when the expense to which the grant relates is incurred. Grants are only recognised when there is a signed grant offer letter or equivalent from the government body and there is reasonable assurance that the Group will be able to satisfy all conditions of the grant.
Benefit from Research and Development Tax Credit
As a company that carries out extensive research and development activities, the Company benefits from the UK research and development tax credit regime. Qualifying expenditures largely comprise of R&D staff employment costs, R&D components, consumables, parts, tooling and outsourced contracting support for R&D activities and utilities costs. Due to the nature of the business, the Company has generated losses since inception. The benefit from research and development, or R&D, tax credits is recognized in the consolidated statements of comprehensive income, net, and represents the sum of the research and development tax credits recoverable in the UK.
The UK research and development tax credit is fully refundable to the Company and is not dependent on current or future taxable income. As a result, the Company has recorded the entire benefit from the UK research and development tax credit as a benefit which is included in net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any UK research and development tax credits generated are needed to offset a corporate income tax liability in the UK, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other operating income.
F-9
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
Research and development expenses
Research expenditure is charged to profit or loss in the period in which it occurred.
Development expenditure is recognised as an intangible asset when it is probable that the project will generate future economic benefit, considering factors such as technological, commercial and regulatory feasibility. Other development expenditure is charged to profit or loss in the period in which it occurred.
Refer to note 3 Critical accounting judgements and key sources of estimation uncertainty for a discussion on the judgement of this classification.
The amounts included in research and development expenses include staff costs for staff working directly on research and development projects and for expenses directly attributable to a research project, excluding software costs.
Finance income and costs
Finance income and costs includes the fair value movement on publicly traded warrants and convertible loan notes. Finance costs includes interest payable and is recognised in profit or loss using the effective interest method. Interest income is recognised in profit or loss as it accrues, using the effective interest method.
Foreign currency transactions and balances
Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in profit or loss. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences arising from the consolidation of subsidiaries whose functional currency differs to the presentational currency of the group are recoded within other comprehensive income.
The most important exchange rates that have been used in preparing the financial statements are:
Closing rate as at December 31, 2022: USD $1 = GBP £
Average rate for the year ending December 31, 2022: USD $1 = GBP £
Non-monetary items measured in terms of historical cost in a foreign currency are not retranslated.
Tax
The tax expense for the period comprises current tax and deferred tax. Tax is recognised in profit or loss, except that a change attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the company operates and generates taxable income.
F-10
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty.
Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority.
Property, plant and equipment
Property, plant and equipment is stated at cost, which includes directly attributable incremental costs incurred in their acquisition and installation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
Depreciation
Depreciation is charged to write off the cost of assets over their estimated useful lives, as follows:
Asset class |
| Depreciation method and rate |
Leasehold property under right of use and leasehold improvements | Straight line over term of lease | |
Office equipment | ||
Plant and machinery |
Intangible assets
Intangible assets are carried at cost, less accumulated amortization and impairment losses.
Computer software licences acquired for use within the Company are capitalized as an intangible asset on the basis of the costs incurred to acquire and bring to use the specific software.
F-11
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
Amortization
Amortization is provided on intangible assets so as to write off the cost on a straight-line basis, less any estimated residual value, over their expected useful economic life as follows:
Asset class |
| Amortization method and rate |
IT software |
Business combinations and goodwill
The purchase method is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at their fair values on the date of acquisition. The excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets, including intangible assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of net assets of the subsidiary acquired, the difference is recognised directly in profit or loss.
Goodwill is stated at cost, less any accumulated impairment losses. Goodwill is tested annually for impairment or when there are indicators of impairment.
Cash at bank
Cash at bank is held on deposit with financial institutions located within the United Kingdom and is immediately available. Management has assessed the financial institutions that hold the Company’s cash at bank to be financially sound, with minimal credit risk in existence. Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest. The cash at bank excludes restricted cash deposits, which are subject to restrictions and are therefore not available for general use.
Restricted cash
The Company presents restricted cash as a separate line item in the balance sheet where this is relevant to an understanding of the Group’s financial position. Restricted cash refers to cash that is held by the Company for specific reasons and is, therefore, not available for immediate ordinary business use.
Short term deposits
Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest.
Trade and other receivables
Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is established using an expected credit loss model as per the Group’s accounting policy for the impairment of financial assets. Other receivables represent amounts due from parties who are not customers and are measured at amortized cost.
F-12
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
Trade and other payables
Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Trade and other payables are recognised initially at the transaction price and subsequently measured at amortized cost using the effective interest method.
Borrowings
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are subsequently carried at amortized cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge to profit or loss over the period of the relevant borrowing using the effective interest method.
Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
Provisions
Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.
Leases
Definition
A lease is a contract, or part of a contract, that conveys the right to use an asset or a physically distinct part of an asset (‘the underlying asset’) for a period of time in exchange for consideration. Further, the contract must convey the right to the company to control the asset or a physically distinct portion thereof. A contract is deemed to convey the right to control the underlying asset, if throughout the period of use, the company has the right to:
| ● | Obtain substantially all the economic benefits from the use of the underlying asset, and; |
| ● | Direct the use of the underlying asset (for example, directing how and for what purpose the asset is used). |
Initial recognition and measurement
The company initially recognizes a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term.
The lease liability is measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments, purchase options at exercise price (where reasonably certain), expected amount of residual value guarantees, termination option penalties (where reasonably certain) and variable lease payments that depend on an index or rate.
F-13
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
The right of use asset is initially measured at the amount of the lease liability, adjusted for lease prepayments, lease incentives received, the company’s initial direct costs and an estimate of restoration, removal and dismantling costs.
Subsequent measurement
After the commencement date, the company measures the lease liability by:
Interest on the lease liability in each period during the lease term is the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. Interest charges are included in finance costs in profit or loss, unless the costs are included in the carrying amount of another asset applying other applicable standards. Variable lease payments not included in the measurement of the lease liability, are included in operating expenses in the period in which the event or condition that triggers them arises.
Right-of-use assets
The related right-of-use asset is accounted for using the cost model in IFRS 16 and depreciated and charged in accordance with the depreciation requirements of IAS 16 Property, Plant and Equipment as disclosed in the accounting policy for Property, Plant and Equipment. Adjustments are made to the carrying value of the right of use asset where the lease liability is re-measured in accordance with the above. Right of use assets are tested for impairment in accordance with IAS 36 Impairment of Assets as disclosed in the accounting policy in impairment.
Short term and low value leases
The company has made an accounting policy election, by class of underlying asset, not to recognize lease assets and lease liabilities for leases with a lease term of 12 months or less (short term leases).
The company has made an accounting policy election on a lease-by-lease basis, not to recognize lease assets on leases for which the underlying asset is of low value.
Lease payments on short term and low value leases are accounted for on a straight-line bases over the term of the lease or other systematic basis. Short term and low value lease payments are included in operating expenses.
Impairment (non-financial assets)
All assets are reviewed for impairment when there is an indicator of impairment. In addition, goodwill is reviewed for impairment at least annually. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
F-14
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
Share capital and reserves
Ordinary shares are classified as equity and share capital is carried at par value. Share capital issued meets the definition of an equity instrument as defined in IAS 32 ‘Financial Instruments’ when the contract evidences a residual interest in the assets of the Company after deducting all of its liabilities. Incremental costs directly attributable to the issue of shares are accounted for as a deduction from consideration received, and are recorded in share premium. Share premium reflects the proceeds received (net of allowable costs) in excess of the par value.
Equity instruments are measured at the fair value of the cash or other resources received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement is on a present value basis.
Employee Benefits
A defined contribution plan is a pension plan under which fixed contributions are paid into a separate entity and has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense when they are due.
For defined contribution plans, contributions are paid into publicly or privately administered pension insurance plans on a mandatory or contractual basis. The contributions are recognized as employee benefit expense when they are due.
Liabilities for wages and salaries, including non-monetary benefits and annual leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service, are recognized in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as accruals and classified as current liabilities in the balance sheet.
Share based payments – Enterprise Management Incentive and 2021 Incentive Plan
The Company operates an equity-settled, share based compensation plan, under which the entity receives services from employees as consideration for equity instruments (share options or shares). The fair value of the employee services received in exchange for the grant of the shares is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the shares granted:
| - | including any market performance conditions (for example, an entity’s share price); |
| - | excluding the impact of any service and non-market performance vesting conditions (for example, remaining an employee of the entity over a specified time period); and |
| - | including the impact of any non-vesting conditions. |
Non-market performance and service conditions are included in assumptions about the number of shares that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. In addition, in some circumstances employees may provide services in advance of the grant date and therefore, the grant date fair value is estimated for the purposes of recognizing the expense during the period between service commencement period and grant date.
F-15
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
At the end of each reporting period, the Company revises its estimates of the number of shares that are expected to vest based on the non-market vesting conditions. The Company recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.
See note 23 for further details.
Other non-current share-based payments were made during the prior year as detailed within the significant accounting policy for the capital reorganization. Further information is included with the critical accounting judgements and key sources of estimation uncertainty.
Financial instruments
Financial instruments are contracts that give rise to a financial asset for one entity and to a financial liability or equity instrument for another entity. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the settlement date.The company recognizes financial assets and financial liabilities in the statement of financial position when, and only when, the company becomes party to the contractual provisions of the financial instrument. Financial assets and financial liabilities are offset, and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Financial assets
The Group’s financial assets include cash at bank and other financial assets. Financial assets are initially measured at fair value plus, in the case of a financial asset not measured at fair value through profit or loss, transaction costs. Trade receivables are measured at their transaction price.
For all financial assets the Group has the objective to hold financial assets in order to collect the contractual cash flows. The contractual terms of all the Group’s financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the outstanding amount. All financial assets are therefore measured at amortized cost.
Impairment of financial assets — expected credit losses (“ECL”)
All financial assets measured at amortized cost are required to be impaired at initial recognition in the amount of their expected credit loss (“ECL”), based on the difference between the contractual and expected cash flows
The simplification available for financial instruments with a low credit risk (“low credit risk exemption”) is applied as of the reporting date. Factors that can contribute to a low credit risk assessment are debtor specific rating information and related outlooks. The requirement for classification with a low credit risk is regarded to be fulfilled for counterparties that have at least an investment grade rating; in this case there is no need to monitor credit risks for financial instruments with a low credit risk.
F-16
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
Financial liabilities
The Group’s financial liabilities include warrants, lease liabilities, convertible loans, trade and other payables, and other financial liabilities. Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (“FVTPL”). All financial liabilities are recognized initially at fair value less, in the case of a financial liability not at fair value through profit or loss, directly attributable transaction costs.
Financial liabilities at FVTPL are measured at fair value and gains and losses resulting from changes in fair value are recognized in finance income/expenses. The Group only accounts for convertible loans and warrants as a financial liability at FVTPL. All other financial liabilities are subsequently measured at amortized cost.
An embedded derivative in a hybrid contract, with a financial liability or a non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. The assessment whether to separate an embedded derivative is done only once at initial recognition of the hybrid contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability.
Convertible Loans
Convertible loans are bifurcated into a debt component and a conversion right if the latter is an equity instrument. The conversion right of a convertible loan is not an equity instrument but a liability if some conversion features of the loan lead to a conversion into a variable number of shares. In this case it has to be assessed if embedded derivatives need to be separated from the host contract. If this is the case, the remaining host contract is measured at amortized cost and the separated embedded derivative is measured at fair value through profit or loss until the loan is converted into equity or becomes due for repayment. The conversion features and other repayment options provided for in the contract are identified as a combined embedded derivative if they share the same risk exposure and are interdependent.
Warrant Liabilities
Public warrants are recognized as liabilities in accordance with IFRS 9 at fair value. The liabilities are subject to re-measurement at each balance sheet date until exercised. Private warrants linked to sales targets are recognised within equity as these satisfy the “fix to fix” criterion within IAS 32.
F-17
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
2Significant accounting policies (continued)
Fair value measurements
IFRS 13 clarifies that fair value is a market price, representing the amount received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier hierarchy is established as follows:
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2Other than quoted prices included in level 1, inputs that are observable for the asset or liability, either directly or indirectly, for suitability for the full term of the asset or liability.
Level 3Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.
3Critical accounting judgements and key sources of estimation uncertainty
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.
The Company’s most significant estimates and judgments involve valuation of the stock-based consideration, including the fair value of common stock and market-based restricted stock units, the valuations of warrant liabilities, derivative liabilities including convertible loan notes, and the valuation of call options.
These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Such estimates often require the selection of appropriate valuation methodologies and models and may involve significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ from those estimates under different assumptions, financial inputs, or circumstances.
Capitalization of development costs
The business incurs a significant amount of research and development cost. The point in time at which the business begins capitalization of any project is a critical accounting judgement. The business assesses the technology readiness level of its research and development projects, along with the commercialization potential and guidance from the accounting standards to assess whether a particular development project should be capitalized or not.
F-18
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
3Critical accounting judgements and key sources of estimation uncertainty (continued)
Costs for internally generated research and development are capitalized only if:
- the product or process is technically feasible;
- adequate resources are available to successfully complete the development;
- the benefits from the assets are demonstrated;
- the costs attributable to the projects are reliably measured;
- an intention exists to produce and market or use the developed product or process and market relevance can be demonstrated.
Management has concluded none of the projects currently meet the requirements for capitalization as the market for the use of eVTOL technologies is not yet established or proven, and uncertainties remain regarding the successful completion of this development.
If costs relating to a research and development projects are not capitalized, they are expensed as incurred and presented in Research and Development expenses in profit or loss (note 7).
Share acquisition – business combination under common control
There is currently no guidance in IFRS on the accounting treatment for combinations among entities under common control. IAS 8 requires management, if there is no specifically applicable standard or interpretation, to develop a policy that is relevant to the decision-making needs of users and that is reliable.
In the prior period, management made a judgement and applied a method broadly described as predecessor accounting. The principles of predecessor accounting are:
| ● | Assets and liabilities of the acquired entity are stated at predecessor carrying values. Fair value measurement is not required. |
| ● | No new goodwill arises in predecessor accounting. |
| ● | Any difference between the consideration given and the aggregate carrying value of the assets and liabilities of the acquired entity at the date of the transaction is included in equity. |
The share acquisition of all the ordinary shares of VAGL in the prior period has been considered as a business combination under common control and resulted in VAGL's operations and all of its net assets being recognized by the Company at their historical net book values.
Share-based Payments
During the year ended December 31, 2021, judgments were made in determining the valuation of shares prior to the business combination, including in relation to the issuance of Z-Shares to American Airlines (“American”) on June 10, 2021. For periods prior to the business combination, a probability-weighted model using option pricing methods has been used. For valuations as at or subsequent to the business combination the market value of the publicly traded shares has been used.
The issuance of Class Z-Shares to American
The issuance of Class Z-Shares to American was concluded to be a stand-alone transaction. The transaction ensured that American had an equity interest in VAGL in the event that the business combination did not complete and provided an incentive for American to invest in the PIPE. As a transaction in the Company’s own stock this would generally be within scope of IAS 32, however the compensatory nature of the transaction required consideration of other IFRS guidance, specifically IFRS 2.
F-19
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
3Critical accounting judgements and key sources of estimation uncertainty (continued)
The valuation of the class Z-Shares took considered the following substantive terms and features:
| ● | Transfer restrictions and discount for lack of marketability |
| ● | Economic rights and entitlements |
| ● | Potential right to exchange into |
Two probability weighted scenarios were considered: a) the Z-Shares convert into to
During the year ended December 31, 2021 An expense of £
Enterprise Management Initiative (EMI)
On March 15, 2022, and as a result of the Business Combination, the Company entered into option agreements with certain employees of the Company as replacement option agreements for share options previously granted over shares in VAGL.
New equity instruments are granted to eligible employees and on March 15, 2022, the Company identified the new option agreements granted as replacement option agreements for the option agreements cancelled. As such the granting of these replacement option agreements has been accounted for in the same way as a modification of the original grant of equity instruments.
It has been concluded that this modification increased the fair value of the option agreements granted, measured immediately before and after the modification, and therefore the Company has subsequently included the incremental fair value granted in the measurement of the amount recognised for services received as consideration for the option agreements granted.
The incremental fair value granted is the difference between the fair value of the replacement option agreements and the net fair value of the cancelled option agreements, at the date the replacement equity instruments were granted – see note 23 for further details.
2021 Incentive Plan
During the year ended December 31, 2022 the Board of Directors adopted the “2021 Incentive Award Plan” in order to facilitate the grant of cash and equity incentives to employees. The share options were given to employees of VAGL in relation to shares in the Company. Under the scheme, the participants are granted options which only vest if the employee remains in employment with the company at the vesting date. Options are vested after the first anniversary of the grant date with
F-20
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
3Critical accounting judgements and key sources of estimation uncertainty (continued)
Convertible Loans and Embedded Derivatives
The fair value of the convertible senior secured notes has been estimated using an option pricing model, in accordance with the International Valuation Standards definition of “market value”. This approach is deemed appropriate because:
| ● | Like an option, the returns to the Convertible Notes are dependent upon the share price of the Company; |
| ● | The Company is listed and therefore its historical equity value and equity volatility data is readily available; and |
| ● | There are several breakpoints at which the potential returns to the various securities could vary depending on the other participating securities. |
The Convertible Notes, which have a
The holder of the Convertible Notes may convert them into ordinary shares in the Company at any time at a conversion ratio of
Many of the inputs are not observable and Company specific inputs include the expected probability and timing of specific future events.
For detailed information on the convertible loans and its embedded derivatives, a description of the valuation model and the input parameters, see note 24.
Warrants
Public warrants relate to those warrants that commenced trading on the NYSE on December 16, 2021. Prior to that date, there was no public trading market for Company ordinary shares or warrants.
Private warrants include those issued upon consummation of the business combination to American, members of the Avolon Group (“Avolon”), Virgin, and Mudrick Capital Management L.P (“Mudrick”). Private options were issued to Marcus Waley-Cohen (“MWC”).
F-21
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
3Critical accounting judgements and key sources of estimation uncertainty (continued)
The fair value of the Private Warrants is deemed to be equal to the fair value of the Public Warrants except where the terms of Private Warrants materially differ to Public Warrants. Differences exist, with regards to certain warrant, in the maximum term to exercise as well as the strike price.
An option pricing model (Black-Scholes Model) therefore been used to derive the fair value of Private Warrants. This valuation is judgmental. For detailed information on the warrants, a description of the valuation model and the input parameters, see note 21.
On December 16, 2021 Private Warrants were issued to Avolon, American and Virgin Atlantic Limited (“Virgin”). Warrants issued to Avolon and American were exercised immediately after issuance.
The warrants meet the fixed-for-fixed criterion and are therefore recognised within other reserves until the point of exercise. The amount classified to other reserves on initial recognition reclassified to share capital and share premium upon exercise.
Private Warrants and Options issued to Mudrick along Public Warrants, are accounted for as liabilities in accordance with IAS 32, subject to ongoing mark-to-market adjustments (see note 21).
4Operating segments
The Group operates as a single operating segment and
5Revenue
The analysis of the Group’s revenue for the year is as follows:
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 |
| £ 000 | |||
Rendering of engineering consultancy services |
| — |
| | |
All revenue relates to non-core ancillary consultancy services and was provided by Vertical Aerospace Engineering Limited, which was disposed of in October 2021.
F-22
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
6Other operating income
The analysis of the Group’s other operating income for the year is as follows:
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 |
| £ 000 | |||
Government grants |
| |
| | | |
R&D tax credit |
| |
| | | |
Other | — | | — | |||
| |
| | |
Government grants
Government grants relate to amounts receivable from the Aerospace Technology Institute (ATI) relating to the research and development of eVTOL technologies. The grant is made to fund research and development expenditure and is recognised in profit or loss in the period to which the expense it is intended to fund relates.
R&D tax credit scheme
The R&D tax credit relates to the UK’s research and development expenditure credit scheme.
7Expenses by nature
Included within administrative expenses and research and development expenses are the following expenses.
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 | £ 000 | ||||
Research and development staff costs |
| | |
| | |
Research and development consultancy |
| | |
| — | |
Research and development components, parts and tooling | | | | |||
Total research and development expenses | | | | |||
Administrative staff costs |
| | |
| | |
Share based payment expenses (note 23) |
| | |
| | |
Warrant expenses |
| — | |
| — | |
Consultancy costs |
| | |
| | |
Legal and financial advisory costs |
| | |
| — | |
HR advisory and recruitment costs |
| | |
| | |
IT hardware and software costs |
| | |
| | |
Related party administrative expenses |
| | |
| | |
Insurance expenses |
| | |
| | |
Marketing costs | | | — | |||
Other administrative expenses | | | | |||
Premises expenses |
| | |
| | |
Depreciation expense |
| | |
| | |
Amortisation expense |
| | |
| | |
Depreciation on right of use property assets | | | | |||
Goodwill impairment | | — | — | |||
Stamp Duty | — | | — | |||
Total administrative expenses | | | | |||
Total administrative & research and development expenses | | | |
F-23
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
7Expenses by nature (continued)
Staff costs relates primarily to salary and salary related expenses, including social security and pension contributions. Staff costs exclude share based payments.
Share based payment expense primary relates both R&D staff and administrative staff and includes the following:
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 |
| £ 000 | |||
Enterprise Management Initiative | | | | |||
2021 Incentive Plan | | — | — | |||
Issuance of Z-Shares to American |
| — | | — | ||
Capital reorganization |
| — | | — | ||
Issuance of shares to suppliers and partners |
| | | — | ||
| | | |
Enterprise Management Incentive and 2021 Incentive Plan
The Group operates an Enterprise Management Incentive (“EMI”) scheme, being a tax advantaged share scheme that can be operated by qualifying companies. This scheme was modified during the year ended December 31, 2022 to reflect the revised capital structure of the Company following completion of the Business Combination. As part of this modification, all option holders exchanged their options held in VAGL for newly issued options in the Company.
Also, during the year ended December 31, 2022 the Board of Directors adopted the “2021 Incentive Award Plan” in order to facilitate the grant of cash and equity incentives to employees.
The impact of both the modification of the EMI scheme and the adoption of the 2021 Inventive Aware Plan is reflected in these financial statements – see note 23 for further details.
Issuance of PIPE shares to suppliers and partners
Upon consummation of the Business Combination the Company recognised an expense £
Issuance of Z-Shares to American
On June 10, 2021, VAGL and American executed a subscription agreement by which American subscribed for
Two probability weighted scenarios were considered: a) the Z-Shares convert into to
| Business |
| Business | |
combination | combination does | |||
completes | not complete | |||
£’000 | £’000 | |||
Fair value of Z-Shares as at June 10, 2021 |
| |
| |
The probability weighted calculation as at June 10, 2021 concluded that Business Combination was likely to be completed, giving a valuation of £
F-24
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
7Expenses by nature (continued)
Capital reorganization
The difference in the fair value of the shares issued by the Company over the value of the net monetary assets of the Broadstone represented a listing service, recognized as an expense upon consummation of the Business Combination.
| 2021 | |
£’000 | ||
Market value of |
| |
Cash acquired |
| |
Warrants acquired ( |
| ( |
Accounts payable acquired |
| ( |
Add net liabilities acquired |
| ( |
Foreign exchange differences |
| |
Charge for listing services |
| |
An additional £
8Finance income/(costs)
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 | £ 000 | ||||
In-kind interest on convertible loan notes | ( | — | — | |||
Interest on loans from related parties |
| — | ( |
| ( | |
Fair value losses | — | — | ( | |||
Interest expense on leases | ( | ( | ( | |||
Foreign exchange loss | ( | — | — | |||
Other |
| ( | ( |
| ( | |
Total finance costs | ( | ( | ( | |||
Interest accrued on deposits | | — | — | |||
Fair value gains | — | |||||
Other |
| — | |
| — | |
Total finance income |
| | |
| — | |
Total finance income/(costs) | | | ( |
Fair value movements include a fair value gain on public and private warrants in issue of £
F-25
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
9Basic and diluted loss per share
Basic earnings per share, in this case a loss per share, is calculated by dividing the loss for the year attributable to ordinary equity holders of the parent by the number of ordinary shares outstanding.
Because a net loss for all period presented has been reported, diluted loss per share is the same as basic loss per share. Therefore, all potentially dilutive common stock equivalents are anti-dilutive and have been excluded from the calculation of net loss per share.
The calculation of loss per share is based on the following data:
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 |
| £ 000 | |||
Net loss for the period | ( | ( | ( | |||
£ | £ | £ | ||||
Basic and diluted loss per share | ( | ( | ( | |||
No. of shares | No. of shares | No. of shares | ||||
Weighted average issued shares |
| |
| | |
10Income tax expense
Tax credited /(charged) in profit or loss
| 2022 |
| 2021 |
| 2020 | |
£ 000 | £ 000 |
| £ 000 | |||
Current taxation |
|
|
|
| ||
UK corporation tax |
| — |
| — | ( |
The tax on profit before tax for the year is higher than the standard rate of corporation tax in the UK (2021 - higher than the standard rate of corporation tax in the UK) of
The differences are reconciled below:
| 2022 |
| 2021 |
| 2020 | |
| £ 000 |
| £ 000 | £ 000 | ||
Loss before tax |
| ( |
| ( | ( | |
Corporation tax benefit at standard rate |
| |
| | | |
Decrease in tax benefit from effect of expenses not deductible in determining taxable loss |
| ( |
| ( | ( | |
Decrease in tax benefit from tax losses for which no deferred tax asset was recognised |
| ( |
| ( | ( | |
Decrease in tax benefit arising from group relief tax reconciliation |
| — |
| — | ( | |
Deferred tax credit from unrecognised temporary difference from a prior period |
| — |
| — | — | |
Total tax expense |
| — |
| — | ( |
The main rate of UK corporation tax for the years to December 31, 2022 and December 31, 2021 was
At the March Budget 2021, the UK government announced that the Corporation Tax main rate (for all profits except ring fence profits and profits under £
F-26
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
10Income tax expense (continued)
Unused potential tax losses for which
11Property, plant and equipment
| Plant and |
| Leasehold |
|
| |||
Machinery | improvements | Office equipment | Total | |||||
£ 000 | £ 000 | £ 000 | £ 000 | |||||
Cost or valuation | ||||||||
At January 1, 2021 | — | |
| |
| | ||
Additions | — | |
| |
| | ||
December 31, 2021 | — | | | | ||||
Additions | | | | | ||||
Disposals | — | ( | ( | ( | ||||
December 31, 2022 | | |
| |
| | ||
Depreciation |
|
|
|
|
|
| ||
At January 1, 2021 | — | |
| |
| | ||
Charge for year | — | |
| |
| | ||
At December 31, 2021 | — | |
| |
| | ||
Charge for the year | | |
| |
| | ||
Depreciation on disposals | — | ( | ( | ( | ||||
At December 31, 2022 | | |
| |
| | ||
Net book value |
|
|
|
|
|
| ||
At December 31, 2022 | | |
| |
| | ||
At December 31, 2021 | — | |
| |
| |
All property, plant and equipment is attributable to the UK.
F-27
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
12Right of use assets
| Leasehold Property | |
£ 000 | ||
Cost or valuation | ||
At January 1, 2021 |
| |
Additions |
| |
At December 31, 2021 |
| |
Additions | | |
At December 31, 2022 | | |
Depreciation |
| |
At January 1, 2021 |
| |
Charge for the year |
| |
At December 31, 2021 |
| |
Charge for the year |
| |
At December 31, 2022 |
| |
Net book value |
| |
At December 31, 2022 |
| |
At December 31, 2021 |
| |
The right of use assets are leasehold properties in Bristol and Kemble, UK. Further information on the lease liability of this lease can be found in note 18.
13Intangible assets
| Goodwill |
| IT software |
| Total | |
£ 000 | £ 000 | £ 000 | ||||
Cost or valuation |
|
|
|
|
|
|
At January 1, 2021 | |
| |
| | |
Additions | — |
| |
| | |
At December 31, 2021 | |
| |
| | |
Additions | — |
| |
| ||
Disposals | — | ( | ( | |||
Impairment | ( | — | ( | |||
At December 31, 2022 | — |
| |
| | |
Amortisation |
|
|
|
|
| |
At January 1, 2021 | — |
| |
| | |
Amortisation charge | — |
| |
| | |
At December 31, 2021 | — |
| |
| | |
Amortisation charge | — |
| |
| | |
Depreciation on disposals | — | ( | ( | |||
At December 31, 2022 | — |
| |
| | |
Net book value |
|
|
|
|
| |
At December 31, 2022 | — |
| |
| | |
At December 31, 2021 | |
| |
| |
The amortisation charge of £
F-28
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
13Intangible assets (continued)
All intangible assets are attributable to the UK and IT software is third party software licences, which includes perpetual licences and implementation costs. The carrying amounts of the software was reviewed at the reporting date and management determined that there were no indicators of impairment.
Goodwill previously recognised on the acquisition of Vertical Advanced Engineering Ltd in July 2019 and related to the Formula 1 approach to the use materials and technologies was fully impaired during the year.
14Cash and cash equivalents
Restricted cash is deemed to be restricted by way of a rent guarantee, which the counterparty can call on in the event of default by the Company.
Current assets at amortised cost relates to short term deposits, which are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest.
All balances are held with financial institutions with a minimum rating of ‘A’.
15Trade and other receivables
| December 31, |
| December 31, | |
2022 | 2021 | |||
£ 000 | £ 000 | |||
Government receivables |
| |
| |
Prepayments |
| |
| |
Other receivables |
| |
| |
| |
| |
Included within Government receivables is £
F-29
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
16Share capital and other reserves
Allotted, called up and fully paid shares
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
| No. |
| £ |
| No. |
| £ | |
Ordinary of $ | | | | | ||||
| |
| |
| |
| | |
Ordinary shares have full voting rights, full dividend rights. The Company is authorized to issue
During the period
| Shares issued |
| Proceeds received |
| Premium arising | |
No. | £000 | £000 | ||||
Exercise of EMI Options | | | | |||
Equity Subscription line | | | | |||
Share based payment transaction | | — | | |||
Exercise of public warrants | | | | |||
| | |
This includes
On August 5, 2022, we entered into the share purchase agreement with Nomura Securities International (“Nomura”), establishing an equity subscription line whereby the Company has the right to sell to Nomura up to $
During the year
Nature and purpose of other reserves
The share-based payments reserve is used to recognise the grant date fair value of options issued to employees but not exercised. The translation reserve arises as a result of the retranslation of overseas subsidiaries in consolidated financial statements. The warrant reserve is used to recognise the fair value of warrants issued in exchange for a fixed amount of cash or another financial asset for a fixed number of the Company’s ordinary shares (‘fixed-for-fixed condition’). The merger reserve is used to reflect any difference between the consideration and the book value of net assets acquired as part of a business combination.
17Loans from related parties
| December 31, |
| December 31, | |
2022 | 2021 | |||
£ 000 | £ 000 | |||
Current loans and borrowings |
|
|
|
|
Loans from related parties |
| — |
| — |
F-30
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
17Loans from related parties (continued)
Loans from related parties represented a loan from Imagination Industries Ltd, a company wholly owned by Stephen Fitzpatrick. Movements in the prior year were as follows:
| 2022 |
| 2021 | |
£’000 | £’000 | |||
As at January 1 |
| — |
| |
Amounts advanced |
| — |
| |
Interest charged |
| — |
| |
Amounts repaid |
| — |
| ( |
Conversion to Equity |
| — |
| ( |
As at December 31 |
| — |
| — |
18Leases
The balance sheet shows the following amounts relating to lease liabilities:
| December 31, |
| December 31, | |
2022 | 2021 | |||
£ 000 | £ 000 | |||
Long term lease liabilities |
| |
| |
Current lease liabilities |
| |
| |
Total lease liabilities |
| |
| |
Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case, the Company’s incremental borrowing rate is used, being the rate that the Company would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
Lease liabilities maturity analysis
A maturity analysis of lease liabilities based on contractual undiscounted gross cash flow is reported below:
| December 31, |
| December 31, | |
2022 | 2021 | |||
£ 000 | £ 000 | |||
Less than one year |
| |
| |
Within 2 - 5 years |
| |
| |
More than 5 years |
| |
| |
Total lease liabilities (undiscounted) |
| |
| |
F-31
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
18Leases (continued)
Total cash outflows related to leases
Total cash outflows related to leases are presented in the table below:
| December 31, |
| December 31, | |
Payment | 2022 | 2021 | ||
£ 000 | £ 000 | |||
Right of use assets |
| |
| |
Low value leases |
| — |
| — |
Short term leases |
| |
| |
Total cash outflow |
| |
| |
A reconciliation of the lease creditors is shown below:
| £000 | |
As at January 1, 2021 |
| |
Additions | | |
Interest element of payments to finance lease creditors |
| ( |
Principal element of payments to finance lease creditors |
| ( |
Interest expense of leases |
| |
As at December 31, 2021 |
| |
Additions | | |
Interest element of payments to finance lease creditors | ( | |
Principal element of payments to finance lease creditors | ( | |
Interest expense of leases | | |
As at December 31, 2022 | |
Lease creditors relate to property in Bristol and Kemble, UK. During 2022, the Company entered into additional lease arrangements in both of these locations. The cost, depreciation charge and carrying value for the right-of-use asset is disclosed in note 12 Right of use assets. The interest expense on lease liabilities is disclosed in note 8 Finance costs.
19Provisions
| Tax and social |
|
| |||
security | Dilapidations | Total | ||||
£ 000 | £ 000 | £ 000 | ||||
As at January 1, 2021 |
| — | | | ||
Unwinding of discount |
| — | | | ||
As at December 31, 2021 |
| — | | | ||
Additions | | — | | |||
Unwinding of discount |
| — | | | ||
As at December 31, 2022 |
| | | |
The dilapidation provision was recognized as a result of the obligation to return the leased property in Bristol, UK to its original condition at the end of the lease which currently expires in 2028. The provision is recognized at amortized cost with discount unwind being recognized each year. The provision is expected to be utilized at the end of the lease period.
F-32
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
20Trade and other payables
Amounts falling due within one year:
| December 31, |
| December 31, | |
2022 | 2021 | |||
£ 000 | £ 000 | |||
Trade payables |
| |
| |
Accrued expenses |
| |
| |
Amounts due to related parties |
| — |
| — |
Social security and other taxes |
| |
| |
Outstanding defined contribution pension costs |
| |
| |
| |
| |
Amounts falling due after more than one year:
| December 31, |
| December 31, | |
2022 | 2021 | |||
£ 000 | £ 000 | |||
Deferred fees and charges |
| |
| |
The Group’s exposure to market and liquidity risks, including maturity analysis, related to trade and other payables is disclosed in note 26 Financial risk management and impairment of financial assets.
21Warrant liabilities
Warrants recorded as a liability
The following warrants are in issue but not exercised:
December 31, 2022 | December 31, 2021 | |||
| Number |
| Number | |
Public Warrants |
| | | |
Mudrick Warrants |
| | | |
MWC Options | — | | ||
Outstanding, end of period |
| | |
Recorded as a liability, the following shows the change in fair value during the year ended December 31, 2022:
| £ 000 | |
January 1, 2021 |
| — |
Additions |
| |
Change in fair value recognised in profit or loss | ( | |
Foreign exchange movements |
| ( |
December 31, 2021 |
| |
Addition/(Disposal) of private placement warrants | — | |
Changes in fair value | ( | |
Reclassification to equity | ( | |
Foreign exchange movements | | |
December 31 2022 | |
F-33
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
21Warrant liabilities (continued)
Public warrants may only be exercised for a whole number of shares. The public warrants will expire
Once the public warrants become exercisable, the Company may redeem the public warrants for redemption at a price of $
Each public warrant entitles the registered holder to purchase
On December 15, 2021 Mudrick Capital Management were issued with
During the year ended December 31, 2022 the warrants issued to MWC were reclassified to be recorded within equity.
Warrants recorded in reserves issued to Virgin, American and Avolon
On October 29, 2021, the Company entered into the Virgin Atlantic Warrant Instrument, which provides for a warrant over
Spot |
| $ | |
Strike | $ | | |
Risk-free rate (%) |
| | |
Dividend yield |
| — | |
Maximum term to exercise |
| ||
Volatility (%) |
| |
Had
Immediately after the Share Acquisition Closing, the Company entered into the American Warrant Instrument and the Avolon Warrant Instrument, which provides for a warrant over
Avolon were also issued with, and exercised,
F-34
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
21Warrant liabilities (continued)
A contract asset has not been recognised as the customer has the ability to terminate the contract without penalty and the aircraft subject to the purchase order has not yet been certified, therefore during the year ended December 31, 2021 an expense has been recognised as shown below:
American ( |
| |
Avolon ( |
| |
Avolon commercial ( |
| |
Virgin ( |
| |
| |
No instruments of a similar nature were issued during the year ended December 31, 2022.
22Pension and other schemes
Defined contribution pension scheme
The Group operates a defined contribution pension scheme. The pension cost charge for the year represents contributions payable by the Group to the scheme and amounted to £
23Share-based payments
EMI Scheme
The movements in the number of EMI share options during the year were as follows:
| 2022 |
| 2021 | |
Number | Number | |||
Outstanding, start of period |
| | | |
Granted during the period |
| — | | |
Grant arising due to scheme modification | | — | ||
Forfeited during the period | ( | ( | ||
Exercised during the period | ( | — | ||
Outstanding, end of period |
| | |
The EMI share options were all granted prior to December 31, 2021, after which no new grants were made.
The movements in the weighted average exercise price of share options during the year were as follows:
| 2022 |
| 2021 | |
£ | £ | |||
Outstanding, start of period |
| | | |
Granted during the period |
| — | | |
Granted due to scheme modification | | — | ||
Forfeited during the period | | | ||
Outstanding, end of period |
| | |
F-35
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
23Share-based payments (continued)
The exercise price of share options granted during the period is based upon the modification of the scheme to reflect the revised capital structure of the Company.
Details of share options outstanding at the end of the year are as follows:
| 31 December |
| 31 December | |
2022 | 2021 | |||
Weighted average exercise price (£) |
| | | |
Number of share options outstanding |
| | | |
Expected weighted average remaining vesting period (years) |
|
The number of options which were exercisable at December 31, 2022 was
The weighted average fair value per option of options granted during the period at measurement date was £
The option pricing model used was Black Scholes and the main inputs are set out in the table below:
| December 31, |
| December 31, | |
2022 | 2021 | |||
Average share price at date of grant (£) | | | ||
Expected volatility (%) |
| | | |
Vesting period in years |
| |||
Risk-free interest rate (%) |
| | |
Given the lack of share price history, volatility has been estimated with reference to other industry competitors, on a listed stock market, with a premium attached for various uncertainties
The total expense recognised by the company during the year in respect of the EMI scheme was £
2021 Incentive Plan
On 1 October 2022, employees in the Company had been granted share options in relation to shares issued by the Company. Under the scheme, the participants are granted options which only vest if the employee remains in employment with the company at the vesting date. Options are vested after the first anniversary of the grant date with
| December 31, |
| December 31, | |
2022 | 2021 | |||
Average share price at date of grant (£) |
| |
| — |
Expected volatility (%) |
| | % | — |
Dividend yield |
| — |
| — |
Risk-free interest rate (%) |
| | % | — |
Expected volatility was determined by the historical volatility of the Company since the business combination.
The total expense recognised by the company during the year in respect of the 2021 Incentive Plan is £
F-36
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
23Share-based payments (continued)
The movements in the number of employee share options during the year were as follows:
| 2022 |
| 2021 | |
Number | Number | |||
Outstanding, start of period |
| — |
| — |
Granted during the period |
| |
| — |
Forfeited during the period |
| ( |
| — |
Outstanding, end of period |
| |
| — |
The number of options outstanding as at the end of the period costs of
The movements in the weighted average exercise price of CSOP options during the year were as follows:
| 2022 |
| 2021 | |
£ | £ | |||
Outstanding, start of period |
| — |
| — |
Granted during the period |
| |
| — |
Forfeited during the period |
| |
| — |
Outstanding, end of period |
| |
| — |
Details of share options outstanding at the end of the year were as follows:
| 31 December |
| 31 December | |
2022 | 2021 | |||
Weighted average exercise price (£) |
| |
| — |
Number of share options outstanding |
| |
| — |
Expected weighted average remaining vesting period (years) |
|
|
The exercise price shown above relates to CSOP options only as nil cost options have a
The expected average remaining vesting period for nil cost options has been determined as
F-37
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
24Derivative financial liabilities
Convertible Senior Secured Notes consists of the following:
| Mudrick | |
£ 000 | ||
As at January 1, 2022 | | |
Fair value movements | ( | |
In-kind interest paid | | |
Foreign exchange movements | | |
As at December 31, 2022 |
On December 15, 2021 Mudrick purchased Convertible Senior Secured Notes of and from the Company in an aggregate principal amount of £
The Convertible Senior Secured Notes are initially convertible into up to
Upon the occurrence of a Fundamental Change, Mudrick has the right, at its option, to require the Company to repurchase for cash all or any portion of its Convertible Senior Secured Notes in principal amounts of $
A fundamental change consists of a change in beneficial owner of the Company; the sale of all or substantially all of the assets or share capital of the Company; dissolution or liquidation of the Company; or NYSE de-listing.
The Convertible Senior Secured Notes will bear interest at the rate of
A number of covenants exist in relation to the Company’s obligations with regard to payment of notes and interest; furnishing the trustee with exchange act reports; compliance with Section 13 or 15(d) of the Exchange Act; provision of an annual compliance certificate; relinquishing of the benefit or advantage of, any stay, extension or usury law; acquisition of notes by the Company; permitting any Company subsidiaries to become liable for the notes; limitation on liens securing indebtedness; limitation on asset sales; limitation on transactions with affiliates; limitation on restricted payments; retention of $
In accordance with IFRS 9, this is treated as a hybrid instrument and is designated it in entirety as fair value through profit or loss. Therefore, upon initial recognition the Company has not separated the convertible note into a host liability component (accounted for at amortized cost) and the derivative liability components (accounted for at fair value through profit or loss). The valuation methods and assumptions are shown in note 25.
F-38
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
25Financial instruments
Financial assets at amortized cost
| Carrying value |
| Fair value | |||||
| December 31, |
| December 31, |
| December 31, |
| December 31, | |
2022 | 2021 | 2022 | 2021 | |||||
£ 000 | £ 000 | £ 000 | £ 000 | |||||
Cash at bank |
| |
| |
| |
| |
Short term deposits | | — | | — | ||||
Trade and other receivables | | | | | ||||
Restricted cash |
| |
| — |
| |
| — |
| |
| |
| |
| | |
The fair value of financial assets is based on the expectation of recovery of balances. All balances are expected to be received in full. Trade and other receivables have been categorized in level 2 of the fair value hierarchy. All other balances have been recognised in level 1 of the fair value hierarchy.
Financial liabilities at amortized cost:
| Carrying Value |
| Fair Value | |||||
| December 31, |
| December 31, |
| December 31, |
| December 31, | |
2022 | 2021 | 2022 | 2021 | |||||
£ 000 | £ 000 | £ 000 | £ 000 | |||||
Trade and other payables |
| |
| |
| |
| |
Lease liabilities |
| |
| |
| |
| |
| |
| |
| |
| | |
All balances have been recognised in level 2 of the fair value hierarchy.
Financial liabilities at fair value through profit or loss:
| Carrying Value |
| Fair Value | |||||
| December 31, |
| December 31, |
| December 31, |
| December 31, | |
2022 | 2021 | 2022 | 2021 | |||||
£ 000 | £ 000 | £ 000 | £ 000 | |||||
Convertible Senior Secured Notes | |
| | |
| | ||
Warrant liabilities | |
| | |
| | ||
|
| | |
| | |||
Warrants are traded in an active market and are therefore categorized in level 1 of the fair value hierarchy (see note 21). Convertible Senior Secured Notes (both host contract and embedded derivative) are categorized in level 3 of the fair value hierarchy (see note 24).
Valuation methods and assumptions
Financial liabilities at amortized cost
The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. Due to their short maturities, the fair value of the trade and other payables approximates to their book value.
The total interest expense for financial liabilities not held at fair value through profit or loss is £
F-39
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
25Financial instruments (continued)
Financial liabilities at fair value through profit or loss
The fair value of the convertible senior secured notes has been estimated using an option pricing model, in accordance with the International Valuation Standards definition of “market value”.
The Convertible Notes, which have a
The holder of the Convertible Notes may convert them into ordinary shares in the Company at any time at a conversion ratio of
Option pricing therefore has been utilised to calculate the probability that these options will be in the money, at expiration and assign a dollar value to it. The underlying share price of the company, exercise price, volatility, interest rate, and time to expiration have been used as inputs into the model to derive the option's theoretical fair value.
Company specific inputs include the expected probability and timing of future equity financing, in addition to the probability and timing of a future fundamental change.
As of December 31, 2022 an estimated a fair value of £
| December 31, |
| December 31, | |
2021 | 2022 | |||
Interest rate (%) |
| | | |
Credit spread (%) | | | ||
Expected life |
| | | |
Risk-free rate (%) | | | ||
Dividend yield |
| | | |
Volatility (%) |
| | |
Credit spread was selected such that the fair value of the Convertible Notes reconciles to the total purchase price of $
Had the stock price traded higher, or a higher volatility been assumed then this would have resulted in a higher fair value being attributed to the instrument. An increase in interest rate, risk free rate or credit spread applied would result in a reduction in the fair value being attributed to the instrument. A
F-40
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
26Financial risk management and impairment of financial assets
The Group’s activities expose it to a variety of financial risks: market risk, credit risk, exchange rate risk and liquidity risk.
Credit risk and impairment
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from prepayments to suppliers and distributors and deposits with the Group’s bank.
Restricted cash as at December 31, 2022 includes £
The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was £
The allowance account of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly. The Group provides for impairment losses based on estimated irrecoverable amounts determined by reference to specific circumstances and the experience of management of debtor default in the industry. On that basis, the loss allowance as at December 31, 2022 and December 31, 2021 was determined as £
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s financial position. The Group’s principal exposure to market risk is foreign exchange rate fluctuations. There are currently no currency forwards, options, or swaps to hedge this exposure.
Foreign exchange risk
The Group is exposed to foreign exchange risk arising from exposure to various currencies in the ordinary course of business. The Group received proceeds from fundraising activities in USD, and holds cash in both USD and GBP. The majority of the Group’s trading costs are in GBP,however the Group also has supply contracts denominated in USD and EUR. The Group holds sufficient cash in both USD and GBP to satisfy its trading costs in each of these currencies. In 2022 and 2021, the Group did not consider foreign exchange rate risk to have a material impact on the financial statements and therefore no sensitivity analysis is presented. The Company may be exposed to material foreign exchange risk in subsequent years as a result of the significance of the USD denominated Convertible Senior Secured Notes in particular relative to USD deposits and cash held ($
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.The Group’s management uses short and long-term cash flow forecasts to manage liquidity risk. Forecasts are supplemented by sensitivity analysis used to assess funding adequacy for at least a 12-month period. The Company manages its cash resources to ensure it has sufficient funds to meet all expected demands as they fall due.
F-41
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
26Financial risk management and impairment of financial assets (continued)
Maturity analysis
|
| Between 2 and 5 |
| After more than |
| |||
Within 1 year | years | 5 years | Total | |||||
2022 | £ 000 | £ 000 | £ 000 | £ 000 | ||||
Trade and other payables | | | — | | ||||
Lease liabilities | | | | | ||||
Convertible senior secured notes | — | | — | | ||||
| | | | |||||
2021 | ||||||||
Trade and other payables |
| |
| |
| — |
| |
Lease liabilities |
| |
| |
| |
| |
Convertible senior secured notes | — | | — | | ||||
| |
| |
| |
| |
Capital management
The Group’s objective when managing capital is to ensure the Group continues as a going concern; and grows in a sustainable manner. Given the ongoing development of eVTOL aircraft with minimal revenues, the Group relies on funding raised from the Business Combination transaction and other equity investors. Cash flow forecasting is performed on a regular basis which includes rolling forecasts of the Group’s liquidity requirements to ensure that the Group has sufficient cash to meet operational needs.
27Related party transactions
Key management personnel compensation
Key management personnel are the members of the Board.
| 2022 |
| 2021 | |
£ 000 | £ 000 | |||
Salaries and other short term employee benefits |
| |
| |
Payments to defined contribution pension schemes |
| |
| |
Share-based payments |
| |
| |
Termination benefits | | — | ||
| |
| |
Aggregate gains made on the exercise of share options for the Directors during the year totalled £
Summary of transactions with other related parties
During the year, Imagination Industries Ltd, a company controlled by Stephen Fitzpatrick provided and charged the Group with services totalling £
On January 1, 2022 Domhnal Slattery was appointed Chairman of the Board of Directors. Domhnal Slattery is the ultimate beneficial owner of Avolon-e.
On July 18, 2022 Michael Flewitt was appointed to the Board of Directors.
On October 17, 2022, Harry Holt and Marcus Waley-Cohen resigned from the Board of Directors.
F-42
Vertical Aerospace Ltd
Notes to the Financial Statements for the Year Ended December 31, 2022 (continued)
On January 23, 2023, Michael Cervenka resigned from the Board of Directors.
28Ultimate controlling party
The ultimate controlling party is Stephen Fitzpatrick.
29Non adjusting events after the reporting period
On February 20, 2023, John Martin was appointed as Chief Financial Officer of the Company, succeeding Vincent Casey.
F-43
Exhibit 2.9
DESCRIPTION OF SECURITIES AND ARTICLES OF ASSOCIATION
As of December 31, 2022, Vertical Aerospace Ltd. (the “Company,” “we,” “us,” and “our”) had two classes of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: our ordinary shares par value $0.0001 per share (“ordinary shares”) and public warrants to purchase our ordinary shares (“Public Warrants”). Set forth below is a summary of certain information concerning our share capital as well as a description of certain material terms of our Amended and Restated Memorandum and Articles of Association (the “Articles”), which became effective in connection with our business combination with Broadstone Acquisition Corp., which was closed on December 16, 2021 (the “Business Combination”), and relevant provisions of Cayman Islands law. Because the following is only a summary, it does not contain all of the information that may be important to you. The following summary does not purport to be complete and is qualified in its entirety by reference to applicable Cayman Islands law and our Articles, which has been publicly filed with the Securities and Exchange Commission (“SEC”).
General
We are a Cayman Islands exempted company with limited liability (company number 376116). Our affairs are governed by our Articles and the Companies Act of the Cayman Islands, as amended and restated from time to time (the “Companies Act”).
Our objects are unrestricted, and Section 3 of our Articles provides that we shall have full power and authority to carry out any object not prohibited by any law.
Our register of members is maintained by Continental Stock Transfer & Trust Company.
Ordinary Shares
General
We are authorized to issue 500,000,000 ordinary shares. All of our issued and outstanding ordinary shares are fully paid and non-assessable. Certificates representing our issued and outstanding ordinary shares are generally not issued and legal title to our issued shares is recorded in registered form in the register of members. Holders of ordinary shares do not have any conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the ordinary shares.
We currently have only one class of issued ordinary shares, which have identical rights in all respects and rank equally with one another. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.
Our board of directors (“Board”) may provide for other classes of shares, including classes of preferred shares, out of our authorized but unissued share capital, which could be utilized for a variety of corporate purposes, including future offerings to raise capital for corporate purposes or for use in employee benefit plans. Such additional classes of shares shall have such rights, restrictions, preferences, privileges and payment obligations as determined by our Board. If we issue any preferred shares, the rights, preferences and privileges of holders of our ordinary shares will be subject to, and may be adversely affected by, the rights of the holders of such preferred shares. See “—Variations of Rights of Shares.”
As of December 31, 2022, there were 214,211,021 ordinary shares issued and outstanding.
Dividends
The holders of our ordinary shares are entitled to such dividends as may be declared by our Board subject to the Companies Act and our Articles. Dividends and other distributions on issued and outstanding ordinary shares may be paid out of the funds of the Company lawfully available for such purpose, subject to any preference of any outstanding preferred shares. Dividends and other distributions will be distributed among the holders of our ordinary shares on a pro rata basis. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our Board and will depend upon such factors as earnings levels, capital requirements, contractual restrictions, our overall financial condition, available distributable reserves and any other factors deemed relevant by our Board.
Voting Rights
Holders of ordinary shares are entitled to one vote for each share held of record on all matters to be voted on by shareholders. A quorum required for a meeting of shareholders consists of members holding at least a simple majority of all voting share capital in issue at any such general meeting of the Company. Voting at any meeting of shareholders is by poll and not on a show of hands.
A special resolution will be required for important matters such as a merger or consolidation of the Company, change of name or making changes to our Articles or the voluntary winding up of the Company.
The adoption of any ordinary resolution by our shareholders requires the affirmative vote of a simple majority of the votes permitted to be cast by persons present (in person or by proxy) and voting at a general meeting at which a quorum is present, while a special resolution requires the affirmative vote of no less than two-thirds of the votes permitted to be cast by persons present (in person or by proxy) and voting at any such meeting, or, in each case, a unanimous resolution in writing.
Shareholder Meetings
Under our Articles, all general meetings of the Company other than annual general meetings are called extraordinary general meetings. Extraordinary general meetings for any purpose or purposes may be called at any time by a resolution adopted by the majority of our directors.
Our Articles do not permit our shareholders to request either an annual general meeting or an extraordinary general meeting. However, if an annual general meeting or an extraordinary general meeting is called by the directors, shareholders who are entitled to vote at the meeting and who comply with the notice provisions in the Articles may put forth a proposal. As a Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings.
Our Articles provide that notice of any general meeting shall be provided to each shareholder entitled to vote at such meeting not less than ten calendar days but not more than sixty calendar days before the date of the meeting. The notice shall specify the place, if any, date and time of the meeting, the means of remote communication, if any, by which shareholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of an extraordinary general meeting, the purpose or purposes for which the meeting is called. Business transacted at an extraordinary general meeting shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. No business shall be transacted at any general meeting unless a quorum of shareholders is present at the time when the meeting proceeds to business. A quorum required for a meeting of shareholders consists of members holding at least a simple majority of all voting share capital in issue at any such general meeting of the Company.
Variations of Rights of Shares
Under the Articles, if our share capital is divided into more than one class of shares, the rights attached to any such class may, whether or not the Company is being wound up, be varied without the consent of the holders of the issued shares of that class where such variation is considered by our directors not to have a material adverse effect upon such rights; otherwise, any such variation shall be made only with the consent in writing of the holders of not less than two thirds of the issued shares of that class or with the approval of a resolution passed by a majority of not less than two thirds of the votes cast at a separate meeting of the holders of the shares of that class.
Transfer of Ordinary Shares
Any of our shareholders may transfer all or any of their ordinary shares by an instrument of transfer in the usual or common form or any other form prescribed by the stock exchange, the SEC and/or any other competent regulatory authority or otherwise under applicable law, or approved by our Board, subject to the applicable restrictions of our Articles, such as the determination by the directors that a proposed transfer is not eligible.
Ownership Threshold
There are no provisions under Cayman Islands law applicable to us, or under the Articles, that require us to disclose shareholder ownership above any particular ownership threshold.
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by the Articles on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in the Articles governing the ownership threshold above which shareholder ownership must be disclosed.
Anti-Takeover Provisions in the Articles
Some provisions of the Articles may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including a provision that authorizes our Board to issue preference shares in one or more series
and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders.
Liquidation
On a winding-up or other return of capital, subject to any special rights attaching to any other class of shares, holders of ordinary shares will be entitled to participate in any surplus assets in proportion to their shareholdings.
Calls on Shares and Forfeiture of Shares
Our Board may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Directors
Our management is vested in our Board. Our Articles provide that questions arising at any meeting of directors shall be decided by the votes of a majority of the directors presented at a duly held meeting at which a quorum is present, or by unanimous written resolution of the Board. The quorum necessary for any Board meeting shall consist of at least a majority of the members of our Board.
Each director shall hold office until the expiration of his or her term, until his or her successor shall have been duly elected and qualified or until his or her earlier death, resignation or removal.
There is no cumulative voting with respect to the appointment of directors.
Directors may be appointed either to fill a vacancy arising from the resignation of a former director or as an addition to the existing Board by the affirmative vote of a simple majority of the directors present and voting at a Board meeting. A vacancy on the Board created by the removal of a director may be filled by the election or appointment by an ordinary resolution at the general meeting at which such director is removed or by the affirmative vote of a simple majority of the remaining directors present and voting at a Board meeting. A director may be removed from office by a special resolution for cause at the general meeting of the shareholders, or by a special resolution where the Board makes a determination that removal of a director is in the best interests of the Company.
Under our Articles, directors who are in any way, whether directly or indirectly, interested in a contract or proposed contract with our company must declare the nature of their interest at a meeting of the board of directors. Following such declaration, a director may vote in respect of any contract or proposed contract notwithstanding their interest; provided that, in exercising any such vote, such director complies with their fiduciary duties and any other applicable duties.
Our directors are entitled to such remuneration as the directors may from time to time determine.
Indemnity of Directors and Officers
Our Articles provide that our Board and officers shall be indemnified from and against all liability which they incur in execution of their duty in their respective offices to the fullest extent permitted under the laws of the Cayman Islands.
Differences in Company Law
Cayman Islands companies are governed by the Companies Act. The Companies Act is modeled on English Law but does not follow recent English Law statutory enactments, and differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the material differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements
In certain circumstances, the Companies Act allows for mergers or consolidations between two Cayman Islands companies, or between a Cayman Islands exempted company and a company incorporated in another jurisdiction (provided that is permitted or not prohibited by the constitutional documents of the company incorporated in another jurisdiction and facilitated by the laws of that other jurisdiction).
Where the merger or consolidation is between two Cayman Islands companies, the directors of each company must approve a written plan of merger or consolidation containing certain prescribed information. That plan of merger or consolidation must then be authorized by either (a) a special resolution (usually the affirmative vote of the holders of at least a two-thirds (2/3) majority of the issued ordinary shares of the company that are present in person or represented by proxy and entitled to vote thereon and who vote at the general meeting) of the shareholders of each company; and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. No shareholder resolution is required for a merger between a parent company (i.e., a company that owns at least 90% of the issued shares of each class in a subsidiary company) and its subsidiary company if a
copy of the plan of merger or consolidation is given to every member of the subsidiary company unless that member agrees otherwise.
The consent of each holder of a fixed or floating security interest of a constituent company must be obtained, unless the Cayman Islands court waives such requirement or makes such order as the Cayman Islands court otherwise considers reasonable. If the Registrar of Companies of the Cayman Islands is satisfied that the requirements of the Companies Act (which includes certain other formalities) have been complied with, the Registrar of Companies of the Cayman Islands will register the plan of merger or consolidation.
Where the merger or consolidation involves a foreign company and the surviving company is the Cayman Islands exempted company, the procedure is similar, save that with respect to the foreign company, the directors of the Cayman Islands exempted company are required to make a declaration to the effect that, having made due enquiry, they are of the opinion that the requirements set out below have been met: (i) that the merger or consolidation is permitted or not prohibited by the constitutional documents of the foreign company and by the laws of the jurisdiction in which the foreign company is incorporated, and that those laws and any requirements of those constitutional documents have been or will be complied with; (ii) that no petition or other similar proceeding has been filed and remains outstanding or order made or resolution adopted to wind up or liquidate the foreign company in the jurisdiction in which the foreign company is existing; (iii) that no receiver, trustee, administrator or other similar person has been appointed in any jurisdiction and is acting in respect of the foreign company, its affairs or its property or any part thereof; and (iv) that no scheme, order, compromise or other similar arrangement has been entered into or made in any jurisdiction whereby the rights of creditors of the foreign company are and continue to be suspended or restricted.
Where the surviving company is the Cayman Islands exempted company, the directors of the Cayman Islands exempted company are further required to make a declaration to the effect that, having made due enquiry, they are of the opinion that the requirements set out below have been met: (i) that the foreign company is able to pay its debts as they fall due and that the merger or consolidation is bona fide and not intended to defraud unsecured creditors of the foreign company; (ii) that in respect of the transfer of any security interest granted by the foreign company to the surviving or consolidated company (a) consent or approval to the transfer has been obtained, released or waived; (b) the transfer is permitted by and has been approved in accordance with the constitutional documents of the foreign company; and (c) the laws of the jurisdiction of the foreign company with respect to the transfer have been or will be complied with; (iii) that the foreign company will, upon the merger or consolidation becoming effective, cease to be incorporated, registered or exist under the laws of the relevant foreign jurisdiction; and (iv) that there is no other reason why it would be against the public interest to permit the merger or consolidation.
Where the above procedures are adopted, the Companies Act provides for a right of dissenting shareholders to be paid a payment of the fair value of his shares upon their dissenting to the merger or consolidation if they follow a prescribed procedure. In essence, that procedure is as follows: (a) the shareholder must give his written objection to the merger or consolidation to the constituent company before the vote on the merger or consolidation, including a statement that the shareholder proposes to demand payment for his shares if the merger or consolidation is authorized by the vote; (b) within 20 days following the date on which the merger or consolidation is approved by the shareholders, the constituent company must give written notice of such approval to each shareholder who made a written objection; (c) a shareholder must within 20 days following receipt of such notice from the constituent company, give the constituent company a written notice of his intention to dissent including, among other details, a demand for payment of the fair value of his shares; (d) within seven days following the date of the expiration of the period set out in paragraph (c) above or within seven days following the date on which the plan of merger or consolidation is filed, whichever is later, the constituent company, the surviving company or the consolidated company must make a written offer to each dissenting shareholder to purchase his shares at a price that the company determines is the fair value and if the company and the shareholder agree the price within 30 days following the date on which the offer was made, the company must pay the shareholder such amount; and (e) if the company and the shareholder fail to agree a price within such 30 day period, within 20 days following the date on which such 30 day period expires, the company shall (and any dissenting shareholder may) must file a petition with the Cayman Islands court to determine the fair value and such petition must be accompanied by a list of the names and addresses of the dissenting shareholders with whom agreements as to the fair value of their shares have not been reached by the company. At the hearing of that petition, the Cayman Islands court has the power to determine the fair value of the shares together with a fair rate of interest, if any, to be paid by the company upon the amount determined to be the fair value. Any dissenting shareholder whose name appears on the list filed by the company may participate fully in all proceedings until the determination of fair value is reached. These rights of a dissenting shareholder are not available in certain circumstances, for example, to dissenters holding shares of any class in respect of which an open market exists on a recognized stock exchange or recognized interdealer quotation system at the relevant date or where the consideration for such shares to be contributed are shares of any company listed on a national securities exchange or shares of the surviving or consolidated company.
Moreover, Cayman Islands law has separate statutory provisions that facilitate the reconstruction or amalgamation of companies in certain circumstances, that will generally be more suited for complex mergers or other transactions involving widely held companies. Such transactions, commonly referred to in the Cayman Islands as a “scheme of arrangement,” which may be tantamount to a merger. In the event that a merger was sought pursuant to a scheme of arrangement (the procedures for which are more rigorous and take longer to complete than the procedures typically required to consummate a merger in the United States),
the arrangement in question must be approved by (i) in respect a scheme of arrangement proposed between a company and its shareholders (or any class of shareholder), three fourths in value of the shareholders (or each class of shareholder) who attend and vote, either in person or by proxy, at a meeting (or meetings) convened for that purpose; or (ii) a scheme of arrangement proposed between a company and its creditors (or any class of creditors), a majority in number representing three fourths in value of the creditors (or each class of creditors) who attend and vote, either in person or by proxy, at a meeting (or meetings) convened for that purpose. The convening of the meetings and subsequently the terms of the arrangement must be sanctioned by the Cayman Islands court. While a dissenting shareholder would have the right to express to the Cayman Islands court the view that the scheme of arrangement should not be sanctioned, the Cayman Islands court may be expected to sanction the scheme of arrangement if it satisfies itself that:
| ● | The company is not proposing to act illegally or beyond the scope of its corporate authority and the statutory provisions as to majority vote have been complied with; |
| ● | the shareholders have been fairly represented at the meeting in question; |
| ● | the arrangement is such as a businessman would reasonably approve; and |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority.” |
If a scheme of arrangement is sanctioned by the Cayman Islands court, the scheme of arrangement will be binding on all of the shareholders (or each class of shareholder) or creditors (or each class of creditor).
If a scheme of arrangement or takeover offer (as described below) is sanctioned by the Cayman Islands court, any dissenting shareholder would have no rights comparable to appraisal rights (providing rights to receive payment in cash for the judicially determined value of the shares), which would otherwise ordinarily be available to dissenting shareholders of United States corporations.
Squeeze-out Provisions
When a takeover offer is made and accepted by holders of 90% of the shares to whom the offer relates within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Cayman Islands courts, but this is unlikely to succeed unless there is evidence of fraud, bad faith, collusion or inequitable treatment of the shareholders.
Further, transactions similar to a merger, reconstruction and/or an amalgamation may in some circumstances be achieved through means other than these statutory provisions, such as a share capital exchange, asset acquisition or control, or through contractual arrangements of an operating business.
Shareholders’ Suits
Walkers (Cayman) LLP, our Cayman Islands legal counsel, is not aware of any reported class action having been brought in a Cayman Islands court. Derivative actions have been brought in the Cayman Islands courts, and the Cayman Islands courts have confirmed the availability for such actions. In most cases, we will be the proper plaintiff in any claim based on a breach of duty owed to us, and a claim against (for example) our officers or directors usually may not be brought by a shareholder. However, based both on Cayman Islands authorities and on English authorities, which would in all likelihood be of persuasive authority and be applied by a court in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:
| ● | a company is acting, or proposing to act, illegally or beyond the scope of its authority; |
| ● | the act complained of, although not beyond the scope of the authority, could be effected if duly authorized by more than the number of votes which have actually been obtained; or |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
A shareholder may have a direct right of action against us where the individual rights of that shareholder have been infringed or are about to be infringed.
Enforcement of Civil Liabilities
The Cayman Islands has a different body of securities laws as compared to the United States and provides less protection to investors. Additionally, Cayman Islands companies may not have standing to sue before the Federal courts of the United States.
We have been advised by Walkers (Cayman) LLP, our Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment
has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
Special Considerations for Exempted Companies
We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary resident company except for the exemptions and privileges listed below:
| ● | an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies of the Cayman Islands; |
| ● | an exempted company’s register of members is not open to inspection; |
| ● | an exempted company does not have to hold an annual general meeting; |
| ● | an exempted company may issue shares with no par value; |
| ● | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 30 years in the first instance); |
| ● | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | an exempted company may register as a limited duration company; and |
| ● | an exempted company may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Indemnification of Directors and Executive Officers and Limitation of Liability
Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against willful default, willful neglect, actual fraud or the consequences of committing a crime. Our Articles permit indemnification of officers and directors, to the fullest extent permitted under the laws of the Cayman Islands, for any liability and loss suffered and expenses, including legal expenses, incurred in their capacities as such in connection with any action, suit or proceeding, where civil, administrative or investigative. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements with our directors that will provide such persons with additional indemnification beyond that provided in our Articles.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties
Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself or herself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. A director must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
Under Cayman Islands law, directors and officers owe the following fiduciary duties:
| ● | duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; |
| ● | duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; |
| ● | directors should not improperly fetter the exercise of future discretion; |
| ● | duty to exercise powers fairly as between different sections of shareholders; |
| ● | duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests; and |
| ● | duty to exercise independent judgment. |
In addition to the above, directors also owe a duty of care which is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and the general knowledge skill and experience of that director.
As set out above, directors have a duty not to put themselves in a position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position. However, in some instances what would otherwise be a breach of this duty can be forgiven and/or authorized in advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the Articles or alternatively by shareholder approval at general meetings.
Shareholder Action by Written Consent
Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. The Articles provide that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. The Articles do not permit our shareholders to requisition either an annual general meeting or an extraordinary general meeting. However, if an annual general meeting or an extraordinary general meeting is called by the Directors, shareholders who are entitled to vote at the meeting and who comply with the notice provisions in the Articles may put forth a proposal. As a Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Cayman Islands law, the Articles do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors
Under the Delaware General Corporation Law, a director of a corporation may be removed for cause with the approval of a majority of the issued and outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Articles, directors may be removed by the shareholders only for “Cause” (i.e., a conviction of a felony, the willful misconduct in the performance of director’s duties to the Company in a matter of substantial importance, or mental incompetency that directly affects such director’s ability to perform his or her obligations as a director) by a special resolution (except if the Board makes a determination that removal of a director by the shareholders by special resolution is in the best interests of the Company, then the definition of “Cause” shall not apply). A director will also cease to be a director if he or she (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) is prohibited by applicable law from being a director; or (v) the director absents himself or herself (for the avoidance of doubt, without being represented by proxy) from meetings of the Board for six consecutive months without special leave of absence from the directors, and the directors pass a resolution that he or she has by reason of such absence vacated office.
Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute under its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Under the Articles, if the Company is wound up, the liquidator of our company may distribute the assets with the sanction of an ordinary resolution of the shareholders and any other sanction required by law.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise.
Under the Articles, if our share capital is divided into more than one class of shares, the rights attached to any such class may, whether or not the Company is being wound up, be varied without the consent of the holders of the issued shares of that class where such variation is considered by our directors not to have a material adverse effect upon such rights; otherwise, any such variation shall be made only with the consent in writing of the holders of not less than two thirds of the issued shares of that class or with the approval of a resolution passed by a majority of not less than two thirds of the votes cast at a separate meeting of the holders of the shares of that class.
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote on the matter, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, the Articles may only be amended by a special resolution of the shareholders.
Directors’ Power to Issue Shares
Subject to applicable law, our board of directors is empowered to issue or allot shares or grant options and warrants with or without preferred, deferred, or other rights or restrictions.
Inspection of Books and Records
Under the Delaware General Corporation Law, any shareholder of a corporation may for any proper purpose inspect or make copies of the corporation’s stock ledger, list of shareholders and other books and records.
Holders of our shares have no general right under Cayman Islands law to inspect or obtain copies of our register of members or our corporate records.
Waiver of Certain Corporate Opportunities
Under the Articles, the Company has renounced any interest or expectancy of the Company in, or in being offered an opportunity to participate in, certain opportunities where such opportunities come into the possession
of one of our directors other than in his or her capacity as a director (as more particularly described in the Articles). This is subject to applicable law and may be waived by the relevant director.
Warrants
As of December 31, 2022, there were 15,264,935 Public Warrants outstanding.
Each whole warrant entitles the registered holder to purchase one ordinary share at a price of $11.50 per share, subject to adjustment as discussed below. The warrants will expire on December 16, 2026, five years after the date on which the Business Combination was completed, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We will not be obligated to deliver any ordinary shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the ordinary shares underlying the warrants is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations described below with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable and we will not be obligated to issue an ordinary share upon exercise of a warrant unless the ordinary share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will we be required to net cash settle any warrant.
We have agreed to use our commercially reasonable efforts to maintain the effectiveness of a registration statement filed with the SEC and a current prospectus relating to those ordinary shares until the warrants expire or are redeemed, as specified in the warrant agreement; provided that if our ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement. Warrant holders may exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption during any period when we will have failed to maintain an effective registration statement, but we will use our commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In such event, each holder would pay the exercise price by surrendering the warrants for that number of ordinary shares equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” (defined below) over the exercise price of the warrants by (y) the fair market value and (B) 0.361 per whole warrant. The “fair market value” as used in this paragraph shall mean the volume weighted average price of the ordinary shares for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.
No fractional ordinary shares will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, we will round down to the nearest whole number of the number of ordinary shares to be issued to the holder.
A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the ordinary shares issued and outstanding immediately after giving effect to such exercise.
Redemption of warrants for cash when the price per ordinary share equals or exceeds $18.00. Once the warrants become exercisable, we may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption to each warrantholder; and |
| ● | if, and only if, the closing price of the ordinary shares equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described below) for any 20 trading days within a 30-trading day period ending three trading days before we send the notice of redemption to the warrantholders. |
We will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the ordinary shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those ordinary shares is available throughout the 30-day redemption period. 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 warrants for ordinary shares when the price per ordinary share equals or exceeds $10.00. Once the warrants become exercisable, we may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the table below, based on the redemption date and the “fair market value” of our ordinary shares (as defined below) except as otherwise described below; |
| ● | if, and only if, the closing price of our ordinary shares equals or exceeds $10.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described below) for any 20 trading days within the 30-trading day period ending three trading days before we send the notice of redemption to the warrantholders; and |
| ● | if the closing price of the ordinary shares for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the warrantholders is less than $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described below). |
Beginning on the date the notice of redemption is given until the warrants are redeemed or exercised, holders may elect to exercise their warrants on a cashless basis. In such event, each holder of the warrants would pay the exercise price by surrendering the whole warrants for that number of ordinary shares determined based on the redemption date and the “fair market value” of our ordinary shares. The “fair market value” is determined for these purposes based on volume weighted average price of our ordinary shares during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants, and the number of months that the corresponding redemption date precedes the expiration date of the warrants. We will provide our warrantholders with the final fair market value no later than one business day after the 10-trading day period described above ends. In addition, we may, at our option, require all holders of warrants to exercise their warrants on a “cashless basis” if our ordinary shares are at the time of exercise of a public warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act (or any successor rule).
The exercise price and number of ordinary shares issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, share split-up, extraordinary dividend or our recapitalization, reorganization, merger or consolidation.
The 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 for the purpose of curing any ambiguity or correct any mistake, but 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.
The warrantholders do not have the rights or privileges of holders of ordinary shares and any voting rights until they exercise their warrants and receive ordinary shares. After the issuance of ordinary shares upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders.
If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of ordinary shares to be issued to the warrantholder.
We have agreed that, subject to applicable law, any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and we irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim.
Listing
Our ordinary shares and warrants are listed on The New York Stock Exchange under the symbols “EVTL” and “EVTLW,” respectively.
Transfer Agent and Registrar
The transfer agent and registrar for our ordinary shares and warrants is Continental Stock Transfer & Trust Company.
Exhibit 4.3
RULES
OF THE
VERTICAL AEROSPACE LTD. 2021
INCENTIVE AWARD PLAN
Board adoption: | 9 December 2021 |
| |
Stockholders’ approval: | 14 December 2021 |
| |
Compensation Committee amendment and restatement: | 27 January 2023 |
| |
Expiry date: | 14 December 2031 |
Date of amendment and restatement | Amendment and restatement change: |
| |
27 January 2023 | Schedule 3 addition approved by the Compensation Committee of the board of directors. |
Table of Contents
1. | Meaning of words used | 3 |
2. | Granting Awards | 5 |
3. | Stock limits | 7 |
4. | Vesting and exercise of Awards | 8 |
5. | Lapsing | 10 |
6. | Settlement of Awards | 10 |
7. | Investigations | 11 |
8. | Dealing Restrictions | 11 |
9. | Holding Period | 11 |
10. | Leaving | 12 |
11. | Mobile Participants | 13 |
12. | Corporate events | 13 |
13. | Exchange of Awards | 14 |
14. | Variations in stock capital | 15 |
15. | Tax | 15 |
16. | Terms of employment | 16 |
17. | General | 17 |
18. | Administration | 18 |
19. | Changing the Plan and termination | 19 |
20. | Governing law and jurisdiction | 20 |
Schedule 1 Awards granted to US Taxpayers | 21 | |
Schedule 2 US Incentive Stock Options | 25 | |
Schedule 3 Awards to French Participants | 29 | |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
1.Meaning of words used
1.1General
In these rules:
“Award” means a Conditional Award, an Option or a Phantom Award; “Award Date” means the date specified under rule 2.4 (Terms of Awards);
“Board” means the board of directors of the Company, the Compensation Committee of the board of directors of the Company or another committee duly authorised by it. For the purposes of rules 12 (Corporate events) and 13 (Exchange of Awards), it means those persons who were members of the Board immediately before the relevant event;
“Business Day” means a day on which the New York Stock Exchange (or, if the Board decides, any other stock exchange on which the Stock is traded) is open for the transaction of business;
“Company” means Vertical Aerospace Ltd.;
“Conditional Award” means a conditional right to acquire Stock granted under the Plan;
“Control” means the power of a person to secure by means of the holding of stock or the possession of voting power or by virtue of any powers conferred by any articles of association (or other document), that the affairs of a body corporate are conducted in accordance with the wishes of that person;
“Consultant” means any consultant or adviser engaged to provide services to the Company or any Member of the Group who qualifies as a consultant or advisor under the applicable rules of the US Securities and Exchange Commission for registration of stock on a Form S-8 Registration Statement;
“Dealing Restrictions” means any internal or external restrictions on dealings or transactions in securities;
“Dividend Equivalent” means a right to receive an additional amount, as set out in rule 6.3 (Dividend Equivalents);
“Eligible Individual” means any person who is an employee, a Consultant or a Non-Employee Director, as determined by the Board;
“Exchange Act” shall mean the US Securities Exchange Act of 1934, as amended from time to time;
“Exercise Period” means the period during which an Option may be exercised, starting when the Option Vests and ending on the 10th anniversary of the Award Date unless the Board decides that a shorter period will apply under rule 2.4 (Terms of Awards);
“Group” means the Company and any company that is a subsidiary of the Company and, for the purposes of rule 10 (Leaving), it includes associated companies nominated for this purpose by the Board, and “Member of the Group” will be understood accordingly;
“Holding Period” will be as described in rule 9 (Holding Period);
“Leaves” means ceasing to carry out services for all Members of the Group and “Leaving” will be understood accordingly;
“Malus and Clawback Policy” means the Vertical Aerospace Ltd. Group Malus and Clawback Policy (as amended from time to time), including any provisions adopted to comply with the requirements of
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 3 of 34)
applicable law (including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act), and “Malus” and “Clawback” will be understood accordingly;
“Market Value” on any day means:
(i) | when Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market and the Nasdaq Global Select Market), (ii) listed on any national market system or (iii) quoted or traded on any automated quotation system, its Market Value shall be the closing sales price for Stock as quoted on such exchange or system for such date or, if there is no closing sales price for Stock on the date in question, the closing sales price for Stock on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Board deems reliable. Notwithstanding the foregoing, if the Board determines in its discretion that an alternative definition of Market Value should be used in connection with the grant, exercise, vesting, settlement or payout of any Award, it may specify such alternative definition in the Award terms. Such alternative definition may include a price that is based on the opening, actual, high, low, or average selling prices of Stock on the applicable securities exchange on the given date, the trading date preceding the given date, the trading date next succeeding the given date, or an average of trading days. |
(ii) | if the Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Stock is regularly quoted by a recognized securities dealer, its Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Stock on such date, the high bid and low asked prices for Stock on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Board deems reliable. |
(iii) | If the Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Market Value shall be established by the Board in its discretion. |
“Non-Employee Director” means a member of the board of directors of the Company who is not an employee;
“Option” means a right in the form of an option to acquire Stock granted under, and exercisable in accordance with, the Plan;
“Other Conditions” means any conditions imposed under rule 2.4.7;
“Participant” means a person holding or who has held an Award or, after death, that person’s personal representatives;
“Performance Conditions” means any criteria (and adjustments) that the Board selects for an Award. The Performance Conditions may include, but are not limited to, the following: (i) net earnings or losses (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and (E) non-cash equity-based compensation expense); (ii) gross or net sales or revenue or sales or revenue growth; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit (either before or after taxes); (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) return on assets; (viii) return on capital (or invested capital) and cost of capital; (ix) return on stockholders equity; (x) total stockholders return; (xi) return on sales; (xii) gross or net profit or operating margin; (xiii) costs, reductions in costs and cost control measures; (xiv) expenses; (xv) working capital; (xvi) earnings or loss per stock; (xvii) adjusted earnings or loss per stock; (xviii) price per stock or dividends per stock (or appreciation in and/or maintenance of such price or dividends); (xix) regulatory achievements or compliance (including, without limitation, regulatory body approval for commercialization of a product); (xx) implementation or completion of critical projects; (xxi)
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 4 of 34)
market stock; (xxii) economic value; and (xxiii) individual employee performance, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or other employees or to market performance indicators or indices.
“Performance Period” means the period in respect of which any Performance Conditions are to be satisfied;
“Phantom Award” means a conditional right granted under the Plan to receive a cash sum linked to the value of a number of notional Stock;
“Plan” means the plan constituted by these rules and its schedules known as the Vertical Aerospace Ltd. 2021 Incentive Award Plan, as amended from time to time;
“Stock” means a fully paid ordinary share in the capital of the Company;
“Substitute Award” means an Award granted under the Plan in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock, in any case, upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity; provided, however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option.
“Tax” means any tax and social security charges (and/or any similar charges), wherever arising, in respect of a Participant’s Award or otherwise arising in connection with that Participant’s participation in the Plan;
“Vesting” means:
(i) | in relation to a Conditional Award, a Participant becoming entitled to the Stock; |
(ii) | in relation to an Option, the Option becoming exercisable; and |
(iii) | in relation to a Phantom Award, a Participant becoming entitled to the cash sum, |
and “Vest”, “Vested” and “Unvested” will be understood accordingly; and
“Vesting Date” means the date on which an Award Vests.
1.2Interpretation
In this Plan, the singular includes the plural and the plural includes the singular. References to any enactment or statutory requirement will be understood as references to that enactment or requirement as amended or re-enacted and they include any subordinate legislation made under it.
1.3Award tranches
Where an Award is made up of different tranches with different Vesting Dates, each tranche will be considered a separate Award for the purposes of interpreting and administering this Plan, except for the purposes of rule 4.6 (Option tranches).
2.Granting Awards
2.1Eligibility
The Board may grant an Award to someone who is an Eligible Individual at the Award Date.
2.2Timing of grant
The Board may decide when to grant an Award, subject to any Dealing Restrictions.
No Awards may be granted after the termination of the Plan.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 5 of 34)
2.3Making an Award
Awards will be granted in any way which ensures the Awards are contractually enforceable.
Participants will be notified of the terms of their Awards as soon as practicable.
The Board may require Participants to accept Awards or specific terms and may provide for Awards to lapse if they are not accepted within the time specified.
The Board may allow Participants to disclaim all or part of an Award within a specified period. If an Award is disclaimed, it will be deemed never to have been granted.
2.4Terms of Awards
Awards are subject to the rules of the Plan.
The Board will approve the terms of an Award, including:
2.4.1 | the Award Date; |
2.4.2 | the Award type; |
2.4.3 | the number of shares of Stock subject to the Award or the basis for calculating the number of shares of Stock; |
2.4.4 | the Vesting Date; |
2.4.5 | in the case of an Option, the Exercise Period and any amount payable to exercise the Option; |
2.4.6 | if the Award is subject to any Performance Conditions, details of those Performance Conditions and the applicable Performance Period; |
2.4.7 | details of any Other Conditions; |
2.4.8 | whether Dividend Equivalents will apply; |
2.4.9 | details of any Holding Period; and |
2.4.10 | whether the Participant may be required to enter into any election for a particular tax and/or social security treatment in respect of an Award and/or any Stock and any consequences of failing to make the election. |
2.5Performance Conditions
The Board may make Vesting conditional on the satisfaction of one or more performance conditions.
The Board may change or waive a Performance Condition in accordance with its terms or if anything happens that causes the Board to reasonably consider it appropriate to do so.
The Board will notify any relevant Participant as soon as practicable after any change or waiver.
2.6Limitations Applicable to Section 16 Persons
Any Award granted to any individual who is subject to Section 16 of the Exchange Act shall be subject to any additional requirements or limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards shall be deemed amended to the extent necessary to confirm to such applicable exemptive rule.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 6 of 34)
2.7Other Conditions
The Board may impose other conditions on Vesting and/or exercise. The Board may change or waive those other conditions in accordance with their terms or if anything happens which causes the Board to reasonably consider it appropriate to do so.
The Board will notify any relevant Participant as soon as practicable after any change or waiver.
2.8Malus and Clawback
Awards (including any proceeds, gains or other economic benefit actually or constructively received by a Participant upon any receipt or exercise of an Award or upon the receipt or resale of any Stock underlying the Award) will be subject to the Malus and Clawback Policy, whether or not such policy was in place at the time of grant of an Award.
If there is any discrepancy between the Malus and Clawback Policy and the Plan, the Malus and Clawback Policy will prevail.
2.9Administrative errors
If the Board grants an Award:
2.9.1in error, it will be deemed never to have been granted and/or will immediately lapse; and/or
2.9.2 | which is inconsistent with any provisions in this Plan, it will take effect only to the extent permissible under the Plan and will otherwise be deemed never to have been granted and/or will immediately lapse. |
2.10 | Phantom Awards |
A Phantom Award will not confer any right to receive Stock or any interest in Stock. The Plan will be interpreted and applied to reflect the fact that Phantom Awards are granted in respect of notional Stock only and are settled in cash rather than Stock.
3.Stock limits
3.1Number of Stock
Subject to rule 3.2, Awards may be made under the Plan covering an aggregate number of Stock equal to the sum of: (i) 5% of the Stock outstanding (on an as-converted basis) on the date the Plan is adopted by the Board, and (ii) an annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2032, equal to the lesser of (A) 5.0% of the Stock outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of Stock as determined by the Board. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.
3.2Calculating the number of Stock
If any Stock subject to an Award is forfeited or expires, is converted to stock of another person in connection with a recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of stock or other similar event, or such Award is settled for cash (in whole or in part) (including Stock repurchased by the Company at the same price paid by the Participant), the Stock subject to such Award shall, to the extent of such forfeiture, expiration, termination without distribution of Stock or cash settlement, again be available for future grants of Awards under the Plan. In addition, the following Stock shall be added to the Stock authorized for grant under rule 3.1 and shall again be available for future grants of Awards: (i) Stock tendered by a Participant or withheld by
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 7 of 34)
the Company in payment of the exercise price of an Option; (ii) Stock tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award; and (iii) Stock purchased on the open market by the Company with the cash proceeds received from the exercise of Options. Any Stock repurchased by the Company at the same price paid by the Participant so that such Stock is returned to the Company shall again be available for Awards. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Stock available for issuance under the Plan. For the avoidance of doubt, Stock underlying Awards that are subject to the achievement of Performance Conditions shall be counted against the Stock reserve based on the target value of such Awards unless and until such time as such Awards become Vested and settled in Stock.
3.3Substituting Awards
Substitute Awards may be granted on such terms as the Board deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards shall not reduce the Stock authorized for grant under the Plan and Stock subject to such Substitute Awards shall not be added to the Stock available for Awards under the Plan. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has stock available under a pre- existing plan approved by its stockholders and not adopted in contemplation of such acquisition or combination, the stock available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the Participants of Stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Stock authorized for grant under the Plan (and Stock subject to such Awards shall not be added to the Stock available for Awards under the Plan as provided in this rule 3.3); provided that Awards using such available Stock shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or another Member of the Group immediately prior to such acquisition or combination.
3.4Director Limit
Notwithstanding any provision to the contrary in the Plan, the sum of the grant date fair value of Awards and the amount of any other fees granted to a Non-Employee Director during any calendar year shall not exceed USD 500,000. The Board may make exceptions to this limit for individual Non- Employee Directors in extraordinary circumstances, as the Board may determine in its discretion, provided that the Non-Employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving Non-Employee Directors.
4.Vesting and exercise of Awards
4.1Timing of Vesting
An Award will Vest on the latest of:
4.1.1the Vesting Date;
4.1.2the date it is decided that any Performance Conditions are satisfied; and
4.1.3the date it is decided that any Other Conditions are satisfied,
unless otherwise determined by the Board.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 8 of 34)
4.2Extent of Vesting
An Award will Vest to the extent that the Board decides that any Performance Conditions and/or Other Conditions are satisfied, or in accordance with any other factors that the Board decides are relevant.
4.3Fractions
Where an Award would otherwise Vest over a fraction of Stock, the Stock that will Vest will be rounded down to the nearest whole Stock, unless otherwise determined by the Board.
4.4Overriding discretion
The Board may reduce (including to zero) the extent to which an Award will Vest if it considers the extent of Vesting would otherwise not be appropriate, including when considering:
4.4.1 | the wider performance of the Group; |
4.4.2 | the conduct, capability or performance of the Participant; |
4.4.3 | the experience of stakeholders; |
4.4.4 | any windfall gains; |
4.4.5 | the total value that would otherwise be received by the Participant compared to the maximum value that the Award was intended to deliver; or |
4.4.6 | any other reason at the discretion of the Board. |
4.5Process for exercise of Options
A Participant may exercise an Option by giving notice at any time during the Exercise Period in the manner decided by the Board.
The exercise of an Option is effective on the date of receipt of the notice (and the exercise price, if required).
If notice to exercise is given but any Other Conditions are not met at the time of receipt of notice, such exercise will be processed as soon as practicable following determination by the Board that such Other Conditions have been met.
An Option may be exercised in full or in part.
4.6Option tranches
The Board may decide that if
4.6.1 | an Option is made up of different tranches; and |
4.6.2 | the Option is exercised, |
all tranches of that Option that are then capable of exercise will be exercised on that occasion.
4.7Option repricing
Subject to rule 12 (Corporate events), the Board shall not, without the approval of the stockholders of the Company, (i) authorize the amendment of any outstanding Option to reduce its exercise price per Stock, or (ii) cancel any Option in exchange for cash or another Award when the Option exercise price per Stock exceeds the Market Value of the underlying Stock.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 9 of 34)
5.Lapsing
An Award will lapse to the extent any part of it is no longer capable of Vesting (or of being exercised).
To the extent an Award lapses, it cannot Vest or be exercised under any other provision of the Plan. This means that, to the extent the Award lapses, the Participant has no right to receive the Stock or cash comprised in the Award.
6.Settlement of Awards
6.1Delivery of Stock or cash
If an Award Vests, the Board will arrange for the delivery of Stock or cash to the Participant as soon as practicable after Vesting or, in the case of an Option, exercise.
6.2Phantom Award payment
In the case of a Phantom Award, the cash sum will be equal to the aggregate Market Value of the notional Stock which have Vested.
6.3Dividend Equivalents
Where an Award includes Dividend Equivalents, the Participant will receive:
6.3.1 | for Conditional Awards and Phantom Awards, an amount equal to the dividends, the record date for which falls between the Award Date and Vesting, multiplied by the number of shares of Stock in respect of which the Award Vests; or |
6.3.2 | for Options, an amount equal to the dividends, the record date for which falls between the Award Date and exercise, multiplied by the number of shares of Stock in respect of which the Award is exercised. |
Dividend Equivalents will be calculated on such basis as the Board decides. Special dividends will not be included, unless the Boards decides otherwise.
Any Dividend Equivalents may be paid in cash or in such whole number of shares of Stock (rounded down) that have an aggregate Market Value at Vesting or exercise, as applicable, which is closest to that amount.
Dividend Equivalents will be paid as soon as reasonably practicable following Vest or exercise, as applicable, of the related Award and on the same terms as the related Award.
6.4Nominee
Stock may be delivered to and held by a nominee on behalf of the Participant.
6.5Cash alternative
The Board may choose to settle any Award partly or fully in cash. The Participant will have no right to acquire the Stock in respect of which an Award has been settled in cash.
6.6Stock transfer tax
The Board will arrange payment of any stock transfer taxes on settlement.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 10 of 34)
7.Investigations
7.1Relevant investigation
This rule applies where an investigation is ongoing that might lead to Malus and/or Clawback being triggered in relation to a Participant’s Award.
7.2Impact of investigation
If an investigation is ongoing then, unless the Board decides otherwise:
7.2.1 | the Participant’s Award will not Vest; |
7.2.2 | if it is an Option, exercise will be suspended; and |
7.2.3 | where relevant, the Participant’s Award will not be settled, |
until the investigation is concluded and then any Award will only Vest, be exercisable or be settled as determined by the Board. If the Exercise Period of an Option would otherwise have ended, the Board can decide to extend the period and “Exercise Period” will be understood accordingly.
8.Dealing Restrictions
8.1Application of rule
This rule 8 (Dealing Restrictions) applies if Dealing Restrictions would prohibit the exercise of an Option, delivering or arranging delivery of Stock or cash to settle an Award, and/or the Participant from selling Stock, including if required to discharge Tax.
8.2Impact of Dealing Restrictions
If Dealing Restrictions apply, then:
8.2.1 | an Unvested Award will not Vest until the Dealing Restrictions cease to apply; |
8.2.2 | any exercise will take effect as soon as practicable after the Dealing Restrictions cease to apply; |
8.2.3 | if an Exercise Period would otherwise end before the Dealing Restrictions cease to apply, it will be extended to end 30 days after the Dealing Restrictions cease to apply and “Exercise Period” will be understood accordingly; and |
8.2.4 | the delivery of Stock or cash to settle an Award will not occur until the Dealing Restrictions cease to apply, |
unless the Board decides otherwise.
9.Holding Period
9.1Application of rule
An Award granted to an Eligible Individual may be subject to a Holding Period following the date of Vesting or exercise, as applicable.
9.2Impact of Holding Period
If a Holding Period applies, the Stock may not be transferred, assigned or otherwise disposed of during the Holding Period other than a transfer:
9.2.1 | to the Participant’s personal representatives on death; |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 11 of 34)
9.2.2 | to a nominee in accordance with rule 9.3 (Nominee); |
9.2.3 | in accordance with rule 15.1 (Withholding); |
9.2.4 | under the Malus and Clawback Policy; |
9.2.5 | in connection with an event described in rule 12 (Corporate events) or rule 14.1 (Adjustments to Awards); or |
9.2.6 | otherwise with the agreement of the Board, |
and any such attempted action will be invalid and ineffective.
9.3Nominee
The Board may decide that Stock will be delivered to and held by a nominee on behalf of the Participant until the expiry of the Holding Period on such terms as the Board may decide.
At the end of the Holding Period, the Participant may take the Stock out of the nominee arrangement.
9.4Phantom and cash-settled Awards
The Board will decide if and how any Holding Period will operate in relation to cash and will communicate this to the Participant.
9.5Proof of ownership
If the Board requires, a Participant must provide proof of continued beneficial ownership of the Stock during and at the end of the Holding Period.
10.Leaving
10.1Leaving – before Vesting
Where a Participant Leaves before Vesting, the Award will lapse on the date the Participant Leaves, unless other provisions of this rule 10 (Leaving) apply or the Board determine otherwise.
10.2Leaving – after Vesting
If a Participant Leaves after Vesting, the Award will:
10.2.1 | continue in accordance with the Plan; and |
10.2.2 | in the case of an Option, be exercisable for a period of 6 months (12 months in the case of the Participant’s death) from the date the Participant Leaves (or such longer period as the Board decides) and will then lapse, unless otherwise determined by the Board. |
10.3Summary dismissal
If, at any time, a Participant is summarily dismissed or Leaves in circumstances where the Participant’s employer would have been entitled to summarily dismiss the Participant (in the opinion of the Board) then that Participant’s Awards will immediately lapse.
10.4Leaving – Exercise Period
No period for exercise set out in this rule 10 (Leaving) will extend any Exercise Period that would otherwise apply to an Award if the Participant was not Leaving.
10.5Leaving – Ongoing restrictions
Where a Participant Leaves:
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 12 of 34)
10.5.1 | any Holding Period will continue to apply unless the Board determines otherwise, except on death, where any Holding Period will cease to apply; and |
10.5.2 | the Malus and Clawback Policy will continue to apply to the Award unless and to the extent it is waived or varied by the Board. |
11.Mobile Participants
11.1Application of rule
If a Participant moves from one jurisdiction to another or becomes tax resident in a different jurisdiction and, as a result, there may be adverse legal, regulatory, tax or administrative consequences for the Participant and/or a Member of the Group in connection with an Award then the Board may adjust that Participant’s Award so that the Award is on such terms, subject to such conditions and over such stock (or other type of securities or cash) as the Board may consider appropriate.
11.2Cancellation
If the Board decides that the adjustment of an Award under rule 11.1 (Application of rule) is not practicable or appropriate, the Board may decide that the Award will lapse.
11.3Notifying Participants
The Board will notify affected Participants of any adjustment or decision made under this rule 11 (Mobile Participants) as soon as practicable.
12.Corporate events
12.1Change of Control
Where a person (or a group of persons acting together) obtains Control of the Company as a result of making an offer to acquire Stock (including pursuant to a merger or consolidation as a result of which Stock of the Company is converted into or exchanged for the right to receive cash, stock, securities or other property or are cancelled), any Awards which would Vest, if applicable, in the 12 months following such change of Control will Vest on such date as the Board determines and in accordance with rule 12.4 (Vesting) unless otherwise determined by the Board.
12.2Schemes of arrangement
Where a court sanctions a compromise or arrangement in connection with the acquisition of Stock, Awards will Vest on such date as the Board determines and in accordance with rule 12.4 (Vesting), unless otherwise determined by the Board.
12.3Winding up / liquidation
If a voluntary liquidation of the Company commences, or an order is made for the winding up of the Company, Awards will Vest on such date as the Board determines and in accordance with rule 12.4 (Vesting), unless otherwise determined by the Board.
12.4Vesting and exercise
If this rule 12.4 (Vesting and exercise) applies:
12.4.1 | an Award will Vest: |
(i) | to the extent that the Board determines any applicable Conditions have been satisfied, unless the Board determines otherwise; and |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 13 of 34)
(ii) | the Board will have discretion to take into account any other factors it believes to be relevant in determining the extent to which an Award will Vest in the circumstances, |
and to the extent the Participant’s Award does not Vest, it will then lapse.
12.4.2 | Where an Option Vests pursuant to this rule 12.4 (Vesting and exercise) or was already Vested, it will be exercisable for a period of 6 months, or such other period as the Board decides, from the date of the relevant event and then will lapse. This will not extent any Exercise Period that would otherwise apply to an Award. |
12.5Malus and Clawback
If this rule 12 (Corporate events) applies to an Award, the Board may determine that the Malus and Clawback Policy will no longer apply to the Award or will be varied in its application to the Award.
In relation to any cash or Stock acquired prior to the relevant event, the Malus and Clawback Policy will continue to apply, with such amendments as the Board determines.
12.6Holding Period
Any applicable Holding Period will continue to apply until its expiry in accordance with the Plan and the terms of the Award, with any amendments as the Board determines, unless the Board determines otherwise.
12.7Other events
The Board has discretion to take such action as it may think appropriate if other events happen which may have an effect on Awards.
13.Exchange of Awards
Where any of rules 12.1 (Change of Control) or 12.2 (Schemes of arrangement) is expected to or does apply, or in connection with an Internal Reorganisation, the Board may decide that Awards will be exchanged for new awards, subject to the consent of the Acquiring Company, on (or as soon as practicable after) the relevant event.
13.1Meaning of “Acquirer”
For the purposes of this rule 13 (Exchange of Awards), “Acquirer” means a person that obtains Control of the Company.
13.2Application of rule
Where any of rules 12.1 (Change of Control) or 12.2 (Schemes of arrangement) is expected to or does apply, if the relevant event constitutes a corporate reorganisation of the Company where substantially all the stockholders of the Company immediately before the reorganisation will continue to have Control immediately afterwards, Awards will not Vest under rule 12 (Corporate events) but will instead be exchanged for new awards, unless the Board decides otherwise.
13.3Timing of exchange
Any such exchange will take place on (or as soon as practicable after) the relevant event under rule 12 (Corporate events).
13.4Exchange terms
Any new award will be granted on such terms and over such stock (or other types of securities) as the Board decides.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 14 of 34)
13.5Interpretation following exchange
Unless the Board decides otherwise, any new award that is subject to the Plan will be interpreted as if references to Stock are references to the stock (or other securities) over which the new award is granted and references to the Company are to such company as the Board decides.
14.Variations in stock capital
14.1Adjustments to Awards
If there is:
14.1.1 | a variation in the issued stock capital of the Company, including a stock capitalisation or rights issue, open offer, sub-division, consolidation or reduction of stock capital; |
14.1.2 | stock dividend or distribution, other than an ordinary cash dividend; or |
14.1.3 | any other transaction which the Board decides will materially affect the value of the Stock, |
the Board may adjust the number or class of Stock or Condition subject to an Award in such manner as the Board may consider appropriate.
14.2Notice of Adjustments
The Board will notify Participants of any adjustment made under rule 14.1 (Adjustments to Awards) as soon as practicable.
14.3Early Vesting
If the Board determines that an adjustment of an Award is not practicable or appropriate, then the Board may determine that the Award will Vest:
14.3.1 | immediately prior to, and conditional on, the relevant event; |
14.3.2 | to the extent that the Board determines any applicable Performance Conditions or Other Conditions have been satisfied, unless the Board decides otherwise; |
14.3.3 | pro-rata to reflect the period from the Award Date until the date of Vesting, as a proportion of the period from the Award Date to date of Vest, unless the Board determines otherwise; |
14.3.4 | with the continued application of the Malus and Clawback Policy, unless and to the extent the Board decides otherwise; |
14.3.5 | with the continued application of any Holding Period, unless and to the extent the Board decides otherwise, |
and to the extent an Award does not Vest, it will then lapse.
15.Tax
15.1Withholding
Any Member of the Group, any employing company, the trustee of any relevant employee benefit trust or any third-party provider nominated by the Board may:
15.1.1 | withhold such amounts from a Participant (including deducting such amounts from any cash payment owed to the Participant) and retain some or all of it; |
15.1.2 | sell some or all of the Stock to which the Participant is entitled under the Plan on behalf of the Participant; |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 15 of 34)
15.1.3 | allow the Participant to deliver a written or electronic notice that the Participant has directly or indirectly placed a market sell order with a broker acceptable to the Company with respect to Stock then issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company or its designee in satisfaction of the aggregate payments required; provided that payment of such proceeds is then made to the Company or its designee upon settlement of such sale; |
15.1.4 | reduce some of the Stock to which the Participant is entitled under the Plan on behalf of the Participant; or |
15.1.5 | make such other withholding arrangements as it considers necessary or desirable, |
to meet any liability for Taxation, to collect any outstanding exercise price and to meet any applicable dealing and/or currency exchange costs and other associated costs.
15.2Participant indemnity
A Participant will, if requested, indemnify the Group for the Participant’s liability for Tax.
16.Terms of employment
16.1Application
This rule 16 (Terms of employment) applies during an Eligible Individual’s employment, if applicable, and after the termination of an Eligible Individual’s employment, if applicable, whether or not the termination is lawful.
16.2Not part of employment contract
Nothing in the rules of the Plan or the operation of the Plan forms part of an Eligible Individual’s contract of employment or alters it, if applicable. The rights and obligations arising from any employment or former employment relationship between the Eligible Individual and the relevant Member of the Group are separate from, and are not affected by, the Plan. Participation in the Plan does not create any right to, or expectation of, employment (continued or otherwise).
16.3No future expectation
No Eligible Individual has a right to participate in the Plan. Participation in the Plan or the grant of an Award on a particular basis in any year does not create any right to or expectation of participation in the Plan or the grant of an Award on the same, or any other, basis (or at all) in the future.
16.4Decisions and discretion
The terms of the Plan do not entitle the Eligible Individual to the exercise of any discretion in the Eligible Individual’s favour. The Eligible Individual will have no claim or right of action in respect of any decision, omission or discretion which may operate to the disadvantage of the Eligible Individual.
16.5No compensation
No Eligible Individual has any right to compensation or damages for any loss (actual or potential) in relation to the Plan, including any loss in relation to:
16.5.1 | any loss or reduction of rights or expectations under the Plan in any circumstances (including lawful or unlawful termination of employment); |
16.5.2 | any exercise of a discretion or a decision taken in relation to an Award or to the Plan, or any failure or delay to exercise a discretion or take a decision; and |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 16 of 34)
16.5.3 | the operation, suspension, termination or amendment of the Plan. |
16.6Waiver
By participating in the Plan, an Eligible Individual agrees to waive all rights which might otherwise arise under the Plan, other than the right to acquire Stock or cash (as appropriate) subject to and in accordance with the explicit rules of the Plan, in consideration for and as a condition of the grant of an Award.
17.General
17.1Data protection
Participation in the Plan will be subject to:
17.1.1 | any data protection policies applicable to any relevant Member of the Group; and |
17.1.2 | any applicable privacy notices. |
17.2Consents and filings
All allotments, issues and transfers of Stock or cash payments will be subject to the Company’s articles of association and any necessary consents or filings required in any relevant jurisdiction. The Participant will be responsible for complying with any requirements needed in order to obtain, or to avoid the necessity for, any such consents or filings.
17.3Source of Stock
Awards may be settled using newly issued Stock, Stock transferred from treasury and Stock purchased in the market.
17.4Notices
Any notice or other communication required under this Plan will be given in writing, which may include electronic means.
Any notice or other communication to be given to an Eligible Individual or Participant may be delivered by electronic means (including by email, through the Group’s intranet or a stock plan portal), personally delivered or sent by ordinary post to such address as the Board reasonably considers appropriate.
Any notice or other communication to be given to the Company or its agents may be delivered or sent to its registered office or such other place and by such means as the Board or the Company’s agents may specify and notify to Eligible Individuals and/or Participants, as relevant.
All notices or communications to be given to Eligible Individuals or Participants are given and sent at the risk of the addressee. No Member of the Group has any liability in respect of any notice or communication given or sent, nor need they be concerned to see that the addressee actually receives it.
17.5Bankruptcy
A Participant’s Award will lapse if the Participant becomes bankrupt or enters into a compromise (or any overseas equivalent) with the Participant’s creditors generally.
17.6Not pensionable
None of the benefits that may be received under the Plan are pensionable.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 17 of 34)
17.7Not transferable
A Participant’s Award will lapse if the Participant transfers, assigns, charges or otherwise disposes of the Award or any of the rights in respect of it, whether voluntarily or involuntarily (other than to that Participant’s personal representatives on death).
17.8Currency conversions
Any conversion of money into different currencies (whether notional or actual) will be done at a time and rate of exchange that the Board decides.
No Member of the Group will be liable for any loss due to movements in currency exchange rates or conversion or money transfer charges.
17.9Limitation on payments by directors and executive officers
No Participant who is a member of the board of directors of the Company or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment, with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.
18.Administration
18.1Administration of the Plan
The Plan will be administered by the Board, which has authority to make such rules and regulations for the administration of the Plan as it considers necessary or desirable. The Board may delegate any and all of its rights and powers under the Plan.
18.2Board decisions
All decisions of the Board in connection with the Plan and its interpretation and the terms of any Awards (including in any dispute) will be final and conclusive.
The Board will decide whether and how to exercise any discretion in the Plan.
18.3Severance of rules
If any provision of the Plan is held to be invalid, illegal or unenforceable for any reason by any court with jurisdiction then, for the purposes of that jurisdiction only:
18.3.1such provision will be deleted; and
18.3.2the remaining provisions will continue in full force and effect,
unless the Board decides otherwise.
18.4Language
Where there is any conflict between the terms of the English version of the Plan, the Awards and/or any ancillary documents and a version in any other language, the English language version will prevail.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 18 of 34)
19.Changing the Plan and termination
19.1General power
Except as otherwise provided by rule 19.2, the Board may change the Plan in any way and at any time.
19.2Stockholder consent
Notwithstanding rule 19.1, the Board may not, except as otherwise provided by rule 14.1 (Adjustments to Awards), take any of the following actions without the approval of the Company’s stockholders:
19.2.1 | Increase the limit imposed in rule 3.1 (Number of Stock) on the maximum amount of Stock which may be issued under the Plan; |
19.2.2 | reduce the price per share of any outstanding Option Right granted under the Plan cancel any Option in exchange for cash or another Award in violation of rule 4.7 (option repricing); and |
19.2.3 | make any change which requires stockholder approval under applicable laws, including the rules of the New York Stock Exchange or any other exchange on which the Stock is traded. |
19.3Participant consent
If a proposed change would be to the material disadvantage of one or more Participants in respect of existing rights under the Plan, then the Board will obtain the written consent of the affected Participant(s) or:
19.3.1 | the Board will invite each disadvantaged Participant to indicate whether or not they approve the change; and |
19.3.2 | the majority of the Participants (by number of Participants or number of shares of Stock) who were invited and who make an indication approve the change. |
The Board need not obtain Participant consent for any minor changes which are to:
19.3.3 | benefit the administration of the Plan; |
19.3.4 | comply with or take account of a change in legislation; and/or |
19.3.5 | obtain or maintain favourable tax, exchange control or regulatory treatment of any Member of the Group or any present or future Participant. |
19.4Notice of change
The Board will give written notice of changes to Participants whose Awards are materially affected.
19.5International variations
The Board may establish plans or schedules based on the Plan, but modified to take account of any local tax, exchange control or securities laws in other jurisdictions.
19.6Termination of the Plan
The Plan will terminate on 14 December 2031 (or on such earlier date as the Board decides). Termination will not affect existing rights under the Plan.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 19 of 34)
20.Governing law and jurisdiction
The laws of the State of Delaware govern the Plan and all Awards. The courts of the State of Delaware have exclusive jurisdiction in respect of any disputes arising in connection with the Plan or any Award.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 20 of 34)
Schedule 1
Awards granted to US Taxpayers
1.Introduction
The purpose of this Schedule is to make certain variations to the terms of the Plan in the case of its operation for Participants who are US Taxpayers. In the event that a Participant becomes a US Taxpayer after the Award Date, then the Participant’s Awards will immediately be modified in a manner consistent with the provisions of this Schedule. References in this Schedule to Awards granted to US Taxpayers shall include Awards held by a Participant who becomes a US Taxpayer subsequent to the Award Date.
2.Meaning of words used
In this Schedule:
“Award Short-Term Deferral Period” means the period commencing on the date that an Award (other than an Option) first is no longer subject to a “substantial risk of forfeiture” for the purposes of Section 409A and ending upon the 15th day of the third month following the end of the Taxable Year in which such Award first is no longer subject to the substantial risk of forfeiture;
“Exempt Option” means either (a) an Incentive Stock Option granted pursuant to Schedule 2 to the Plan, or (b) an Option granted pursuant to the Plan that is exempt from the requirements of Section 409A under the stock rights exception described in Section 1.409A-1(b)(5) of the Treasury Regulations and which does not include a right to Dividend Equivalents.
“Option Short-Term Deferral Period” means the period commencing on the date that an Option first is no longer subject to a “substantial risk of forfeiture” for the purposes of Section 409A and ending on 31 December of the calendar year in which such Option first is no longer subject to the substantial risk of forfeiture;
“Section 409A” means Section 409A of the US Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated and other official guidance issued under it, collectively, and “Treasury Regulations” will be understood accordingly;
“Short-Term Deferral Period” means the Award Short-Term Deferral Period or the Option Short- Term Deferral Period, as applicable;
“Taxable Year” means the calendar year or, if later, the end of the taxable year of the Member of the Group that employs the US Taxpayer; and
“US Taxpayer” means a Participant who is subject to US federal income taxation on the Award Date, or who is expected to become subject to US federal income taxation following the Award Date, or who becomes subject to US federal income taxation following the Award Date but prior to the date upon which the Award Vests.
3.Exercise of Options
3.1Timing for Exercise
Notwithstanding any of the rules of the Plan, and except as otherwise permitted by paragraph 3.2 (Permissible delay) of this Schedule, an Option (other than an Exempt Option) granted to a US Taxpayer must be exercised under rule 4.5 (Process for exercise of Options), no later than the end of the applicable Option Short-Term Deferral Period. To the extent required to achieve this, Options
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 21 of 34)
(other than Exempt Options) will be deemed exercised and rule 4.5 (Process for exercise of Options) will be interpreted accordingly.
3.2 | Permissible delay |
In the event that the exercise of an Option (other than an Exempt Option) granted to a US Taxpayer has not been exercised by the end of the Option Short-Term Deferral Period because such exercise would have violated applicable law, then to the extent permissible under Section 1.409A-1(b)(4)(ii) of the proposed Treasury Regulations, such exercise may be delayed so long as the Option is then exercised at the earliest date at which it is reasonably anticipated that such law no longer prevents such exercise.
4.Settlement of Awards
4.1Timing for payment
Notwithstanding any of the rules of the Plan and except as otherwise permitted by paragraph 4.2 (Permissible delay) of this Schedule, an Award (other than an Option) granted to a US Taxpayer must be settled under rule 6 (Settlement of Awards) no later than the end of the Award Short-Term Deferral Period
4.2Permissible delay
In the event that an Award (other than an Option) granted to a US Taxpayer has not been settled by the end of the Award Short-Term Deferral Period because settlement would have violated applicable law, then to the extent permissible under Section 1.409A-1(b)(4)(ii) of the proposed Treasury Regulations, such settlement may be delayed so long as the Award is then settled at the earliest date at which it is reasonably anticipated that such law no longer prevents such settlement.
4.3Leavers
If a US Taxpayer Leaves and, in accordance with paragraph 4.1 (Timing for payment) above and an Award (other than an Option) is satisfied before the Vesting Date, then the Stock or cash (as the case may be) acquired by the US Taxpayer may not be transferred, assigned or otherwise disposed of by or on behalf of the US Taxpayer before the Vesting Date other than:
4.3.1 | to the US Taxpayer’s personal representatives in the event of the US Taxpayer’s subsequent death; |
4.3.2 | to a nominee on behalf of the US Taxpayer; |
4.3.3 | in accordance with rule 15.1 (Withholding) to fund any liability for Tax (as well as any outstanding exercise price and any applicable dealing and/or currency exchange costs and other associated costs); |
4.3.4 | due to any Malus and/or Clawback being triggered; or |
4.3.5 | if the Board decides otherwise. |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 22 of 34)
5.Dividend Equivalents
Any Dividend Equivalents in respect of an Award granted to a US Taxpayer shall be paid under rule 6.3 (Dividend Equivalents) no later than the end of the applicable Option Short-Term Deferral Period (for Dividend Equivalents on Options) or the Award Short-Term Deferral Period (for Dividend Equivalents on Awards other than Options), or such later date permitted by paragraph 3 (Exercise of Options) of this Schedule (for Dividend Equivalents on Options) or paragraph 4 (Settlement of Awards) of this Schedule (for Dividend Equivalents on Awards other than Options).
6.No extension of Short-Term Deferral Period
6.1Delay for investigations
The application of rule 7 (Investigations) to an Award granted to a US Taxpayer will not impose an additional, or extend the existing, substantial risk of forfeiture applicable to the Award for the purposes of Section 409A, and will not extend the deadline for exercise under paragraph 3 (Exercise of Options), settlement under paragraph 4 (Settlement of Awards) or payment under paragraph 5 (Dividend Equivalents) of this Schedule (as applicable).
6.2Dealing Restrictions
The application of Dealing Restrictions to an Award granted to a US Taxpayer will not impose an additional, or extend the existing, substantial risk of forfeiture applicable to the Award for the purposes of Section 409A, and will not extend the deadline for exercise under paragraph 3 (Exercise of Options), settlement under paragraph 4 (Settlement of Awards) or payment under paragraph 5 (Dividend Equivalents) of this Schedule (as applicable).
6.3Holding Period
For the avoidance of doubt, any Holding Period imposed by the Company with respect to an Award granted to a US Taxpayer will not impose an additional or extend the existing substantial risk of forfeiture applicable to such Award for the purposes of Section 409A.
7.Changes to Awards
7.1Conditions
Any Performance Conditions or Other Conditions applicable to an outstanding Award granted to a US Taxpayer may not be altered if and to the extent that the alteration would result in the Short-Term Deferral Period ending earlier, except where the condition is waived.
7.2Adjustments
Where there is to be an adjustment of an Award granted to a US Taxpayer pursuant to rule 11 (Mobile Participants), the Board will attempt to structure the terms of the adjustment so that it does not violate Section 409A.
7.3Takeovers and restructurings
Where there is to be an adjustment of an Award granted to a US Taxpayer pursuant to rule 12 (Corporate events), the Board shall attempt to structure the terms of the adjustment of the Award such that the adjustment does not violate Section 409A.
7.4Exchange of Awards
Where there is to be an exchange of an Award granted to a US Taxpayer pursuant to rule 13 (Exchange of Awards), the Board shall attempt to structure the terms of the exchange and the new
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 23 of 34)
award under rule 13 (Exchange of Awards) such that neither the exchange nor the new award violate Section 409A.
7.5Changing the Plan or Awards
Notwithstanding rule 19 (Changing the Plan and termination), any amendment to the Plan (including any Schedule to the Plan) or an Award will only be effective with respect to an Award granted to a US Taxpayer to the extent that it does not cause the Award to violate Section 409A.
8.General
8.1Intention
Awards (other than Exempt Option) granted to US Taxpayers, and any Dividend Equivalents in respect of such Awards, are intended to be exempt from the requirements of Section 409A under the short-term deferral exception described in Section 1.409A-1(b)(4) of the Treasury Regulations, and the Plan (including this Schedule) will be interpreted and administered consistent with this intention with respect to Awards granted to US Taxpayers and any Dividend Equivalents in respect of such Awards.
8.2No guarantee
Notwithstanding any other provision of the Plan (including any Schedule to the Plan) or any Award, no Member of the Group guarantees or warrants to any person that an Award granted to a US Taxpayer is exempt from Section 409A. Each US Taxpayer is solely responsible and liable for the satisfaction of all taxes, penalties and interest that may be imposed on the US Taxpayer in connection with the Plan (including any Schedule to the Plan) or any Award, including any taxes, penalty or interest under Section 409A. No Member of the Group shall have any obligation to indemnify or otherwise hold a US Taxpayer harmless from any or all of such taxes, penalty or interest.
8.3Conflict
In the event of any conflict between a provision of the main rules of the Plan and a provision of this Schedule, with respect to an Award granted to a US Taxpayer, the provisions of this Schedule will take precedence.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 24 of 34)
Schedule 2
US Incentive Stock Options
1.Purpose
The purpose of this Schedule is to allow for grants of Options to Eligible Individuals who are US Employee that qualify as Incentive Stock Options.
2.Meaning of words used
In this Schedule:
“Award Date” means the date of grant on which the Incentive Stock Option is granted, as determined under Section 1.421-1 of the Treasury Regulations.
“Code” means the US Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated and other official guidance issued under it, collectively, and “Treasury Regulations” will be understood accordingly;
“Incentive Stock Option” means an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code;
“Greater Than 10% Stockholder” means an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any “subsidiary corporation” (as defined in Section 424(f) of the Code) with respect to the Company or “parent corporation” (as defined in Section 424(e) of the Code) with respect to the Company;
“Nonqualified Stock Option” means an Option that is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code;
“Termination of Employment” for an Incentive Stock Option means, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship that interrupts employment for the purposes of Section 422(a)(2) of the Code; and
“US Employee” means an Eligible Individual who:
(i) | is subject to US federal income taxation on the Award Date or who is expected to become subject to US federal income taxation following the Award Date; and |
(ii) | is an employee (as determined in accordance Section 3401(c) of the Code) of: |
(a) | the Company; |
(b) | a Member of the Group that is a “subsidiary corporation” (as defined in Section 424(f) of the Code) with respect to the Company; or |
(c) | a Member of the Group that is a “parent corporation” (as defined in Section 424(e) of the Code) with respect to the Company. |
3.Grant of Incentive Stock Options
3.1Eligible individuals
The Board may designate any Option granted to a US Employee as an Incentive Stock Option on the Award Date upon the terms set out in the Plan and subject to the additional terms and conditions set
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 25 of 34)
forth in this Schedule. Each Option that is intended to be an Incentive Stock Option shall indicate that the Option is intended to be an Incentive Stock Option.
3.2Award Date
For an Option to qualify as an Incentive Stock Option, the Option must be granted within 10 years from the earlier of the adoption and stockholder approval of the Plan.
4.Exercise Price and Expiration Date
4.1Generally
Except as otherwise provided by the paragraph 4.2 (Greater Than 10% Stockholders) of this Schedule, the exercise price for Stock subject to an Incentive Stock Option granted under this Schedule may not be less than the Market Value of Stock on the Award Date and the Exercise Period of the Incentive Stock Option may not exceed 10 years from the Award Date.
4.2Greater Than 10% Stockholders
For a US Employee who is a Greater Than 10% Stockholder, the exercise price for Stock subject to an Incentive Stock Option granted under this Schedule may not be less than 110% of the Market Value of Stock on the Award Date and the Exercise Period of the Incentive Stock Option may not exceed five years from the Award Date.
4.3Market Value
For the purposes of this Schedule, “Market Value” will be established by the Board in a manner consistent with Section 1.422-2 of the Treasury Regulations.
5.Individual limit
The aggregate “fair market value” for the purposes of Section 422 of the Code, determined at the Award Date, of the number of shares of Stock with respect to which Incentive Stock Options first become exercisable by a US Employee in any calendar year under the Plan (and any incentive stock options under any other plan required to be taken into account under Section 422(d) of the Code) shall not exceed USD 100,000. To the extent that this USD 100,000 limit is exceeded, the Option will be treated as a Nonqualified Stock Option. The rule set forth in the immediately preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted.
6.Exercise of Incentive Stock Options
6.1Transfers
During the lifetime of the US Employee, the Option may only be exercised by the US Employee.
6.2Continuous employment
To qualify for Incentive Stock Option tax treatment, a US Employee must exercise the Option while in continuous employment with the Company (or a “parent corporation” or “subsidiary corporation” within the meaning of Section 424(e) and (f) of the Code, respectively) since the Award Date or within three months following Termination of Employment (one year in the event of Termination of Employment due to a “permanent and total disability” (as defined by Section 22(e) of the Code) or until the end of the Exercise Period in the event of Termination of Employment due to death).
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 26 of 34)
7.Dividend Equivalents
No Dividend Equivalents will be payable under rule 6.3 (Dividend Equivalents) on any Incentive Stock Option.
8.Incentive Stock Option tax treatment
8.1Disqualifying disposition
Incentive Stock Option tax treatment under Section 421(a) of the Code will not apply to Stock acquired upon exercise of an Incentive Stock Option if such Stock are disposed of in a disqualifying disposition on or before the later of (i) two years from the Award Date of such Incentive Stock Option, and (ii) one year from the date of exercise of such Incentive Stock Option.
8.2Notice
If a disqualifying disposition occurs, the US Employee shall give the Company prompt written or electronic notice of the disposition. Such notice shall specify the date of such disqualifying disposition and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the US Employee in such disqualifying disposition.
9.Changes
9.1Modification, Extension, Adjustment or Renewal
Any modification, extension, adjustment or renewal of an Incentive Stock Option shall be subject to the terms of Section 424 of the Code.
9.2Substitute Awards
Notwithstanding paragraph 4.1 (Generally) and paragraph 4.2 (Greater Than 10% Stockholders) of this Schedule, in the case of an Incentive Option that is a Substitute Award granted following a transaction described in Section 424(a) of the Code, the exercise price per stock of the Stock subject to such Incentive Stock Option may be less than 100% of the Market Value per stock on the Award Date (or 110% of the Market Value per stock on the Award Date in the case of a Greater Than 10% Stockholder); provided that the exercise price of the Substitute Award is determined in accordance with the terms of Section 1.424-1 of the Treasury Regulations.
10.General
10.1Maximum number of Stock granted as Incentive Stock Options
The maximum number of shares of Stock with respect to Incentive Stock Options that may be issued under the Plan and this Schedule is 10,456,769. Substitute Awards granted as Incentive Stock Options will count against the foregoing limit.
10.2Intention
Incentive Stock Options granted pursuant to the Plan and this Schedule are intended to qualify as “incentive stock options” for the purposes of Section 422 of the Code, and the Plan and this Schedule shall be interpreted and administered consistent with such intention.
Nonqualified Stock Options granted pursuant to the Plan are intended to be exempt from the requirements of Section 409A of the Code, and the Plan shall be interpreted and administered consistent with such intention. Unless the Nonqualified Stock Option is exempt from the requirements of Section 409A under the stock rights exception described in Section 1.409A-1(b)(5) of the Treasury
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 27 of 34)
Regulations and does not include a right to Dividend Equivalents, Schedule 1 will apply to such Nonqualified Stock Option.
10.3No guarantee
Neither the Company nor the Board shall have any liability to a Participant, or any other person, (a) if an Option which is intended to qualify as an Incentive Stock Option fails to qualify as an Incentive Stock Option or (b) for any action or omission by the Company or the Board that causes an Option not to qualify as an Incentive Stock Option, including, without limitation, the conversion of an Incentive Stock Option to a Nonqualified Stock Option or the grant of an Option intended as an Incentive Stock Option that fails to satisfy the requirements under the Code applicable to an Incentive Stock Option.
10.4Conflict
In the event of any conflict between a provision of the main rules of the Plan and a provision of this Schedule, with respect to an Incentive Stock Option granted to a US Employee, the provisions of this Schedule will take precedence.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 28 of 34)
Schedule 3
Awards to French Participants
1.Purpose
1.1 | This French Schedule sets out the terms and conditions applicable to Qualified Awards granted to Eligible French Employees. |
1.2 | This French Schedule makes certain variations to the terms of the Vertical Aerospace Ltd. 2021 Incentive Award Plan, as amended from time to time (the “Plan”), in order to satisfy French securities laws, exchange control, corporate law and tax requirements, so that Qualified Awards may qualify for the specific tax and social security treatment in France under Sections L. 225-197-1 to L. 225-197-6 of the French Commercial Code. |
1.3 | The rules of the Plan shall apply, subject to the modifications contained in this French Schedule, whenever the Board decides to grant Qualified Awards to Eligible French Employees. Nothing in this French Schedule prevents other forms of Award being granted to Eligible French Employees on a non-tax advantaged basis under the rules of the Plan, unamended by this French Schedule. This French Schedule only applies to, and amends the Plan for, Qualified Awards. |
1.4 | The Plan was approved by the shareholders of the Company on 14 December 2021. This French Schedule to the Plan was approved by the Board (or, as relevant, a committee duly authorised by it) on 27 January 2023. |
2.Meaning of words used
2.1 | Unless provided otherwise or unless the context requires otherwise, capitalised terms used but not defined in this French Schedule shall have the meaning assigned to them in the Plan. |
2.2 | The terms of Qualified Awards under this French Schedule shall be the same as those for Conditional Awards under the Plan, except to the extent that this French Schedule provides otherwise. References to Conditional Awards in the Plan shall apply to, and include, Qualified Awards, but modified by the special terms of this French Schedule. References to the Plan in the Plan and in this French Schedule will include the French Schedule and, where the French Schedule amends the Plan, the Plan will be interpreted accordingly. |
2.3 | The following definitions shall apply to Qualified Awards granted in accordance with this French Schedule: |
“Closed Period” means:
(i) | the 30 calendar days prior to the announcement of the half-year or annual financial reports of the Company; or |
(ii) | where there is material information (as defined under article 7 of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (Market Abuse Regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC) that has not been made public and which could, if disclosed to the public, significantly impact on the value of Shares and where the French Participant is either: |
(a)a member of the board of directors or supervisory board, or exercising the functions of general manager or deputy general manager, of the Company; or
(b)an employee,
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 29 of 34)
who has knowledge of this information, anytime until the information is disclosed to the public.
If French law or regulations are amended after adoption or amendment of this French Schedule to modify the definition and/or applicability of the Closed Period to Qualified Awards, such amendment shall become applicable to any Qualified Awards granted under this French Schedule, to the extent permitted or required by French law;
“Disability” has the meaning given in the second or third category of Article L.341-4 of the French Code de la sécurité sociale, as amended;
“Eligible French Employee” means an Eligible Individual who is an employee or an officer of a French Group Member and who is taxable in France for French tax purposes and/or subject to the French social security regime;
“French Group Member” means a company which is a Subsidiary with its registered office in France and is a company in which the Company holds, directly or indirectly, at least 10 per cent of the share capital or voting rights;
“French Participant” means an Eligible French Employee who has been granted a Qualified Award;
“Holding Period” means such period (applicable under Section L. 225-197-1 of the French Commercial Code), if any, following the Vesting Date of a Qualified Award, as determined by the Board. Where a Holding Period applies, it will be interpreted in accordance with rule 9 (Holding Period) of the Plan, and the provisions of this French Schedule. A Holding Period applicable to a Qualified Award shall generally not expire until at least two years after the Award Date, subject to the provisions of this French Schedule; and
“Qualified Award” means a Conditional Award granted under this French Schedule that is intended to qualify for the special tax and social security treatment applicable to free shares granted under Sections L. 225-197-1 to L. 225-197-6 of the French Commercial Code, as amended, at the Award Date, and that:
(i) | is granted for no consideration; |
(ii) | satisfies the requirements of a Conditional Award under the Plan; and |
(iii) | complies with the requirements of this French Schedule at the Award Date. |
3.Interpretation
3.1 | It is intended that Qualified Awards granted under this French Schedule shall qualify for the special tax and social security treatment applicable to free shares granted under Sections L. 225-197-1 to L. 225-197-6 of the French Commercial Code, as amended, and in accordance with the relevant provisions set forth by French tax and social security laws, but the Company does not undertake to maintain this status. |
3.2 | The Plan, the terms of the French Schedule and the terms upon which a Qualified Award has been granted shall be interpreted and, where necessary, deemed to be modified, accordingly and in |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 30 of 34)
accordance with the relevant provisions set forth by French tax and social security laws, as well as the relevant administrative provisions.
3.3 | In the event of any conflict between the provisions of this French Schedule and the Plan and/or any other documents related to the Plan, the provisions of this French Schedule will prevail for grants of Qualified Awards made to Eligible French Employees. |
3.4 | If for any reason a Conditional Award does not, but was originally intended to, satisfy the requirements of the French tax authorities for specific tax and social security treatment, the Company or Board (or, as relevant, a committee duly authorised by it) can take such actions, including changing the Vesting Date and/or applying or amending a Holding Period, as it considers reasonably necessary to achieve such treatment, and the Plan, the terms of this French Schedule and the terms of the Conditional Award shall be interpreted and, where necessary, modified accordingly. |
3.5 | No Member of the Group (including a French Group Member) shall be liable for any adverse consequences, legal, tax or otherwise, if and to the extent that the French tax and social security treatment is unavailable. |
4.Eligibility
Qualified Awards may only be granted to Eligible French Employees.
5.Vesting Period
5.1 | A French Participant becomes beneficially entitled to receive all or a portion of the Shares subject to the French Participant’s Qualified Award at Vesting, subject to the remaining provisions of this Plan and the French Schedule. |
5.2 | The Vesting Period for a Qualified Award will be of a period or periods specified by the Board at the time the Qualified Award is granted, but in each case must be at least: |
5.2.1 | a one year period as calculated from the Award Date, where a Holding Period applies; or |
5.2.2 | a two year period as calculated from the Award Date, where no Holding Period applies, |
or in each case at least such other period as is required to comply with the minimum mandatory vesting period applicable to Qualified Awards under Section L. 225-197-1 of the French Commercial Code, as amended, or the relevant sections of the French Tax Code or the French Social Security Code, as amended, to benefit from the specific tax and social security treatment applicable to Qualified Awards.
5.3 | Notwithstanding any other provision of the Plan except for section 12.1, section 12.2 and section 13 (Corporate events and adjustments) of this French Schedule, Qualified Awards cannot Vest prior to the expiration of a one-year period as calculated from the Award Date, or such other period as is required to comply with the minimum mandatory vesting period applicable to Qualified Awards under Section L. 225-197-1 of the French Commercial Code, as amended, or the relevant sections of the French Tax Code or the French Social Security Code, as amended, to benefit from the specific tax and social security treatment applicable to Qualified Awards. This section 5.3 applies even if the French Participant is no longer an employee. |
6.Holding Period
6.1 | Subject only to section 12.1, section 12.2 and section 13 (Corporate events and adjustments) of this French Schedule, the: |
6.1.1 | expiry of a Holding Period (if any) applicable to a Qualified Award; and |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 31 of 34)
6.1.2 | sale or transfer of Shares delivered pursuant to a Qualified Award, |
may not occur prior to the expiration of a two-year period as calculated from the Award Date, or such other period as is required to comply with the minimum two-year mandatory retention period applicable to Qualified Awards under Section L. 225-197-1 of the French Commercial Code, as amended, or the relevant sections of the French Tax Code or the French Social Security Code, as amended, to benefit from the specific tax and social security regime. This section 6.1 applies even if the French Participant is no longer an employee.
6.2 | Subject to section 12.1, section 12.2 and section 13 (Corporate events and adjustments) of this French Schedule, where: |
6.2.1 | a Qualified Award is granted with a Vesting Period of less than 2 years under section 5.2.2; and/or |
6.2.2 | all or a portion of a Qualified Award Vests less than 2 years after the Award Date, |
a Holding Period will apply to, as relevant, all or a portion of the Qualified Award for at least until the expiration of a two-year period as calculated from the Award Date, or such other period as is required to comply with the two-year minimum mandatory retention period applicable to Qualified Awards under Section L. 225-197-1 of the French Commercial Code, as amended, or the relevant sections of the French Tax Code or the French Social Security Code, as amended, to benefit from the specific tax and social security regime. For the avoidance of doubt, this section 6.2 may apply even if the Holding Period was not specified in the applicable Award documents.
7.Dividend Equivalents
A Qualified Award cannot carry the right to Dividend Equivalents. Any dividend and voting rights will apply only upon and from the delivery of the Shares.
8.Closed Periods
8.1 | The Shares delivered to a French Participant pursuant to a Qualified Award may not be sold or transferred by or on behalf of a French Participant during a Closed Period, so long as the French requirements regarding Closed Periods are applicable to the Shares underlying the Qualified Award. |
8.2 | Nothing in this section Error! Reference source not found. (Closed Periods) allows a French Participant to deal at a time prohibited by Dealing Restrictions. |
9.Additional Plan Limits
9.1 | At the Award Date of any Qualified Award, the total number of Shares granted subject to Qualified Awards and subject to awards under any other employee share plan of the Company where such awards are granted subject to and in accordance with the provisions of Articles L.225-197-1 et seq. of the French Commercial Code and are (or are similar in substance to) a conditional right to acquire Shares (other than an option) for no or limited cost (up to 5 percent of the Market Value of the Shares), must not exceed 10 percent of the issued ordinary share capital of the Company. |
9.2 | However, this relevant percentage may be increased to 30 percent if Qualified Awards are granted to all Eligible French Employees. Where this percentage is increased to 30 percent, Qualified Awards |
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 32 of 34)
may only be granted over such number of Shares as does not exceed a ratio of one to five between the smallest and largest awards of Qualified Awards.
9.3 | For the purposes of the limits in this section Error! Reference source not found. (Additional Plan Limits): |
9.3.1 | to the extent the Qualified Award has Vested and a Holding Period does not apply or has expired, the Shares do not need to be counted; and |
9.3.2 | to the extent a Qualified Award has lapsed, the lapsed Shares do not need to be counted. |
10.Additional Individual Limit
Qualified Awards cannot be granted to Eligible French Employees owning 10 percent or more of the Company’s share capital (including any outstanding Awards under the Plan or outstanding awards under any other employee share plan operated by the Group where such Awards or awards (as applicable) are, or are similar in substance to, a conditional right to acquire shares, other than non- exercised options), or who may hold, as the result of the Qualified Award, 10 percent or more of the Company’s share capital.
11.Delivery of Shares Only
A Qualified Award may only be settled in Shares and not cash.
12.Death or Disability
12.1 | Notwithstanding any other provision of the Plan, immediately upon the death of a French Participant: |
12.1.1 | the French Participant’s Qualified Awards will become deliverable in full; and |
12.1.2 | any applicable Holding Period will expire and the French Participant’s heirs are free to transfer or dispose of the Shares. |
12.2 | If a French Participant Leaves due to Disability: |
12.2.1 | any Unvested Qualified Award will: |
(i) | continue to Vest in accordance with the terms of the Plan, unless the Board determines that an earlier Vesting Date should apply; and |
(ii) | Vest only to the extent that the Board determines any Conditions have been satisfied and pro rata to reflect the period from the Award Date until the date the Participant ceases employment, as a proportion of the period from the Award Date until the Vesting Date, unless the Board decides otherwise; |
12.2.2 | any Holding Period will cease to apply upon Leaving; and |
12.2.3 | where the Qualified Award was granted subject to the Malus and Clawback Policy, these provisions will continue to apply to the Qualified Award unless and to the extent they are waived or varied by the Board. |
13.Corporate Events and Adjustments
In the event rule 12 (Corporate events), rule 13 (Exchange of Awards) or rule 14 (Variations in stock capital) of the Plan applies, Qualified Awards will be dealt with in accordance with the provisions of the Plan. This may cause the Qualified Awards to cease to qualify for the French specific tax and social security regime. In this case, the provisions of rule 12 (Corporate events), rule 13 (Exchange
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 33 of 34)
of Awards) or rule 14 (Variations in stock capital) of the Plan nevertheless continue to apply, notwithstanding any potential detrimental tax or social security consequences for the French Participant.
14.Taxation and payment
14.1 | Notwithstanding any other provision of the Plan, French Participants shall be ultimately liable and responsible for all Taxation that they are legally required to pay in connection with Qualified Awards. |
14.2 | To the extent a Qualified Award qualifies for French specific tax and social security treatment under Sections L. 225-197-1 to L. 225-197-6 of the French Commercial Code, the French Participant is responsible for reporting the receipt of any French Taxation under the Plan, and making payment, to the French tax authorities. |
14.3 | To the extent a Qualified Award or a Conditional Award does not so qualify, or is subject to Taxation outside of France, the Taxation, withholding and payment provisions of the Plan continue to apply to the Qualified Award or Conditional Award, unamended by this French Schedule. |
15.DISQUALIFICATION OF QUALIFIED AWARDS
15.1 | If the Board intends that a Qualified Award will no longer qualify for the specific tax and social security treatment in France applicable to Conditional Awards granted under Sections L. 225-197-1 to L. 225- 197-6 of the French Commercial Code, as amended, the Board may, provided it is authorized to do so under the Plan, determine to lift, shorten or terminate any restrictions then applicable to the Vesting or delivery of the Qualified Award or to the sale of the Shares underlying the Qualified Award which may have been imposed under this French Schedule or in the applicable Award documents. |
15.2 | In the event that a Qualified Award no longer qualifies under the French tax and social security regime, the French Participant shall be ultimately liable and responsible for all taxes and/or social security contributions that the French Participant is legally required to pay in connection with the Qualified Award and the tax withholding and payment provisions of the Plan will apply unamended by this French Schedule. |
16.AMENDMENT
Subject to the terms of the Plan, the Board (or, as relevant, a committee duly authorised by it) reserve the right to amend or terminate this French Schedule at any time.
Vertical Aerospace Ltd. 2021 Incentive Award Plan
(Page 34 of 34)
Exhibit 4.12
Execution
VERTICAL AEROSPACE LTD.
and
NOMURA SECURITIES INTERNATIONAL, INC.
AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
September 22, 2022
TABLE OF CONTENTS
ARTICLE I DEFINITIONS | 4 | ||
| | ||
ARTICLE II PURCHASE AND SALE OF SHARES | 4 | ||
| Section 2.1. | Purchase and Sale of Shares | 4 |
| Section 2.2. | Closing Date; Settlement Dates | 5 |
| Section 2.3. | Initial Public Announcements and Required Filings | 5 |
| | | |
ARTICLE III PURCHASE TERMS | 5 | ||
| Section 3.1. | VWAP Purchases | 5 |
| Section 3.2. | Settlement | 7 |
| Section 3.3. | Compliance with Rules of Principal Market | 8 |
| Section 3.4. | Beneficial Ownership Limitation | 8 |
| | | |
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR | 8 | ||
| Section 4.1. | Organization and Standing of the Investor | 9 |
| Section 4.2. | Authorization and Power | 9 |
| Section 4.3. | No Conflicts | 9 |
| Section 4.4. | Investment Purpose | 9 |
| Section 4.5. | Accredited Investor Status | 10 |
| Section 4.6. | Reliance on Exemptions | 10 |
| Section 4.7. | Information | 10 |
| Section 4.8. | No Governmental Review | 10 |
| Section 4.9. | No General Solicitation | 11 |
| Section 4.10. | Not an Affiliate | 11 |
| Section 4.11. | No Prior Short Sales | 11 |
| Section 4.12. | Statutory Underwriter Status | 11 |
| Section 4.13. | Resales of Shares | 11 |
| Section 4.14. | Residency | 11 |
| | | |
ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY | 12 | ||
| Section 5.1. | Organization, Good Standing and Power | 12 |
| Section 5.2. | Subsidiaries | 12 |
| Section 5.3. | Authorization, Enforcement | 12 |
| Section 5.4. | Capitalization | 13 |
| Section 5.5. | Issuance of Shares | 13 |
| Section 5.6. | No Conflicts | 13 |
| Section 5.7. | Commission Documents, Financial Statements; Disclosure Controls and Procedures; Internal Controls Over Financial Reporting; Accountants | 14 |
| Section 5.8. | No Material Adverse Effect; Absence of Certain Changes | 16 |
| Section 5.9. | No Material Defaults | 16 |
| Section 5.10. | No Preferential Rights | 17 |
| Section 5.11. | Material Contracts | 17 |
| Section 5.12. | Solvency | 17 |
i
| Section 5.13. | Real Property; Intellectual Property | 17 |
| Section 5.14. | Actions Pending | 19 |
| Section 5.15. | Compliance with Law | 19 |
| Section 5.16. | Certain Fees | 19 |
| Section 5.17. | Disclosure | 19 |
| Section 5.18. | Broker/Dealer Relationships | 20 |
| Section 5.19. | Disclosure Controls | 20 |
| Section 5.20. | Permits | 20 |
| Section 5.21. | Environmental Compliance | 20 |
| Section 5.22. | No Improper Practices | 21 |
| Section 5.23. | AML Compliance | 21 |
| Section 5.24. | Off-Balance Sheet Arrangements | 22 |
| Section 5.25. | Transactions With Affiliates | 22 |
| Section 5.26. | Labor Disputes | 22 |
| Section 5.27. | Use of Proceeds | 22 |
| Section 5.28. | Investment Company Act Status | 22 |
| Section 5.29. | Taxes | 22 |
| Section 5.30. | ERISA | 23 |
| Section 5.31. | Share Transfer Taxes | 23 |
| Section 5.32. | Insurance | 23 |
| Section 5.33. | Exemption from Registration | 23 |
| Section 5.34. | No General Solicitation or Advertising | 23 |
| Section 5.35. | No Integrated Offering | 23 |
| Section 5.36. | Dilutive Effect | 24 |
| Section 5.37. | Manipulation of Price | 24 |
| Section 5.38. | Listing and Maintenance Requirements; DTC Eligibility | 24 |
| Section 5.39. | Application of Takeover Protections | 24 |
| Section 5.40. | OFAC | 25 |
| Section 5.41. | Information Technology; Compliance with Data Privacy Laws | 25 |
| Section 5.42. | Acknowledgment Regarding Investor’s Acquisition of Shares; Affiliate Relationships | 26 |
| | | |
ARTICLE VI ADDITIONAL COVENANTS | 27 | ||
| Section 6.1. | Securities Compliance | 27 |
| Section 6.2. | Reservation of Shares | 27 |
| Section 6.3. | Registration and Listing | 27 |
| Section 6.4. | Compliance with Laws | 28 |
| Section 6.5. | Keeping of Records and Books of Account; Due Diligence | 28 |
| Section 6.6. | No Frustration; No Variable Rate Transactions | 28 |
| Section 6.7. | Corporate Existence | 29 |
| Section 6.8. | Fundamental Transaction | 29 |
| Section 6.9. | Sarbanes-Oxley Act | 29 |
| Section 6.10. | Selling Restrictions | 30 |
| Section 6.11. | Effective Registration Statement | 30 |
| Section 6.12. | Blue Sky | 31 |
| Section 6.13. | Non-Public Information | 31 |
| Section 6.14. | Broker/Dealer | 31 |
ii
| Section 6.15. | Disclosure Schedule | 31 |
| Section 6.16. | Delivery of Bring-Down Opinions and Compliance Certificates Upon Occurrence of Certain Events | 32 |
| | | |
ARTICLE VII CONDITIONS TO CLOSING AND CONDITIONS TO THE SALE AND PURCHASE OF THE SHARES | 33 | ||
| Section 7.1. | Conditions Precedent to Closing | 33 |
| Section 7.2. | Conditions Precedent to Commencement | 34 |
| Section 7.3. | Conditions Precedent to VWAP Purchases after Commencement Date | 37 |
| | | |
ARTICLE VIII TERMINATION | 41 | ||
| Section 8.1. | Automatic Termination | 41 |
| Section 8.2. | Other Termination | 41 |
| Section 8.3. | Effect of Termination | 42 |
| | | |
ARTICLE IX INDEMNIFICATION | 43 | ||
| Section 9.1. | Indemnification of Investor | 43 |
| Section 9.2. | Indemnification Procedures | 44 |
| | | |
ARTICLE X MISCELLANEOUS | 46 | ||
| Section 10.1. | Certain Fees and Expenses | 46 |
| Section 10.2. | Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial | 47 |
| Section 10.3. | Entire Agreement | 47 |
| Section 10.4. | Notices | 48 |
| Section 10.5. | Waivers | 48 |
| Section 10.6. | Amendments | 49 |
| Section 10.7. | Headings | 49 |
| Section 10.8. | Construction | 49 |
| Section 10.9. | Binding Effect | 49 |
| Section 10.10. | No Third-Party Beneficiaries | 49 |
| Section 10.11. | Governing Law | 49 |
| Section 10.12. | Survival | 50 |
| Section 10.13. | Counterparts | 50 |
| Section 10.14. | Publicity | 50 |
| Section 10.15. | Severability | 50 |
| Section 10.16. | Further Assurances | 50 |
ANNEX I | DEFINITIONS |
EXHIBIT A | FORM OF REGISTRATION RIGHTS AGREEMENT |
EXHIBIT B | CLOSING CERTIFICATE |
EXHIBIT C | COMPLIANCE CERTIFICATE |
EXHIBIT D | FORM OF VWAP PURCHASE NOTICE |
iii
Execution
AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
This AMENDED AND RESTATED SHARE PURCHASE AGREEMENT is made and entered into as of September 22, 2022 (this “Agreement”), by and between Nomura Securities International, Inc., a New York corporation (the “Investor”), and Vertical Aerospace Ltd., a Cayman Islands exempted company with limited liability (the “Company”).
RECITALS
WHEREAS, the parties desire that, upon the terms and subject to the conditions and limitations set forth herein, the Company may issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company, up to $100 million in aggregate gross purchase price of newly issued ordinary shares, par value $0.0001 per share, of the Company (the “Shares”);
WHEREAS, such sales of Shares by the Company to the Investor will be made in reliance upon the provisions of Section 4(a)(2) of the Securities Act (“Section 4(a)(2)”), and upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the issuances and sales of Shares by the Company to the Investor to be made hereunder;
WHEREAS, the parties hereto are concurrently entering into a Registration Rights Agreement in the form attached as Exhibit A hereto (the “Registration Rights Agreement”), pursuant to which the Company shall register the resale of the Registrable Securities (as defined in the Registration Rights Agreement), upon the terms and subject to the conditions set forth therein; and
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings ascribed to such terms in Annex I hereto, and hereby made a part hereof, or as otherwise set forth in this Agreement.
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1.Purchase and Sale of Shares. Upon the terms and subject to the conditions of this Agreement, during the Investment Period, the Company, in its sole discretion, shall have the right, but not the obligation, to issue and sell to the Investor, and the Investor shall purchase from the Company, up to $100 million (the “Total Commitment”) in aggregate gross purchase price of duly authorized, validly issued, fully paid and non-assessable Shares (the “Aggregate Limit”), by the delivery to the Investor of VWAP Purchase Notices as provided in Article III.
Section 2.2.Closing Date; Settlement Dates. This Agreement shall become effective and binding (the “Closing”) upon (a) the delivery of counterpart signature pages of this Agreement and the Registration Rights Agreement executed by each of the parties hereto and thereto, and (b) the delivery of all other documents, instruments and writings required to be delivered pursuant to this Agreement, as provided in Section 7.1, at or prior to 9:00 a.m., New York City time, on the Closing Date. In consideration of and in express reliance upon the representations, warranties and covenants contained in, and upon the terms and subject to the conditions of, this Agreement, during the Investment Period, the Company, at its sole option and discretion, may issue and sell to the Investor, and, if the Company elects to so issue and sell, the Investor shall purchase from the Company, the Shares in respect of each VWAP Purchase (as defined below). The issue of Shares in respect of each VWAP Purchase, and the payment for such Shares, shall occur in accordance with Section 3.2, provided that all of the conditions precedent in Article VII shall have been fulfilled at the applicable times set forth in Article VII.
Section 2.3.Initial Public Announcements and Required Filings. The Company shall, within four (4) business days following the date of this Agreement, furnish to the Commission a Report on Form 6-K disclosing the execution of this Agreement and the Registration Rights Agreement by the Company and the Investor and describing the material terms thereof, and attaching as exhibits thereto copies of each of this Agreement and the Registration Rights Agreement and, if applicable, any press release issued by the Company disclosing the execution of this Agreement and the Registration Rights Agreement by the Company (including all exhibits thereto, the “Current Report”). The Company shall provide the Investor and its legal counsel a reasonable opportunity to comment on a draft of the Current Report prior to furnishing the Current Report to the Commission and shall give due consideration to all such comments. The Company shall use its commercially reasonable efforts to prepare and, as soon as practicable, file with the Commission the Initial Registration Statement and any New Registration Statement covering only the resale by the Investor of the Registrable Securities in accordance with the Securities Act and the Registration Rights Agreement. At or before 8:30 a.m. (New York City time) on the second (2nd) Trading Day immediately following the Effective Date of the Initial Registration Statement and any New Registration Statement (or any post-effective amendment thereto), the Company shall use its commercially reasonable efforts to file with the Commission in accordance with Rule 424(b) under the Securities Act the final Prospectus to be used in connection with sales pursuant to such Registration Statement (or post- effective amendment thereto).
ARTICLE III
PURCHASE TERMS
Subject to the satisfaction of the conditions set forth in Article VII, the parties agree as follows:
Section 3.1.VWAP Purchases. Upon the initial satisfaction of all of the conditions set forth in Section 7.2 (the “Commencement” and the date of initial satisfaction of all of such conditions, the “Commencement Date”) and from time to time thereafter, subject to the satisfaction of all of the conditions set forth in Section 7.3, the Company shall have the right, but not the obligation, to direct the Investor, by its timely delivery to the Investor of a VWAP Purchase Notice, in substantially the form attached hereto as Exhibit D, after 5:00 p.m., New
5
York City time on the trading day prior to the VWAP Purchase Date, and prior to 9:00 a.m., New York City time, on a VWAP Purchase Date, to purchase the applicable VWAP Purchase Share Amount, not to exceed the applicable VWAP Purchase Maximum Amount, at the applicable VWAP Purchase Price therefor on such VWAP Purchase Date in accordance with this Agreement (each such purchase, a “VWAP Purchase”) with the VWAP Purchase Period commencing at 9:30:01 a.m., New York City time. The Company may deliver a VWAP Purchase Notice by 10:00 a.m., New York City time, with the VWAP Purchase Period commencing at 10:30 a.m., New York City time, on such VWAP Purchase Date, or after 10:00 a.m., New York City time, but prior to 11:00 a.m., New York City time, with the VWAP Purchase Period commencing at 11:30 a.m., New York City time, on such VWAP Purchase Date; however, the Investor may, in its reasonable discretion, accept or reject such VWAP Purchase Notice after 11:00 a.m., New York City time, on a VWAP Purchase Date, and such acceptance, once provided by the Investor to the Company, shall be irrevocable and binding and the Company’s obligation to deliver the Shares subject of such VWAP Purchase Notice shall be binding. The Investor may also, in its sole discretion, accept additional VWAP Purchase Notices within a Trading Day. The Company may timely deliver a VWAP Purchase Notice to the Investor as often as every Trading Day (and may deliver multiple VWAP Purchase Notices in any given day), so long as all Shares subject to all prior VWAP Purchases theretofore required to have been received by the Investor as DWAC Shares under this Agreement are instructed to be validly issued by the Transfer Agent (by updating the register of members of the Company (the “Register of Members”) to reflect the same)to the Investor as DWAC Shares in accordance with this Agreement, unless such requirement is expressly waived by the Investor. The Investor is obligated to accept each VWAP Purchase Notice prepared and delivered by the Company in accordance with the terms of and subject to the satisfaction of the conditions contained in this Agreement. If the Company delivers any VWAP Purchase Notice directing the Investor to purchase a VWAP Purchase Share Amount in excess of the applicable VWAP Purchase Maximum Amount, such VWAP Purchase Notice shall be void ab initio to the extent of the amount by which the VWAP Purchase Share Amount set forth in such VWAP Purchase Notice exceeds such applicable VWAP Purchase Maximum Amount, and the Investor shall have no obligation to purchase such excess Shares in respect of such VWAP Purchase Notice; provided, however, that the Investor shall remain obligated to purchase the applicable VWAP Purchase Maximum Amount in such VWAP Purchase. Each VWAP Purchase Notice must include a VWAP Purchase Share Estimate. Each VWAP Purchase Notice must be accompanied by instructions to the Company’s Transfer Agent to update the Register of Member and immediately issue to the Investor an amount of Shares equal to a good faith estimate by the Company of the number of Shares constituting the applicable VWAP Purchase Share Amount that the Investor shall have the obligation to purchase pursuant to the VWAP Purchase Notice (the “VWAP Purchase Share Estimate”). In no event shall the Investor, pursuant to any VWAP Purchase, purchase a number of Shares constituting the applicable VWAP Purchase Share Amount that exceeds the VWAP Purchase Share Estimate issued on the VWAP Purchase Date in connection with such VWAP Purchase Notice; however, the Investor will immediately instruct the Transfer Agent to return to the Company any Shares issued pursuant to the VWAP Purchase Share Estimate that exceeds the number of Shares constituting the applicable VWAP Purchase Share Amount the Investor actually purchases in connection with such VWAP Purchase. At or prior to 5:30 p.m., New York City time, on the VWAP Purchase Date for each VWAP Purchase, the Investor shall provide to the Company a written confirmation for such VWAP Purchase
6
(each, a “VWAP Purchase Confirmation”) setting forth the applicable VWAP Purchase Price per Share to be paid by the Investor in such VWAP Purchase, and the total aggregate VWAP Purchase Price to be paid by the Investor for the total VWAP Purchase Share Amount purchased by the Investor in such VWAP Purchase. If the Company designates a Floor Price in its VWAP Purchase Notice, the VWAP for such VWAP Purchase Date shall exclude all trades at a price below such Floor Price. The Investor shall specify this adjustment to the VWAP in the VWAP Purchase Confirmation. Notwithstanding the foregoing, (i) the Company shall not deliver any VWAP Purchase Notices to the Investor during the PEA Period and (ii) following the delivery of a VWAP Purchase Notice, the Company shall not raise additional capital, in the form of a private securities offering, until the Trading Day following the applicable VWAP Purchase Share Delivery Date.
Section 3.2.Settlement. The Shares constituting the applicable VWAP Purchase Share Amount purchased by the Investor in each VWAP Purchase shall be validly issued to the Investor as DWAC Shares not later than 1:00 p.m., New York City time, on the Trading Day immediately following the applicable VWAP Purchase Date for such VWAP Purchase (each a “VWAP Purchase Share Delivery Date”) (it being acknowledged and agreed that the Company may not deliver any additional VWAP Purchase Notice to the Investor until all such Shares subject to such VWAP Purchase, and all Shares subject to all prior VWAP Purchase Notices, have been received by the Investor as DWAC Shares in accordance with this Agreement, unless expressly waived by the Investor). For each VWAP Purchase, the Investor shall pay to the Company an amount in cash equal to the product of (a) the total number of Shares purchased by the Investor in such VWAP Purchase and (b) the applicable VWAP Purchase Price for such Shares (the “VWAP Purchase Amount”), as full payment for such Shares purchased by the Investor in such VWAP Purchase, via wire transfer of immediately available funds, not later than 5:00 p.m., New York City time, on the Trading Day immediately following the applicable VWAP Purchase Share Delivery Date for such VWAP Purchase, provided the Investor shall have timely received, as DWAC Shares, all of such Shares purchased by the Investor in such VWAP Purchase on such VWAP Purchase Share Delivery Date in accordance with the first sentence of this Section 3.2, or, if any of such Shares are received by the Investor after 1:00 p.m., New York City time, then the Company’s receipt of such funds in its designated account may occur on the Trading Day next following the Trading Day on which the Investor shall have received all of such Shares as DWAC Shares, but not later than 5:00 p.m., New York City time, on such next Trading Day. If the Investor fails to pay the VWAP Purchase Amount when due, the Investor will return the DWAC Shares to the Company. If the Company or the Transfer Agent shall fail for any reason, other than a failure of the Investor or its Broker-Dealer (as defined below) to set up a DWAC and required instructions, to issue to the Investor, as DWAC Shares, any Shares purchased by the Investor in a VWAP Purchase prior to 11:00 a.m., New York City time, on the Trading Day immediately following the applicable VWAP Purchase Share Delivery Date for such VWAP Purchase, and if on or after such Trading Day the Investor purchases (in an open market transaction or otherwise) Shares to deliver in satisfaction of a sale by the Investor of such Shares that the Investor anticipated receiving from the Company on such VWAP Purchase Share Delivery Date in respect of such VWAP Purchase, then the Company shall, within two (2) Trading Days after the Investor’s request, either (i) pay cash to the Investor in an amount equal to the Investor’s total purchase price (including brokerage commissions, if any) for the Shares so purchased (the “Cover Price”), at which point the Company’s obligation to deliver such Shares as DWAC Shares (and the Investor’s obligation to purchase such Shares
7
from the Company) shall terminate, or (ii) promptly honor its obligation to deliver to the Investor such Shares as DWAC Shares and pay cash to the Investor in an amount equal to the excess (if any) of the Cover Price over the total purchase price paid by the Investor pursuant to this Agreement for all of the Shares purchased by the Investor in such VWAP Purchase; provided, however, that the Investor agrees to use its commercially reasonable efforts to purchase Shares in respect of the Cover Price only in normal brokerage transactions at the prevailing price per Share then available. The Company shall not issue any fraction of a Share to the Investor in connection with any VWAP Purchase effected pursuant to this Agreement. If the issuance would result in the issuance of a fraction of a Share, the Company shall round such fraction of a Share up or down to the nearest whole Share. All payments to be made by the Investor pursuant to this Agreement shall be made by wire transfer of immediately available funds to such account as the Company may from time to time designate by written notice to the Investor in accordance with the provisions of this Agreement.
Section 3.3.Compliance with Rules of Principal Market. The Company shall not issue or sell any Shares pursuant to this Agreement if such issuance or sale would reasonably be expected to result in (A) a violation of the Securities Act or (B) a breach of the rules of the Principal Market. The provisions of this Section 3.3 shall not be implemented in a manner otherwise than in strict conformity with the terms of this Section 3.3 unless necessary to ensure compliance with the Securities Act and the applicable rules of the Principal Market.
Section 3.4.Beneficial Ownership Limitation. Notwithstanding anything to the contrary contained in this Agreement, the Company shall not issue or sell, and the Investor shall not purchase or acquire, any Shares under this Agreement which, when aggregated with all other Shares then beneficially owned by the Investor and its Affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by the Investor and its Affiliates (on an aggregated basis) of more than 4.99% of the outstanding Shares (the “Beneficial Ownership Limitation”). Upon the written request of the Investor, the Company shall promptly (but not later than the next business day on which the Transfer Agent is open for business) confirm orally or in writing to the Investor the number of Shares then outstanding. The Investor and the Company shall each cooperate in good faith in the determinations required under this Section 3.4 and the application of this Section 3.4. The Investor’s written certification to the Company of the applicability of the Beneficial Ownership Limitation, and the resulting effect thereof hereunder at any time, shall be conclusive with respect to the applicability thereof and such result absent manifest error. The provisions of this Section 3.4 shall not be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3.4 unless necessary to properly give effect to the limitations contained in this Section 3.4.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
The Investor hereby makes the following representations, warranties and covenants to the Company:
8
Section 4.1.Organization and Standing of the Investor. The Investor is a corporation duly formed, validly existing and in good standing under the laws of the State of New York.
Section 4.2.Authorization and Power. The Investor has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the Registration Rights Agreement and to purchase or acquire the Shares in accordance with the terms hereof. The execution, delivery and performance by the Investor of this Agreement and the Registration Rights Agreement and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action, and no further consent or authorization of the Investor or its sole member is required. Each of this Agreement and the Registration Rights Agreement has been duly executed and delivered by the Investor and constitutes a valid and binding obligation of the Investor enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership, or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application (including any limitation of equitable remedies).
Section 4.3.No Conflicts. The execution, delivery and performance by the Investor of this Agreement and the Registration Rights Agreement and the consummation by the Investor of the transactions contemplated hereby and thereby do not and shall not (i) result in a violation of such Investor’s certificate of formation, limited liability company agreement or other applicable organizational instruments, (ii) conflict with, constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give rise to any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Investor is a party or is bound, or (iii) result in a violation of any federal, state, local or foreign statute, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to the Investor or by which any of its properties or assets are bound or affected, except, in the case of clauses (ii) and (iii), for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, prohibit or otherwise interfere with, in any material respect, the ability of the Investor to enter into and perform its obligations under this Agreement and the Registration Rights Agreement. The Investor is not required under any applicable federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement and the Registration Rights Agreement or to purchase or acquire the Shares in accordance with the terms hereof, other than as may be required by FINRA; provided, however, that for purposes of the representation made in this sentence, the Investor is assuming and relying upon the accuracy of the relevant representations and warranties and the compliance with the relevant covenants and agreements of the Company in the Transaction Documents to which it is a party.
Section 4.4.Investment Purpose. The Investor is acquiring the Shares for its own account, for investment purposes and not with a view towards, or for resale in connection with, the public sale or distribution thereof, in violation of the Securities Act or any applicable state securities laws; provided, however, that by making the representations herein, the Investor does not agree, or make any representation or warranty, to hold any of the Shares for any minimum or
9
other specific term and reserves the right to dispose of the Shares at any time in accordance with, or pursuant to, a registration statement filed pursuant to the Registration Rights Agreement or an applicable exemption under the Securities Act. The Investor does not presently have any agreement or understanding, directly or indirectly, with any Person to sell or distribute any of the Shares. The Investor is acquiring the Shares hereunder in the ordinary course of its business.
Section 4.5.Accredited Investor Status. The Investor is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated by the Commission under the Securities Act (“Regulation D”).
Section 4.6.Reliance on Exemptions. The Investor understands that the Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of U.S. federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and the Investor’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Investor set forth herein in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Shares.
Section 4.7.Information. All materials relating to the business, financial condition, management and operations of the Company and materials relating to the offer and sale of the Shares which have been requested by the Investor have been furnished or otherwise made available to the Investor or its advisors, including, without limitation, the Commission Documents. The Investor understands that its investment in the Shares involves a high degree of risk. The Investor is able to bear the economic risk of an investment in the Shares, including a total loss thereof, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of a proposed investment in the Shares. The Investor and its advisors have been afforded the opportunity to ask questions of and receive answers from representatives of the Company concerning the financial condition and business of the Company and other matters relating to an investment in the Shares. Neither such inquiries nor any other due diligence investigations conducted by the Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement or in any other Transaction Document to which the Company is a party or the Investor’s right to rely on any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby (including, without limitation the opinions of the Company’s counsel and Investor’s counsel delivered pursuant to this Agreement and the Registration Rights Agreement). The Investor has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Shares. The Investor understands that it (and not the Company) shall be responsible for its own tax liabilities that may arise as a result of this investment or the transactions contemplated by this Agreement.
Section 4.8.No Governmental Review. The Investor understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Shares or the fairness or suitability of the investment in the Shares nor have such authorities passed upon or endorsed the merits of the offering of the Shares.
10
Section 4.9.No General Solicitation. The Investor is not purchasing or acquiring the Shares as a result of any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Shares.
Section 4.10.Not an Affiliate. The Investor is not an officer, director or an Affiliate of the Company. During the Investment Period, the Investor will not acquire for its own account any Shares or securities exercisable for or convertible into Shares, other than pursuant to this Agreement; provided, however, that nothing in this Agreement shall prohibit or be deemed to prohibit the Investor from purchasing, in an open market transaction or otherwise, the Shares necessary to make delivery by the Investor in satisfaction of a sale by the Investor of Shares that the Investor anticipated receiving from the Company in connection with the settlement of a VWAP Purchase if the Company or its Transfer Agent shall have failed for any reason (other than a failure of Investor or its Broker-Dealer to set up a DWAC and required instructions) to electronically transfer all of the Shares subject to such VWAP Purchase to the Investor on the applicable VWAP Purchase Share Delivery Date by crediting the Investor’s or its designated Broker-Dealer’s account at DTC through its DWAC delivery system in compliance with Section 3.2of this Agreement. For the avoidance of doubt, the foregoing restriction does not apply to any Affiliate of the Investor, provided that any such purchases do not cause the Investor to violate any applicable Exchange Act requirement, including Regulation M.
Section 4.11.No Prior Short Sales. At no time prior to the date of this Agreement has the Investor or any entity managed or controlled by the Investor engaged in or effected, in any manner whatsoever, directly or indirectly, for its own principal account, any (i) “short sale” (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of the Shares or (ii) hedging transaction, in either case, which establishes a net short position with respect to the Shares that remains in effect as of the date of this Agreement.
Section 4.12.Statutory Underwriter Status. The Investor acknowledges that it will be disclosed as an “underwriter” and a “selling shareholder” in each Registration Statement and in any Prospectus contained therein to the extent required by applicable law and to the extent the Prospectus is related to the resale of Registrable Securities.
Section 4.13.Resales of Shares. The Investor represents, warrants and covenants that it will resell such Shares only i) pursuant to the Registration Statement in which the resale of such Shares is registered under the Securities Act, in a manner described under the caption “Plan of Distribution (Conflict of Interest)” in such Registration Statement, and in a manner in compliance with all applicable U.S. federal and state securities laws, rules and regulations, including, without limitation, any applicable prospectus delivery requirements of the Securities Act, or ii) in reliance on specific exemptions from the registration requirements of U.S. federal and state securities laws, as applicable.
Section 4.14.Residency. The Investor is a resident of the State of New York.
11
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby makes the following representations, warranties and covenants to the Investor:
Section 5.1.Organization, Good Standing and Power. The Company and each of its Subsidiaries are duly incorporated or organized (as applicable), validly existing and in good standing under the laws of their respective jurisdictions of incorporation or organization (as applicable). The Company and each of its Subsidiaries are duly licensed or qualified as a foreign corporation (or other entity, if applicable) for transaction of business and in good standing under the laws of each other jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such license or qualification, and have all entity power and authority necessary to own or hold their respective properties and to conduct their respective businesses as described in the Commission Documents, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, have a material adverse effect or would reasonably be expected to have a material adverse effect on or affecting the assets, business, operations, earnings, properties, condition (financial or otherwise), prospects, shareholders’ equity or results of operations of the Company and the Subsidiaries taken as a whole, or prevent or materially interfere with consummation of the transactions contemplated hereby (a “Material Adverse Effect”).
Section 5.2.Subsidiaries. The subsidiaries set forth in Exhibit 8.1 of the Company’s Annual Report on Form 20-F filed with the Commission on April 29, 2022 (collectively, the “Subsidiaries”) are the Company’s only significant subsidiaries (as such term is defined in Rule 1-02 of Regulation S-X promulgated by the Commission). Except as set forth in the Commission Documents, the Company owns, directly or indirectly, all of the equity interests of the Subsidiaries free and clear of any lien, charge, security interest, encumbrance, right of first refusal or other restriction, and all the equity interests of the Subsidiaries are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.
Section 5.3.Authorization, Enforcement. The Company has the requisite corporate power and authority to enter into and perform its obligations under each of the Transaction Documents to which it is a party and to issue the Shares in accordance with the terms hereof and thereof. Except for approvals of the Company’s Board of Directors or a committee thereof as may be required in connection with any issuance and sale of Shares to the Investor hereunder (which approvals shall be obtained prior to the delivery of any VWAP Purchase Notice), the execution, delivery and performance by the Company of each of the Transaction Documents to which it is a party and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action, and no further consent or authorization of the Company, its Board of Directors or its shareholders is required. Each of the Transaction Documents to which the Company is a party has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement
12
of, creditor’s rights and remedies or by other equitable principles of general application (including any limitation of equitable remedies).
Section 5.4.Capitalization. The authorized share capital of the Company and the shares thereof issued and outstanding were as set forth in the Commission Documents as of the dates reflected therein. All of the issued and outstanding Shares have been duly authorized and validly issued and are fully paid and non-assessable. Except as set forth in the Commission Documents, this Agreement and the Registration Rights Agreement, there are no agreements or arrangements under which the Company is obligated to register the sale of any securities under the Securities Act. Except as set forth in the Commission Documents, no Shares are entitled to preemptive rights and there are no outstanding debt securities and no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of the Company other than those issued or granted in the ordinary course of business pursuant to the Company’s equity incentive and/or compensatory plans or arrangements. Except for customary transfer restrictions contained in agreements entered into by the Company to sell restricted securities or as set forth in the Commission Documents, the Company is not a party to, and it has no Knowledge of, any agreement restricting the voting or transfer of any shares of the Company. Except as set forth in the Commission Documents, there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any of the other Transaction Documents or the consummation of the transactions described herein or therein. The Company has filed with the Commission a true and correct copy of the Company’s Amended and Restated Memorandum and Articles of Association as in effect on the Closing Date (the “Articles”).
Section 5.5.Issuance of Shares. The Shares to be issued under this Agreement have been, or with respect to Shares to be purchased by the Investor pursuant to a particular VWAP Purchase Notice, will be, prior to the delivery to the Investor hereunder of such VWAP Purchase Notice, duly and validly authorized by all necessary corporate action on the part of the Company. The Shares, if and when issued and sold against payment therefor in accordance with this Agreement, shall be validly issued and outstanding, fully paid and non-assessable and free from all liens, charges, taxes, security interests, encumbrances, rights of first refusal, preemptive or similar rights and other encumbrances with respect to the issue thereof, and the Investor shall be entitled to all rights accorded to a holder of Shares. At or prior to Commencement, the Company shall have duly authorized and reserved a number of Shares equal to the Aggregate Limit for issuance and sale as Shares to the Investor pursuant to VWAP Purchases that may be effected by the Company, in its sole discretion, from time to time from and after the Commencement Date, pursuant to this Agreement.
Section 5.6.No Conflicts. The execution, delivery and performance by the Company of each of the Transaction Documents to which it is a party and the consummation by the Company of the transactions contemplated hereby and thereby do not and shall not (i) result in a violation of any provision of the Company’s Articles, (ii) conflict with or constitute a material default (or an event which, with notice or lapse of time or both, would become a material default) under, or give rise to any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease
13
agreement, instrument or obligation to which the Company or any of its Subsidiaries is a party or is bound, (iii) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree applicable to the Company or any of its Subsidiaries (including federal and state securities laws and regulations and the rules and regulations of the Principal Market), except, in the case of clauses (ii) and (iii), for such conflicts, defaults, terminations, amendments, acceleration, cancellations, liens, charges, encumbrances and violations as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect or that have been waived. Except as specifically contemplated by this Agreement or the Registration Rights Agreement and as required under the Securities Act, any applicable state securities laws and applicable rules of the Principal Market, the Company is not required under any federal, state or local rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under the Transaction Documents to which it is a party, or to issue the Shares to the Investor in accordance with the terms hereof and thereof (other than such consents, authorizations, orders, filings or registrations as have been obtained or made prior to the Closing Date); provided, however, that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the representations and warranties of the Investor in this Agreement and the compliance by it with its covenants and agreements contained in this Agreement and the Registration Rights Agreement.
Section 5.7.Commission Documents, Financial Statements; Disclosure Controls and Procedures; Internal Controls Over Financial Reporting; Accountants.
(a)Since December 16, 2021, the Company has timely filed (giving effect to permissible extensions in accordance with Rule 12b-25 under the Exchange Act) all filings required to be filed with or furnished to the Commission by the Company under the Securities Act or the Exchange Act, including those required to be filed with or furnished to the Commission under Section 13(a) or Section 15(d) of the Exchange Act. As of the date of this Agreement, no Subsidiary of the Company is required to file or furnish any report, schedule, registration, form, statement, information or other document with the Commission. As of its filing date (or, if amended or superseded by a filing prior to the Closing Date, on the date of such amended or superseded filing), each Commission Document filed with or furnished to the Commission prior to the Closing Date complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable. Each Registration Statement, on the date it is filed with the Commission, on the date it becomes effective and on each VWAP Purchase Date shall comply in all material respects with the requirements of the Securities Act (including, without limitation, Rule 415 under the Securities Act) and shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, except that this representation and warranty shall not apply to statements in or omissions from such Registration Statement made in reliance upon and in conformity with information relating to the Investor furnished to the Company in writing by or on behalf of the Investor expressly for use therein. The Prospectus and each Prospectus Supplement required to be filed pursuant to this Agreement or the Registration Rights Agreement after the Closing Date, when taken together, on its date and on each VWAP Purchase Date shall comply in all material respects with the requirements of the Securities Act (including, without limitation, Rule 424(b) under the Securities Act) and shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or
14
necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that this representation and warranty shall not apply to statements in or omissions from the Prospectus or any Prospectus Supplement made in reliance upon and in conformity with information relating to the Investor furnished to the Company in writing by or on behalf of the Investor expressly for use therein. The statistical, demographic and market-related data included in the Registration Statement and Prospectus are based on or derived from sources that the Company believes to be reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources. Each Commission Document (other than the Initial Registration Statement or any New Registration Statement, or the Prospectus included therein or any Prospectus Supplement thereto) to be filed with or furnished to the Commission after the Closing Date and incorporated by reference in the Initial Registration Statement or any New Registration Statement, or the Prospectus included therein or any Prospectus Supplement thereto required to be filed pursuant to this Agreement or the Registration Rights Agreement (including, without limitation, the Current Report), when such document is filed with or furnished to the Commission and, if applicable, when such document becomes effective, as the case may be, shall comply in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable. There are no comments provided to the Company by the Commission’s staff relating to any of the Commission Documents filed with or furnished to the Commission as of the applicable date or time this representation is being made under Article VII hereof that remain outstanding or unresolved. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Securities Act or the Exchange Act.
(b)The consolidated financial statements of the Company included or incorporated by reference in the Commission Documents, together with the related notes and schedules, present fairly, in all material respects, the consolidated financial position of the Company and its then consolidated subsidiaries as of the dates indicated, and the consolidated results of operations, cash flows and changes in shareholders’ equity of the Company and its then consolidated subsidiaries for the periods specified and have been prepared in all material respects in compliance with the published requirements of the Securities Act and the Exchange Act, as applicable, and in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) applied on a consistent basis. There are no financial statements (historical or pro forma) that are required to be included or incorporated by reference in the Commission Documents that are not included or incorporated by reference as required. The Company and the Subsidiaries do not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations or any “variable interest entities” as that term is used in Accounting Standards Codification Paragraph 810-10-25-20), not described in Commission Documents which are required to be described in the Commission Documents. All disclosures contained or incorporated by reference in the Commission Documents, if any, regarding “non-IFRS financial measures” (as such term is defined by the rules and regulations of the Commission) comply in all material respects with Regulation G under the Exchange Act and Item 10 of Regulation S-K under the Securities Act, to the extent applicable. The interactive data in eXtensible Business Reporting Language included in the Commission Documents fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto.
15
(c)PricewaterhouseCoopers LLP, whose report on the consolidated financial statements of the Company as of December 31, 2020 and 2021, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021 included in the Company’s registration statement on Form F-1 (File No. 333-262207), are and, during the periods covered by their report, were an independent public accounting firm within the meaning of the Securities Act and the Public Company Accounting Oversight Board (United States). To the Company’s knowledge, PricewaterhouseCoopers LLP is not in violation of the auditor independence requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) with respect to the Company.
(d)Except as disclosed in the Commission Documents, there is and has been no failure on the part of the Company or any of the Company’s directors or officers, in their capacities as such, to comply in all material respects with any applicable provisions of the Sarbanes-Oxley Act and the rules and regulations promulgated thereunder. Each of the principal executive officer and the principal financial officer of the Company (or each former principal executive officer of the Company and each former principal financial officer of the Company as applicable) has made all certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act with respect to all reports, schedules, forms, statements and other documents required to be filed by it or furnished by it to the Commission. For purposes of the preceding sentence, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act.
Section 5.8.No Material Adverse Effect; Absence of Certain Changes. Subsequent to the respective dates as of which information is given in the Commission Documents (including any document deemed incorporated by reference therein), there has not been (i) any Material Adverse Effect or the occurrence of any development that the Company reasonably expects will result in a Material Adverse Effect, (ii) any transaction which is material to the Company and the Subsidiaries taken as a whole, (iii) any obligation or liability, direct or contingent (including any off-balance sheet obligations), incurred by the Company or any Subsidiary, which is material to the Company and the Subsidiaries taken as a whole, (iv) any material change in the shares (other than (A) the grant of additional awards under the Company’s existing equity incentive plans, (B) changes in the number of outstanding shares of the Company due to the issuance of shares upon the exercise or conversion of securities exercisable for, or convertible into, shares outstanding on the date hereof, (C) as described in a proxy statement filed on Schedule 14A or a Registration Statement on Form F-4, or (D) otherwise publicly announced on a Form 6-K or Company press release) or outstanding long-term indebtedness of the Company or any of its Subsidiaries or (v) any dividend or distribution of any kind declared, paid or made on the shares of the Company or any Subsidiary, other than in each case above in the ordinary course of business or as otherwise disclosed in the Commission Documents (including any document deemed incorporated by reference therein).
Section 5.9.No Material Defaults. Neither the Company nor any of its Subsidiaries has defaulted on any installment on indebtedness for borrowed money or on any rental on one or more long-term leases, which defaults, individually or in the aggregate, would have a Material Adverse Effect. The Company has not filed a report pursuant to Section 13(a) or 15(d) of the Exchange Act indicating that it (i) has failed to pay any dividend or sinking fund installment on preferred shares (if any) or (ii) has defaulted on any installment on indebtedness for borrowed
16
money or on any rental on one or more long-term leases, which defaults, individually or in the aggregate, would have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is (i) in violation of its charter, by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the property or assets of the Company or any of its Subsidiaries are subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any Governmental Authority, except, in the case of each of clauses (ii) and (iii) above, for any such violation or default that would not, individually or in the aggregate, have a Material Adverse Effect.
Section 5.10.No Preferential Rights. Except as set forth in the Commission Documents or provided hereunder, (i) no Person has the right, contractual or otherwise, to cause the Company to issue or sell to such Person any Shares or any other shares or other securities of the Company, (ii) no Person has any preemptive rights, resale rights, rights of first refusal, rights of co-sale, or any other rights (whether pursuant to a “poison pill” provision or otherwise) to purchase any Shares or any other shares or other securities of the Company, (iii) no Person has the right to act as an underwriter or as a financial advisor to the Company in connection with the offer and sale of the Shares offered hereunder, and (iv) no Person has the right, contractual or otherwise, to require the Company to register under the Securities Act any Shares or any other shares or other securities of the Company, or to include any such Shares or other securities in the Registration Statement or the offering contemplated thereby, whether as a result of the filing or effectiveness of the Registration Statement or the sale of the Shares as contemplated thereby or otherwise.
Section 5.11.Material Contracts. Neither the Company nor any of its Subsidiaries is in material breach of or default in any respect under the terms of any Material Contract and, to the Knowledge of the Company, as of the date hereof, no other party to any Material Contract is in material breach of or default under the terms of any Material Contract. Each agreement between the Company and a third party is in full force and effect and is a valid and binding obligation of the Company or the Subsidiary of the Company that is party thereto and, to the Knowledge of the Company, is a valid and binding obligation of each other party thereto. The Company has not received any written notice of the intention of any other party to a Material Contract to terminate for default, convenience or otherwise, or not renew, any Material Contract.
Section 5.12.Solvency. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to Title 11 of the United States Code or any similar federal or state bankruptcy law or law for the relief of debtors, nor does the Company have any Knowledge that its creditors intend to initiate involuntary bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under Title 11 of the United States Code or any other federal or state bankruptcy law or any law for the relief of debtors. The Company is financially solvent and is generally able to pay its debts as they become due.
Section 5.13.Real Property; Intellectual Property.
17
(a)Except as set forth in the Commission Documents, the Company and its Subsidiaries have good and marketable title in fee simple to all items of real property owned by them, good and valid title to all personal property described in the Commission Documents as being owned by them that are material to their businesses, in each case free and clear of all liens, encumbrances and claims, except those matters that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries or (ii) would not, individually or in the aggregate, have a Material Adverse Effect. Any real or personal property described in the Commission Documents as being leased by the Company and any of its Subsidiaries is held by them under valid, existing and enforceable leases, except those that (A) do not materially interfere with the use made or proposed to be made of such property by the Company or any of its Subsidiaries or (B) would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect. Each of the properties of the Company and its Subsidiaries complies with all applicable codes, laws and regulations (including, without limitation, building and zoning codes, laws and regulations and laws relating to access to such properties), except if and to the extent disclosed in the Commission Documents or except for such failures to comply that would not, individually or in the aggregate, reasonably be expected to interfere in any material respect with the use made and proposed to be made of such property by the Company and its Subsidiaries or otherwise have a Material Adverse Effect. None of the Company or its Subsidiaries has received from any Governmental Authorities any notice of any condemnation of, or zoning change affecting, the properties of the Company and its Subsidiaries, and the Company knows of no such condemnation or zoning change which is threatened, except for such that would not reasonably be expected to interfere in any material respect with the use made and proposed to be made of such property by the Company and its Subsidiaries or otherwise have a Material Adverse Effect, individually or in the aggregate.
(b)Except as disclosed in the Commission Documents, the Company and its Subsidiaries own, possess, license or have other rights to use all foreign and domestic patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology, Internet domain names, know-how and other intellectual property (collectively, the “Intellectual Property”), necessary for the conduct of their respective businesses as now conducted except to the extent that the failure to own, possess, license or otherwise hold adequate rights to use such Intellectual Property would not, individually or in the aggregate, have a Material Adverse Effect. Except as disclosed in the Commission Documents (i) there are no rights of third parties to any such Intellectual Property owned by the Company and its Subsidiaries; (ii) to the Company’s Knowledge, there is no infringement by third parties of any such Intellectual Property; (iii) there is no pending or, to the Company’s Knowledge, threatened action, suit, proceeding or claim by others challenging the Company’s and its Subsidiaries’ rights in or to any such Intellectual Property, and the Company is unaware of any facts which could form a reasonable basis for any such action, suit, proceeding or claim; (iv) there is no pending or, to the Company’s Knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property; (v) there is no pending or, to the Company’s Knowledge, threatened action, suit, proceeding or claim by others that the Company and its Subsidiaries infringe or otherwise violate any patent, trademark, copyright, trade secret or other proprietary rights of others; (vi) to the Company’s Knowledge, there is no third-party U.S. patent or published U.S. patent application which contains claims for which an Interference Proceeding (as defined in 35 U.S.C. § 135) has been commenced against any patent or patent application described in the Commission Documents as
18
being owned by or licensed to the Company; and (vii) the Company and its Subsidiaries have complied with the terms of each agreement pursuant to which Intellectual Property has been licensed to the Company or such Subsidiary, and all such agreements are in full force and effect, except, in the case of any of clauses (i)-(vii) above, for any such rights infringement by third parties or any such pending or threatened suit, action, proceeding or claim as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The Company and its Subsidiaries have taken commercially reasonable efforts to maintain the confidentiality of all material trade secrets and other material confidential information of the Company and its Subsidiaries and any confidential information owned by any Person to whom the Company or any of its Subsidiaries has a written confidentiality obligation.
Section 5.14.Actions Pending. Except as disclosed in the Commission Documents, there are no actions, suits or proceedings by or before any Governmental Authority pending, nor, to the Company’s Knowledge, any audits or investigations by or before any Governmental Authority to which the Company or a Subsidiary is a party or to which any property of the Company or any of its Subsidiaries is the subject that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect and, to the Company’s Knowledge, no such actions, suits, proceedings, audits or investigations are threatened or contemplated by any Governmental Authority or threatened by others; and (i) there are no current or pending audits or investigations, actions, suits or proceedings by or before any Governmental Authority that are required under the Securities Act to be described in the Commission Documents that are not so described; and (ii) there are no material contracts or other documents that are required under the Securities Act to be filed as exhibits to the Commission Documents that are not so filed.
Section 5.15.Compliance with Law. The Company and each of its Subsidiaries are in compliance with all applicable laws, regulations and statutes (including all Environmental Laws) in the jurisdictions in which it carries on business, except where failure to be so in compliance would not reasonably be expected to result in a Material Adverse Effect; the Company has not received a notice of non-compliance, nor knows of, nor has reasonable grounds to know of, any facts that could give rise to a notice of non-compliance with any such laws, regulations and statutes, and is not aware of any pending change or contemplated change to any applicable law or regulation or governmental position; in each case that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
Section 5.16.Certain Fees. Except as disclosed to the Investors, neither the Company nor any of its Subsidiaries has incurred any liability for any finder’s fees, brokerage commissions or similar payments in connection with the transactions herein contemplated.
Section 5.17.Disclosure. The Company confirms that each time that it issues a VWAP Purchase Notice to the Investor, neither it nor any other Person acting on its behalf will have provided the Investor or any of its agents, advisors or counsel with any information that constitutes or would reasonably be expected to constitute material non-public information concerning the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by the Transaction Documents and the VWAP Purchase Notice. The Company understands and confirms that the Investor will rely on the foregoing representations in effecting resales of Shares under the Registration Statement.
19
Section 5.18.Broker/Dealer Relationships. Neither the Company nor any of the Subsidiaries (i) is required to register as a “broker” or “dealer” in accordance with the provisions of the Exchange Act or (ii) directly or indirectly through one or more intermediaries, controls or is a “person associated with a member” or “associated person of a member” (within the meaning set forth in the FINRA Manual).
Section 5.19.Disclosure Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with IFRS and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Commission Documents, the Company’s internal control over financial reporting is effective and the Company is not aware of any material weaknesses in its internal control over financial reporting. Since the date of the latest audited financial statements of the Company included in the Commission Documents, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting (other than as set forth in the Commission Documents). The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company and each of its Subsidiaries is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Annual Report on Form 20-F is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of the Form 20-F for the fiscal year most recently ended (such date, the “Evaluation Date”) and, except as disclosed in the Commission Documents, the disclosure controls and procedures are effective. The Company presented in its Annual Report on Form 20-F for the fiscal year most recently ended the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under the Securities Act) or, to the Company’s Knowledge, in other factors that could significantly affect the Company’s internal controls.
Section 5.20.Permits. Except as disclosed in the Commission Documents, the Company and each Subsidiary possess such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, and neither the Company nor any Subsidiary has received, or has any reason to believe that it will receive, any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, if the subject of an unfavorable decision, ruling or finding, would, individually or in the aggregate, have a Material Adverse Effect.
Section 5.21.Environmental Compliance. Except as set forth in the Commission Documents, the Company and its Subsidiaries (i) are in compliance with any and all applicable
20
federal, state, local and foreign laws, rules, regulations, decisions and orders relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws”); (ii) have received and are in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses as described in the Commission Documents; and (iii) have not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except, in the case of any of clauses (i), (ii) or (iii) above, for any such failure to comply or failure to receive required permits, licenses, other approvals or liability as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 5.22.No Improper Practices. (i) Neither the Company nor the Subsidiaries, nor any director, officer, or employee of the Company or any Subsidiary nor, to the Company’s Knowledge, any agent, Affiliate or other person acting on behalf of the Company or any Subsidiary has, in the past five years, made any unlawful contributions to any candidate for any political office (or failed fully to disclose any contribution in violation of applicable law) or made any contribution or other payment to any official of, or candidate for, any federal, state, municipal, or foreign office or other person charged with similar public or quasi-public duty in violation of any applicable law or of the character required to be disclosed in the Commission Documents; (ii) except as described in the Commission Documents, there are no material outstanding loans or advances or material guarantees of indebtedness by the Company or any Subsidiary to or for the benefit of any of their respective officers or directors or any of the members of the families of any of them; and (iii) the Company has not offered, or caused any placement agent to offer, Shares to any person with the intent to influence unlawfully (A) a customer or supplier of the Company or the Subsidiaries to alter the customer’s or supplier’s level or type of business with the Company or any Subsidiary or (B) a trade journalist or publication to write or publish favorable information about the Company or the Subsidiaries or any of their respective products or services, and, (iv) neither the Company nor the Subsidiaries nor any director, officer or employee of the Company or any Subsidiary nor, to the Company’s Knowledge, any agent, Affiliate or other person acting on behalf of the Company or any Subsidiary has (A) violated or is in violation of any applicable provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any other applicable anti-bribery or anti- corruption law (collectively, “Anti-Corruption Laws”), (B) promised, offered, provided, attempted to provide or authorized the provision of anything of value, directly or indirectly, to any person for the purpose of obtaining or retaining business, influencing any act or decision of the recipient, or securing any improper advantage; or (C) made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any Anti-Corruption Laws.
Section 5.23.AML Compliance. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions to which the Company or its Subsidiaries are subject, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Authority (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before
21
any Governmental Authority involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the Knowledge of the Company, threatened.
Section 5.24.Off-Balance Sheet Arrangements. There are no transactions, arrangements or other relationships between or among the Company, and/or any of its Affiliates and any unconsolidated entity, including, but not limited to, any structural finance, special purpose or limited purpose entity (each, an “Off-Balance Sheet Transaction”) that would reasonably be expected to affect materially the Company’s liquidity or the availability of or requirements for its capital resources, including those Off-Balance Sheet Transactions described in the Commission’s Statement about Management’s Discussion and Analysis of Financial Conditions and Results of Operations (Release Nos. 33-8056; 34-45321; FR-61), required to be described in the Commission Documents which have not been described as required.
Section 5.25.Transactions With Affiliates. No relationship, direct or indirect, exists between or among the Company or any of its Subsidiaries on the one hand, and the directors, officers, trustees, managers, shareholders, partners, customers or suppliers of the Company or any of the Subsidiaries on the other hand, which would be required by the Securities Act or the Exchange Act to be disclosed in the Commission Documents, which is not so disclosed.
Section 5.26.Labor Disputes. None of the Company nor any of its Subsidiaries is bound by or subject to any collective bargaining or similar agreement with any labor union, and, to the Knowledge of the Company, none of the employees of the Company or any of its Subsidiaries is represented by any labor union. The Company and its Subsidiaries have complied with all employment laws applicable to employees of the Company and its Subsidiaries, except where non-compliance with any such employment laws would not have a Material Adverse Effect. No labor disturbance by or dispute with employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is threatened which would have a Material Adverse Effect.
Section 5.27.Use of Proceeds. The proceeds from the sale of the Shares by the Company to the Investor shall be used by the Company in the manner as will be set forth in the Prospectus included in any Registration Statement (and any post-effective amendment thereto) and any Prospectus Supplement thereto filed pursuant to the Registration Rights Agreement.
Section 5.28.Investment Company Act Status. The Company is not, and as a result of the consummation of the transactions contemplated by the Transaction Documents and the application of the proceeds from the sale of the Shares as will be set forth in the Prospectus included in any Registration Statement (and any post-effective amendment thereto) and any Prospectus Supplement thereto filed pursuant to the Registration Rights Agreement the Company will not be, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 5.29.Taxes. The Company and each of its Subsidiaries have filed all federal, state, local and foreign tax returns which have been required to be filed by them and paid all taxes shown thereon, to the extent that such taxes have become due and are not being contested in good faith, except where the failure to so file or pay would not have a Material Adverse Effect. Except as otherwise disclosed in or contemplated by the Commission Documents, no tax
22
deficiency has been determined adversely to the Company or any of its Subsidiaries which has had, or would have, individually or in the aggregate, reasonably expected to be a Material Adverse Effect. The Company has no Knowledge of any federal, state or other governmental tax deficiency, penalty or assessment which has been or might be asserted or threatened against it which would reasonably have a Material Adverse Effect.
Section 5.30.ERISA. To the Knowledge of the Company: (i) each material employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is maintained, administered or contributed to by the Company or any of its Affiliates for employees or former employees of the Company and any of its Subsidiaries has been maintained in material compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Internal Revenue Code of 1986, as amended (the “Code”) in all material respects; and (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred which would result in a material liability to the Company with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption other than in the case of (i) and (ii) above as would not have a Material Adverse Effect.
Section 5.31.Share Transfer Taxes. All share transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Shares to be sold hereunder will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with.
Section 5.32.Insurance. The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as the Company and each of its Subsidiaries reasonably believe are adequate for the conduct of their business and as is customary for companies engaged in similar businesses in similar industries.
Section 5.33.Exemption from Registration. Subject to, and in reliance on, the representations, warranties and covenants made herein by the Investor, the offer and sale of the Shares in accordance with the terms and conditions of this Agreement is exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2); provided, however, that at the request of and with the express agreements of the Investor (including, without limitation, the representations, warranties and covenants of Investor set forth in Section 4.9 through 4.13), the Shares to be issued from and after Commencement to or for the benefit of the Investor pursuant to this Agreement shall be issued to the Investor or its designee only as DWAC Shares and will not bear legends noting restrictions as to resale of such securities under federal or state securities laws, nor will any such securities be subject to stop transfer instructions.
Section 5.34.No General Solicitation or Advertising. Neither the Company, nor any of its Subsidiaries or Affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Shares.
Section 5.35.No Integrated Offering. None of the Company, its Subsidiaries or any of their Affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that
23
would require registration of the issuance of any of the Shares under the Securities Act, whether through integration with prior offerings or otherwise, or cause this offering of the Shares to require approval of shareholders of the Company under any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of the Principal Market. None of the Company, its Subsidiaries, their Affiliates nor any Person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of the issuance of any of the Shares under the Securities Act or cause the offering of any of the Shares to be integrated with other offerings.
Section 5.36.Dilutive Effect. The Company is aware and acknowledges that issuance of the Shares could cause dilution to existing shareholders and could significantly increase the outstanding number of Shares. The Company further acknowledges that its obligation to issue the Shares to be purchased by the Investor pursuant to a VWAP Purchase is, upon the Company’s delivery to the Investor of a VWAP Purchase Notice for a VWAP Purchase in accordance with this Agreement, absolute and unconditional following the delivery of such VWAP Purchase Notice to the Investor, regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
Section 5.37.Manipulation of Price. Neither the Company nor any of its officers, directors, or to the Knowledge of the Company, its Affiliates has, and, to the Knowledge of the Company, no Person acting on their behalf has, (i) taken, directly or indirectly, any action designed or intended to cause or to result in the stabilization or manipulation of the price of any security of the Company, or which caused or resulted in, or which would in the future reasonably be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, in each case to facilitate the sale or resale of any of the Shares, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Shares, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company. Neither the Company nor any of its officers, directors or, to the Knowledge of the Company, its Affiliates will during the term of this Agreement, and, to the Knowledge of the Company, no Person acting on their behalf will during the term of this Agreement, take any of the actions referred to in the immediately preceding sentence.
Section 5.38.Listing and Maintenance Requirements; DTC Eligibility. The Shares are registered pursuant to Section 12(b) of the Exchange Act, and the Company has taken no action designed to, or which to its Knowledge is likely to have the effect of, terminating the registration of the Shares under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not received notice from the Principal Market to the effect that the Company is not in compliance with the listing or maintenance requirements of the Principal Market. The Shares are eligible for participation in the DTC book entry system. The Company has not received notice from DTC to the effect that a suspension of, or restriction on, accepting additional deposits of the Shares, electronic trading or book-entry services by DTC with respect to the Shares is being imposed or is contemplated.
Section 5.39.Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights
24
agreement) or other similar anti-takeover provision under the Company’s Articles or the laws of its jurisdiction of incorporation that is or could become applicable to the Investor as a result of the Investor and the Company fulfilling their respective obligations or exercising their respective rights under the Transaction Documents (as applicable), including, without limitation, as a result of the Company’s issuance of the Shares and the Investor’s ownership of the Shares.
Section 5.40.OFAC. Neither the Company nor any of its Subsidiaries (collectively, the “Entity”), nor any director, officer or employee, is a Person that is, or is 50% or more owned or, where relevant under applicable Sanctions, controlled by a Person that is (i) the subject of applicable sanctions administered or enforced by the U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”), the United Nations Security Council, the European Union, or Her Majesty’s Treasury, including, designation on OFAC’s Specially Designated Nationals and Blocked Persons List or OFAC’s Foreign Sanctions Evaders List (collectively, “Sanctions”), nor (ii) located, organized or resident in a country or territory that is the subject of Sanctions that broadly prohibit dealings with that country or territory (currently, the Crimea region of Ukraine, the so-called Donetsk People’s Republic, the so-called Luhansk People’s Republic, Cuba, Iran, North Korea and Syria (the “Sanctioned Countries”)). The Entity will not, directly or knowingly indirectly, use the proceeds from the sale of Shares, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person (a) to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions or is a Sanctioned Country, in violation of applicable Sanctions, or (b) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the transactions contemplated by this Agreement, whether as underwriter, advisor, investor or otherwise). For the past five years, the Entity has not engaged in, and is now not engaged in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions or was a Sanctioned Country, in violation of applicable Sanctions.
Section 5.41.Information Technology; Compliance with Data Privacy Laws. Except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect, to the Company’s Knowledge, the Company and its Subsidiaries comply in all respects with: (i) all applicable Privacy/Data Security Laws, (ii) any applicable policies of the Company or any of its Subsidiaries, respectively, concerning the collection, dissemination, storage or use of Personal Information, (iii) industry standards to which the Company or any of its Subsidiaries, respectively, publicly purports to adhere, and (iv) all contractual commitments that the Company or any of its Subsidiaries has entered into with respect to privacy and/or data security (collectively, the “Data Security Requirements”). The Company and its Subsidiaries have implemented commercially reasonable data security safeguards designed to protect the security and integrity of the Business Systems. Except as has not resulted in a Material Adverse Effect, to the Company’s Knowledge, neither the Company nor any Subsidiary has experienced any data security breaches affecting Personal Information or any unauthorized access or use of any of the Business Systems; been subject to or received written notice of any audits, proceedings or investigations by any Governmental Authority or received any material claims or complaints alleging the violation of any applicable Data Security Requirements by the Company or any Subsidiary.
25
Section 5.42.Acknowledgment Regarding Investor’s Acquisition of Shares; Affiliate Relationships. The Company acknowledges and agrees, to the fullest extent permitted by law, that the Investor is acting solely in the capacity of an arm’s-length purchaser with respect to this Agreement and the transactions contemplated by the Transaction Documents, and Investor and/or any affiliated entity of Investor (such affiliated entities, the “Representatives” and, together with Investor, “Nomura”) may act as a Representative of the Investor in connection with the transactions contemplated by the Transaction Documents, and of no other party, including the Company. The Company further acknowledges that the Investor and its Representatives are not acting as a financial advisor or fiduciary of the Company (or in any similar capacity, except as noted above) with respect to this Agreement and the transactions contemplated by the Transaction Documents, and any advice given by the Investor or any of its Representatives or agents in connection therewith is merely incidental to the Investor’s acquisition of the Shares. The Company further represents to the Investor that the Company’s decision to enter into the Transaction Documents to which it is a party has been based solely on the independent evaluation of the transactions contemplated thereby by the Company and its Representatives. The Company acknowledges and agrees that the Investor has not made and does not make any representations or warranties with respect to the transactions contemplated by the Transaction Documents other than those specifically set forth in Article IV. The Investor and its Affiliates engage in a wide range of activities for their own accounts and the accounts of customers, including corporate finance, mergers and acquisitions, merchant banking, equity and fixed income sales, trading and research, derivatives, foreign exchange, futures, asset management, custody, clearance and securities lending. In the course of its business, Affiliates of Investor may, directly or indirectly, hold long or short positions, trade and otherwise conduct such activities in or with respect to debt or equity securities and/or bank debt of, and/or derivative products relating to, the Company. Any such position will be created, and maintained, independently of the position Investor takes in the Company. In addition, at any given time the Investor and any of its Affiliates may have been and/or be engaged by one or more entities that may be competitors with, or otherwise adverse to, the Company in matters unrelated to the transactions contemplated by the Transaction Documents, and the Investor and any of its Affiliates may have or may in the future provide investment banking or other services to the Company in matters unrelated to the transactions contemplated by the Transaction Documents. Activities of any of Investor’s Affiliates performed on behalf of the Company may give rise to actual or apparent conflicts of interest given Investor’s potentially competing interests with those of the Company. The Company expressly acknowledges the benefits it receives from Investor’s participation in the transactions contemplated by the Transaction Documents, on the one hand, and Investor’s Affiliates’ activities, if any, on behalf of the Company unrelated to the transactions contemplated by the Transaction Documents, on the other hand, and understands the conflict or potential conflict of interest that may arise in this regard, and has consulted with such independent advisors as it deems appropriate in order to understand and assess the risks associated with these potential conflicts of interest. Consistent with applicable legal and regulatory requirements, applicable Affiliates of the Investor have adopted policies and procedures to establish and maintain the independence of their research departments and personnel from their investment banking groups and the Investor. As a result, research analysts employed by Affiliates of the Investor may hold views, make statements or investment recommendations or publish research reports with respect to the Company or the transactions contemplated by the Transaction Documents that differ from the views of the Investor.
26
ARTICLE VI
ADDITIONAL COVENANTS
The Company covenants with the Investor, and the Investor covenants with the Company, as follows, which covenants of one party are for the benefit of the other party, during the Investment Period (and with respect to the Company, for the period following the termination of this Agreement specified in Section 8.3 pursuant to and in accordance with Section 8.3):
Section 6.1.Securities Compliance. The Company shall notify the Commission and the Principal Market, if and as applicable, in accordance with their respective rules and regulations, of the transactions contemplated by the Transaction Documents, and shall take all necessary action, undertake all proceedings and obtain all registrations, permits, consents and approvals for the legal and valid issuance of the Shares to the Investor in accordance with the terms of the Transaction Documents, as applicable.
Section 6.2.Reservation of Shares. The Company has available and the Company shall reserve and keep available at all times, free of preemptive and other similar rights of shareholders, the requisite aggregate number of authorized but unissued Shares to enable the Company to timely effect the sale and issuance of all Shares to be issued, sold and issued in respect of each VWAP Purchase effected under this Agreement, at least prior to the delivery by the Company to the Investor of the applicable VWAP Purchase Notice in connection with such VWAP Purchase. Without limiting the generality of the foregoing, as of the Commencement Date, the Company shall have reserved, out of its authorized and unissued Shares, a number of Shares equal to the Aggregate Limit solely for the purpose of effecting VWAP Purchases under this Agreement. The number of Shares so reserved for the purpose of effecting VWAP Purchases under this Agreement may be increased from time to time by the Company from and after the Commencement Date, and such number of reserved Shares may be reduced from and after the Commencement Date only by the number of Shares actually issued, sold and delivered to the Investor pursuant to any VWAP Purchase effected from and after the Commencement Date pursuant to this Agreement.
Section 6.3.Registration and Listing. The Company shall use its commercially reasonable efforts to cause the Shares to continue to be registered as a class of securities under Section 12(b) of the Exchange Act, and to comply with its reporting and filing obligations under the Exchange Act, and shall not take any action or file any document (whether or not permitted by the Securities Act or the Exchange Act) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or the Securities Act, except as permitted herein. The Company shall use its commercially reasonable efforts to continue the listing and trading of its Shares and the listing of the Shares purchased by the Investor hereunder on the Principal Market and to comply with the Company’s reporting, filing and other obligations under the rules and regulations of the Principal Market. The Company shall not take any action which could be reasonably expected to result in the delisting or suspension of the Shares on the Principal Market. If the Company receives any final and non- appealable notice that the listing or quotation of the Shares on the Principal Market shall be terminated on a date certain, the Company shall promptly (and in any case within 24 hours) notify the Investor of such fact in writing and shall use its commercially reasonable efforts to cause the Shares to be listed or quoted on another Principal Market.
27
Section 6.4.Compliance with Laws.
(i)During the Investment Period, the Company shall comply with applicable provisions of the Securities Act and the Exchange Act, including Regulation M thereunder, applicable state securities or “Blue Sky” laws, and applicable listing rules of the Principal Market, in connection with the transactions contemplated by this Agreement and the Registration Rights Agreement, except as would not, individually or in the aggregate, prohibit or otherwise interfere with the ability of the Company to enter into and perform its obligations under this Agreement in any material respect or for Investor to conduct resales of Shares under the Registration Statement in any material respect.
(ii)The Investor shall comply with all laws, rules, regulations and orders applicable to the performance by it of its obligations under this Agreement and its investment in the Shares, except as would not, individually or in the aggregate, prohibit or otherwise interfere with the ability of the Investor to enter into and perform its obligations under this Agreement in any material respect. Without limiting the foregoing, the Investor shall comply with all applicable provisions of the Securities Act and the Exchange Act, including Regulation M thereunder, and all applicable state securities or “Blue Sky” laws, in connection with the transactions contemplated by this Agreement and the Registration Rights Agreement.
Section 6.5.Keeping of Records and Books of Account; Due Diligence.
(i)The Investor and the Company shall each maintain records showing the remaining Total Commitment, the remaining Aggregate Limit and the dates and VWAP Purchase Share Amount for each VWAP Purchase.
(ii)Subject to the requirements of Section 6.12, from time to time from and after the Closing Date, the Company shall make available for inspection and review by the Investor during normal business hours and after reasonable notice, customary documentation reasonably requested by the Investor and/or its appointed counsel or advisors to conduct due diligence; provided, however, that the Investor’s satisfaction with the results of such due diligence shall not be a condition precedent to the Company’s right to deliver to the Investor any VWAP Purchase Notice or the settlement.
Section 6.6.No Frustration; No Variable Rate Transactions.
(i)No Frustration. The Company shall not enter into, announce or recommend to its shareholders any agreement, plan, arrangement or transaction in or of which the terms thereof would restrict, materially delay, conflict with or impair the ability or right of the Company to perform its obligations under the Transaction Documents to which it is a party, including, without limitation, the obligation of the Company to deliver the Shares to the Investor in respect of a VWAP Purchase not later than the VWAP Purchase Share Delivery Date. For the avoidance of doubt, nothing in this Section 6.6(i) shall in any way limit the Company’s right to terminate this Agreement in accordance with Section 8.2 (subject in all cases to Section 8.3).
(ii)No Variable Rate Transactions. The Company shall not effect or enter into an agreement to effect any issuance by the Company or any of its Subsidiaries of Shares or Share Equivalents (or a combination of units thereof) involving a Variable Rate Transaction,
28
other than in connection with an Exempt Issuance or pursuant to an agreement disclosed in the Commission Documents. The Investor shall be entitled to seek injunctive relief against the Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages, without the necessity of showing economic loss and without any bond or other security being required.
Section 6.7.Corporate Existence. The Company shall take all steps necessary to preserve and continue the corporate existence of the Company; provided, however, that, except as provided in Section 6.8, nothing in this Agreement shall be deemed to prohibit the Company from engaging in any Fundamental Transaction with another Person. For the avoidance of doubt, nothing in this Section 6.7 shall in any way limit the Company’s right to terminate this Agreement in accordance with Section 8.2 (subject in all cases to Section 8.3).
Section 6.8.Fundamental Transaction. If a VWAP Purchase Notice has been delivered to the Investor and the issuance of Shares contemplated therein has not occurred in accordance with the terms and conditions of this Agreement, the Company shall not effect any Fundamental Transaction until the expiration of five (5) Trading Days following the date of full settlement thereof and the issuance to the Investor of all of the Shares issuable pursuant to the VWAP Purchase to which such VWAP Purchase Notice relates.
Section 6.9.Sarbanes-Oxley Act. The Company and the Subsidiaries will maintain and keep accurate books and records reflecting their assets and maintain internal accounting controls in a manner designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (“IFRS”) and including those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the Company’s consolidated financial statements in accordance with IFRS, (iii) that receipts and expenditures of the Company are being made only in accordance with management’s and the Company’s directors’ authorization, and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements. The Company and the Subsidiaries will maintain such controls and other procedures, including, without limitation, those required by Sections 302 and 906 of the Sarbanes-Oxley Act, and the applicable regulations thereunder that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure and to ensure that material information relating to the Company or the Subsidiaries is made known to them by others within those entities, particularly during the period in which such periodic reports are being prepared.
29
Section 6.10.Selling Restrictions.
(i)Except as expressly set forth below, the Investor covenants that from and after the Closing Date through and including the Trading Day next following the expiration or termination of this Agreement as provided in Article VIII (the “Restricted Period”), none of the Investor, any of its officers, or any entity managed or controlled by the Investor (collectively, the “Restricted Persons” and each of the foregoing is referred to herein as a “Restricted Person”) shall, directly or indirectly, (i) engage in any Short Sales of the Shares or (ii) hedging transaction, which establishes a net short position with respect to the Shares, with respect to each of clauses (i) and (ii) hereof, either for its own principal account or for the principal account of any other Restricted Person; provided, however, that the foregoing shall not apply to any such transactions effected by a Restricted Person on behalf of its customers when such Restricted Person is acting in its capacity as a broker or dealer, or to any hedging transaction involving options or other positions held by a Restricted Person unrelated to the transactions contemplated by this Agreement when such Restricted Person is acting in its capacity as a broker or dealer. Notwithstanding the foregoing, it is expressly understood and agreed that nothing contained herein shall (without implication that the contrary would otherwise be true) prohibit any Restricted Person during the Restricted Period from: (1) selling “long” (as defined under Rule 200 promulgated under Regulation SHO) the Shares; or (2) selling a number of Shares equal to the number of Shares that such Restricted Person is unconditionally obligated to purchase under a pending VWAP Purchase Notice but has not yet received from the Company or the Transfer Agent pursuant to this Agreement, so long as (X) such Restricted Person (or the Broker-Dealer, as applicable) delivers the Shares purchased pursuant to such VWAP Purchase Notice to the purchaser thereof or the applicable Broker-Dealer promptly upon such Restricted Person’s receipt of such Shares from the Company in accordance with Section 3.2 of this Agreement and (Y) neither the Company nor the Transfer Agent shall have failed for any reason to issue such Shares to the Investor or its Broker-Dealer so that such Shares are received by the Investor as DWAC Shares on the applicable VWAP Purchase Share Delivery Date in accordance with Section 3.2 of this Agreement, including, without limitation, within the time period specified for receipt of such Shares by the Investor or its Broker-Dealer as DWAC Shares from the Company or the Transfer Agent. The parties acknowledge and agree that the Investor, in its capacity as Broker-Dealer, shall be permitted to mark the sales of Shares on each VWAP Purchase Date as “short” for purposes of Rule 200 promulgated under Regulation SHO since the exact amount of Shares to be sold on such date is uncertain, and such designation shall not be considered a breach of (i) above by the Investor.
(ii)In addition to the foregoing, in connection with any sale of Shares (including any sale permitted by paragraph (i) above), the Investor shall comply in all respects with all applicable laws, rules, regulations and orders, including, without limitation, the requirements of the Securities Act and the Exchange Act.
Section 6.11.Effective Registration Statement. During the Investment Period, the Company shall use its commercially reasonable efforts to maintain the continuous effectiveness of the Initial Registration Statement and each New Registration Statement filed with the Commission under the Securities Act for the applicable Registration Period pursuant to and in accordance with the Registration Rights Agreement.
30
Section 6.12.Blue Sky. The Company shall take such action, if any, as is necessary by the Company in order to obtain an exemption for or to qualify the Shares for sale by the Company to the Investor pursuant to the Transaction Documents, and at the request of the Investor, the subsequent resale of Registrable Securities by the Investor, in each case, under applicable state securities or “Blue Sky” laws and shall provide evidence of any such action so taken to the Investor from time to time following the Closing Date; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6.11, (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.
Section 6.13.Non-Public Information. Neither the Company or any of its Subsidiaries, nor any of their respective directors, officers, employees or agents shall disclose any material non-public information about the Company to the Investor during any VWAP Purchase Period, unless a simultaneous public announcement thereof is made by the Company in the manner contemplated by Regulation FD as if Regulation FD were applicable to the Company. In the event of a breach of the foregoing covenant by the Company or any of its Subsidiaries, or any of their respective directors, officers, employees and agents (as determined in the reasonable good faith judgment of the Investor), (i) the Investor shall promptly provide written notice of such breach to the Company and (ii) after such notice has been provided to the Company and, provided that the Company shall have failed to demonstrate to the Investor in writing within 24 hours that such information does not constitute material, non-public information or the Company shall have failed to publicly disclose such material, non-public information within 24 hours following demand therefor by the Investor, in addition to any other remedy provided herein or in the other Transaction Documents, if the Investor is holding any Shares at the time of the disclosure of material, non-public information, the Investor shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, non-public information; provided that prior to making any such public disclosure, the Investor shall consult with the Company and provide the Company with an opportunity of forty-eight (48) hours to review and comment on such disclosure. The Investor shall not have any liability to the Company, any of its Subsidiaries, or any of their respective directors, officers, employees, shareholders or agents, for any such disclosure or return of Shares.
Section 6.14.Broker/Dealer. The Investor shall use one or more broker-dealers (which may be the Investor or an Affiliate of the Investor) to effectuate all sales, if any, of the Shares that it may purchase or otherwise acquire from the Company pursuant to the Transaction Documents, as applicable, which (or whom) shall be a DTC participant (collectively, the “Broker-Dealer”). The Investor shall, from time to time, provide the Company and the Transfer Agent with all information regarding the Broker-Dealer reasonably requested by the Company. The Investor shall be solely responsible for all fees and commissions of the Broker-Dealer (if any), which shall not exceed customary brokerage fees and commissions and shall be responsible for designating only a DTC participant eligible to receive DWAC Shares.
Section 6.15.Disclosure Schedule.
(i)The Company may, from time to time, update a disclosure schedule (the “Disclosure Schedule”) as may be required to satisfy the conditions set forth in Section 7.2(i)
31
and Section 7.3(i) (to the extent such condition set forth in Section 7.3(i) relates to the condition in Section 7.2(i) as of a specific VWAP Purchase Condition Satisfaction Time). For purposes of this Section 6.14, any disclosure made in a schedule to the Compliance Certificate shall be deemed to be an update of the Disclosure Schedule. Notwithstanding anything in this Agreement to the contrary, no update to the Disclosure Schedule pursuant to this Section 6.14 shall cure any breach of a representation or warranty of the Company contained in this Agreement and made prior to the update and shall not affect any of the Investor’s rights or remedies with respect thereto.
(ii)Notwithstanding anything to the contrary contained in the Disclosure Schedule or in this Agreement, the information and disclosure contained in any Schedule of the Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in any other Schedule of the Disclosure Schedule as though fully set forth in such Schedule for which applicability of such information and disclosure is readily apparent on its face. The fact that any item of information is disclosed in the Disclosure Schedule shall not be construed to mean that such information is required to be disclosed by this Agreement. Except as expressly set forth in this Agreement, such information and the thresholds (whether based on quantity, qualitative characterization, dollar amounts or otherwise) set forth herein shall not be used as a basis for interpreting the terms “material” or “Material Adverse Effect” or other similar terms in this Agreement.
Section 6.16.Delivery of Bring-Down Opinions and Compliance Certificates Upon Occurrence of Certain Events. Within three (3) Trading Days immediately following the date the Company files with the Commission (i) an annual report on Form 20-F under the Exchange Act with respect to a fiscal year ending after the Commencement Date; (ii) an amendment on Form 20-F/A to an annual report on Form 20-F under the Exchange Act with respect to a fiscal year ending after the Commencement Date, which contains amended material financial information (or a restatement of material financial information) or an amendment to other material information contained in a previously filed Form 20-F, which contains amended material financial information (or a restatement of material financial information); or (iii) the Initial Registration Statement, any New Registration Statement, or the Prospectus or any amendment to other material information contained or incorporated by reference in the Initial Registration Statement or any New Registration Statement (it being hereby acknowledged and agreed that the filing or furnishing by the Company with the Commission of a report on Form 6- K that includes only updated financial information as of the end of the Company’s most recent fiscal quarter shall not, in and of itself, constitute an “amendment” or “restatement” for purposes of this Section 6.16), and in any case, not more than once per calendar quarter (each, a “Representation Date”), the Company shall (I) deliver to the Investor a Compliance Certificate, dated such date, (II) cause to be furnished to the Investor an opinion and negative assurance “bring down” from outside counsel to each of the Company and the Investor, respectively, substantially in the form mutually agreed to by the Company and the Investor prior to the date of this Agreement, modified, as necessary, to relate to such Registration Statement or post-effective amendment, as applicable (each such opinion, a “Bring-Down Opinion”) and (III) cause to be furnished to the Investor a comfort letter from the independent registered public accounting firm or firms whose reports are included or incorporated by reference in the Registration Statement and the Prospectus, and any Prospectus Supplement (in the case of a post-effective amendment, only if such amendment contains amended or new financial information) (the “Bring-Down
32
Comfort Letter”). The requirement to provide the documents identified in clauses (I) and (II) of this Section 6.16 shall be waived for any Representation Date if the Company or the Investor has given notice to the other party in writing (including by email correspondence to the individual(s) of the other party set forth in Section 10.4 hereto, if receipt of such correspondence is actually acknowledged by any individual to whom the notice is sent, other than via auto-reply) or by telephone (confirmed immediately by verifiable facsimile transmission or email correspondence to the individual(s) of the other party set forth in Section 10.4 hereto) of the suspension of VWAP Purchases (a “Suspension”), which waiver shall continue until the earlier to occur of the date the Company delivers a VWAP Purchase Notice hereunder (which for such calendar quarter shall be considered a Representation Date) and the next occurring Representation Date. Notwithstanding the foregoing, if the Company subsequently decides to deliver a VWAP Purchase Notice following a Representation Date when a Suspension was in effect and did not provide the Investor with the documents identified in clauses (I), (II) and (III) of this Section 6.16, then before the Investor accepts such VWAP Purchase Notice, the Company shall provide the Investor with the documents identified in clauses (I), (II) and (III) of this Section 6.16, dated as of the date that the VWAP Purchase Notice is accepted by the Investor.
ARTICLE VII
CONDITIONS TO CLOSING AND CONDITIONS TO THE SALE
AND PURCHASE OF THE SHARES
Section 7.1.Conditions Precedent to Closing. The Closing is subject to the satisfaction of each of the conditions set forth in this Section 7.1 on the Closing Date.
(i)Accuracy of the Investor’s Representations and Warranties. The representations and warranties of the Investor contained in this Agreement (a) that are not qualified by “materiality” shall be true and correct in all material respects as of the Closing Date, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (b) that are qualified by “materiality” shall be true and correct as of the Closing Date, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.
(ii)Accuracy of the Company’s Representations and Warranties. The representations and warranties of the Company contained in this Agreement (a) that are not qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all material respects as of the Closing Date, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (b) that are qualified by “materiality” or “Material Adverse Effect” shall be true and correct as of the Closing Date, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.
(iii)Tax Forms. The Investor shall have delivered to the Company a duly completed and executed Internal Revenue Service Form W-9.
33
(iv)Closing Deliverables. At the Closing, counterpart signature pages of this Agreement and the Registration Rights Agreement executed by each of the parties hereto shall be delivered as provided in Section 2.2. Simultaneously with the execution and delivery of this Agreement and the Registration Rights Agreement, the Investor’s counsel shall have received (a) mutually agreed upon forms of the opinions of outside counsel to the Company to be delivered to the Investor on the Commencement Date and (b) the closing certificate from the Company, dated the Closing Date, in the form of Exhibit B hereto.
Section 7.2.Conditions Precedent to Commencement. The right of the Company to commence delivering VWAP Purchase Notices under this Agreement, and the obligation of the Investor to accept VWAP Purchase Notices delivered to the Investor by the Company under this Agreement, are subject to the initial satisfaction, at Commencement, of each of the conditions set forth in this Section 7.2.
(i)Accuracy of the Company’s Representations and Warranties. The representations and warranties of the Company contained in this Agreement (a) that are not qualified by “materiality” or “Material Adverse Effect” shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the Commencement Date with the same force and effect as if made on such date, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (b) that are qualified by “materiality” or “Material Adverse Effect” shall have been true and correct when made and shall be true and correct as of the Commencement Date with the same force and effect as if made on such date, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.
(ii)Performance of the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Company at or prior to the Commencement. The Company shall deliver to the Investor on the Commencement Date the compliance certificate substantially in the form attached hereto as Exhibit C (the “Compliance Certificate”).
(iii)Initial Registration Statement Effective. The Initial Registration Statement covering the resale by the Investor of the Registrable Securities included therein required to be filed by the Company with the Commission pursuant to Section 2(a) of the Registration Rights Agreement shall have become effective under the Securities Act, and the Investor shall be permitted to utilize the Prospectus therein to resell the Shares included in such Prospectus.
(iv)No Material Notices. None of the following events shall have occurred and be continuing: (a) receipt of any request by the Commission or any other federal or state governmental authority for any additional information relating to the Initial Registration Statement, the Prospectus contained therein or any Prospectus Supplement thereto, or for any amendment of or supplement to the Initial Registration Statement, the Prospectus contained therein or any Prospectus Supplement thereto; (b) the issuance by the Commission or any other
34
federal or state governmental authority of any stop order suspending the effectiveness of the Initial Registration Statement or prohibiting or suspending the use of the Prospectus contained therein or any Prospectus Supplement thereto, or of the suspension of qualification or exemption from qualification of the Shares for offering or sale in any jurisdiction, or the initiation or contemplated initiation of any proceeding for such purpose; (c) the objection of FINRA to the terms of the transactions contemplated by the Transaction Documents; or (d) the occurrence of any event or the existence of any condition or state of facts, which makes any statement of a material fact made in the Initial Registration Statement, the Prospectus contained therein or any Prospectus Supplement thereto untrue or which requires the making of any additions to or changes to the statements then made in the Initial Registration Statement, the Prospectus contained therein or any Prospectus Supplement thereto in order to state a material fact required by the Securities Act to be stated therein or necessary in order to make the statements then made therein (in the case of the Prospectus or any Prospectus Supplement, in the light of the circumstances under which they were made) not misleading, or which requires an amendment to the Initial Registration Statement or a supplement to the Prospectus contained therein or any Prospectus Supplement thereto to comply with the Securities Act or any other law. The Company shall have no Knowledge of any event that would reasonably be expected to have the effect of causing the suspension of the effectiveness of the Initial Registration Statement or the prohibition or suspension of the use of the Prospectus contained therein or any Prospectus Supplement thereto in connection with the resale of the Registrable Shares by the Investor.
(v)Other Commission Filings. The Current Report shall have been filed with the Commission as required pursuant to Section 2.3. The final Prospectus included in the Initial Registration Statement shall have been filed with the Commission prior to Commencement in accordance with Section 2.3 and the Registration Rights Agreement. All reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the Commission pursuant to the reporting requirements of the Exchange Act, including all material required to have been filed pursuant to Section 13(a) or 15(d) of the Exchange Act, prior to Commencement shall have been filed with the Commission.
(vi)No Suspension of Trading in or Notice of Delisting of Shares. Trading in the Shares shall not have been suspended by the Commission, the Principal Market or FINRA (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Commencement Date), the Company shall not have received any final and non-appealable notice that the listing or quotation of the Shares on the Principal Market shall be terminated on a date certain (unless, prior to such date certain, the Shares are listed or quoted on any other Principal Market), nor shall there have been imposed any suspension of, or restriction on, accepting additional deposits of the Shares, electronic trading or book-entry services by DTC with respect to the Shares that is continuing, the Company shall not have received any notice from DTC to the effect that a suspension of, or restriction on, accepting additional deposits of the Shares, electronic trading or book-entry services by DTC with respect to the Shares is being imposed or is contemplated (unless, prior to such suspension or restriction, DTC shall have notified the Company in writing that DTC has determined not to impose any such suspension or restriction).
(vii)Compliance with Laws. The Company shall have complied with all applicable federal, state and local governmental laws, rules, regulations and ordinances in
35
connection with the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the Company shall have obtained all permits and qualifications required by any applicable state securities or “Blue Sky” laws for the offer and sale of the Shares by the Company to the Investor and the subsequent resale of the Registrable Securities by the Investor (or shall have the availability of exemptions therefrom).
(viii)No Injunction. No statute, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the Transaction Documents.
(ix)No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any court or governmental authority shall have been commenced, and no inquiry or investigation by any governmental authority shall have been commenced, against the Company or any Subsidiary, or any of the officers, directors or Affiliates of the Company or any Subsidiary, seeking to restrain, prevent or change the transactions contemplated by the Transaction Documents, or seeking material damages in connection with such transactions.
(x)Listing of Shares. All of the Shares that have been and may be issued pursuant to this Agreement shall have been approved for listing or quotation on the Principal Market as of the Commencement Date, subject only to notice of issuance.
(xi)No Material Adverse Effect. No condition, occurrence, state of facts or event constituting a Material Adverse Effect shall have occurred and be continuing.
(xii)No Bankruptcy Proceedings. No Person shall have commenced a proceeding against the Company pursuant to or within the meaning of any Bankruptcy Law. The Company shall not have, pursuant to or within the meaning of any Bankruptcy Law, (a) commenced a voluntary case, (b) consented to the entry of an order for relief against it in an involuntary case, (c) consented to the appointment of a Custodian of the Company or for all or substantially all of its property, or (d) made a general assignment for the benefit of its creditors. A court of competent jurisdiction shall not have entered an order or decree under any Bankruptcy Law that (I) is for relief against the Company in an involuntary case, (II) appoints a Custodian of the Company or for all or substantially all of its property, or (III) orders the liquidation of the Company or any of its Subsidiaries.
(xiii)Reserved.
(xiv)Delivery of Commencement Irrevocable Transfer Agent Instructions and Notice of Effectiveness. Irrevocable instructions executed by the Company (the “Commencement Irrevocable Transfer Agent Instructions”) shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent, directing the Transfer Agent to issue to the Investor or its designated Broker-Dealer all of the Shares included in the Initial Registration Statement as DWAC Shares in accordance with this Agreement and the Registration
36
Rights Agreement and a legal opinion relating to the removal of restrictive legends from the Shares shall have been executed by the Company’s outside counsel and delivered to the Transfer Agent (the “Notice of Effectiveness”).
(xv)Reservation of Shares. As of the Commencement Date, the Company shall have reserved out of its authorized and unissued Shares a number of Shares equal to the Aggregate Limit solely for the purpose of effecting VWAP Purchases under this Agreement.
(xvi)Opinions of Counsel. On the Commencement Date, the Investor shall have received the opinions and negative assurances from outside counsel to the Company and outside counsel to the Investor, dated the Commencement Date, in the forms mutually agreed to by the Company and the Investor prior to the date of this Agreement.
(xvii)Comfort Letter of Accountant. On the Commencement Date, the Investor shall have received from PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm (the “Accountant”), or a successor independent registered public accounting firm for the Company, a letter dated the date of the filing of the Registration Statement addressed to the Investor, in form and substance reasonably satisfactory to the Investor with respect to the audited and unaudited financial statements and certain financial information contained in the Registration Statement and the Prospectus, and any Prospectus Supplement, except that the specific date referred to therein for the carrying out of procedures shall be no more than three Business Days prior to the Commencement Date.
(xviii)FINRA. On or prior to the Effective Date of the Initial Registration Statement, FINRA shall have confirmed in writing that it has no objection with respect to the fairness and reasonableness of the terms and arrangements of the transactions contemplated by the Transaction Documents.
(xix)Research. Neither the Investor nor any Affiliate of the Investor shall have, in the prior thirty (30) days, published or distributed any research report (as such term is defined in Rule 500 of Regulation AC) concerning the Company.
(xx)Qualified Independent Underwriter. If the Investor reasonably determines that a Qualified Independent Underwriter must participate in the transactions contemplated by the Transaction Documents in order for such transactions to be in full compliance with FINRA’s rules, the Company and the Investor shall have executed such documentation as may reasonably be required to engage a Qualified Independent Underwriter to participate in such transactions.
Section 7.3.Conditions Precedent to VWAP Purchases after Commencement Date. The right of the Company to deliver VWAP Purchase Notices under this Agreement after the Commencement Date, and the obligation of the Investor to accept VWAP Purchase Notices under this Agreement after the Commencement Date, are subject to the satisfaction of each of the conditions set forth in this Section 7.3 at the applicable VWAP Purchase Commencement Time for the VWAP Purchase to be effected pursuant to the applicable VWAP Purchase Notice timely delivered by the Company to the Investor in accordance with this Agreement (each such time, a “VWAP Purchase Condition Satisfaction Time”).
37
(i)Satisfaction of Certain Prior Conditions. Each of the conditions set forth in subsections (i), (ii), (vii) through (xiv), (xix) and (xx) set forth in Section 7.2 shall be satisfied at the applicable VWAP Purchase Condition Satisfaction Time after the Commencement Date (with the terms “Commencement” and “Commencement Date” in the conditions set forth in subsections (i) and (ii) of Section 7.2 replaced with “applicable VWAP Purchase Condition Satisfaction Time”); provided, however, that the Company shall not be required to deliver the Compliance Certificate after the Commencement Date, except as provided in Section 6.15.
(ii)Initial Registration Statement Effective. The Initial Registration Statement covering the resale by the Investor of the Registrable Securities included therein filed by the Company with the Commission pursuant to Section 2(a) of the Registration Rights Agreement, and any post-effective amendment thereto required to be filed by the Company with the Commission after the Commencement Date and prior to the applicable VWAP Purchase Date pursuant to the Registration Rights Agreement, in each case shall have become effective under the Securities Act and shall remain effective for the applicable Registration Period (as defined in the Registration Rights Agreement), and the Investor shall be permitted to utilize the Prospectus therein, and any Prospectus Supplement thereto, to resell (a) the Shares included in the Initial Registration Statement, and any post-effective amendment thereto, that have been issued and sold to the Investor hereunder pursuant to all VWAP Purchase Notices delivered by the Company to the Investor prior to such applicable VWAP Purchase Date and (b) all of the Shares included in the Initial Registration Statement, and any post-effective amendment thereto, that are issuable pursuant to the applicable VWAP Purchase Notice delivered by the Company to the Investor with respect to a VWAP Purchase to be effected hereunder on such applicable VWAP Purchase Date.
(iii)Any Required New Registration Statement Effective. Any New Registration Statement covering the resale by the Investor of the Registrable Securities included therein, and any post-effective amendment thereto, required to be filed by the Company with the Commission pursuant to the Registration Rights Agreement after the Commencement Date and prior to the applicable VWAP Purchase Date, in each case shall have become effective under the Securities Act and shall remain effective for the applicable Registration Period, and the Investor shall be permitted to utilize the Prospectus therein, and any Prospectus Supplement thereto, to resell (a) the Shares included in such New Registration Statement, and any post-effective amendment thereto, that have been issued and sold to the Investor hereunder pursuant to all VWAP Purchase Notices delivered by the Company to the Investor prior to such applicable VWAP Purchase Date and (b) all of the Shares included in such new Registration Statement, and any post-effective amendment thereto, that are issuable pursuant to the applicable VWAP Purchase Notice delivered by the Company to the Investor with respect to a VWAP Purchase to be effected hereunder on such applicable VWAP Purchase Date.
(iv)Delivery of Subsequent Irrevocable Transfer Agent Instructions and Notice of Effectiveness. With respect to any post-effective amendment to the Initial Registration Statement, any New Registration Statement or any post-effective amendment to any New Registration Statement, in each case becoming effective after the Commencement Date, the Company shall have delivered or caused to be delivered to the Transfer Agent (a) irrevocable instructions in the form substantially similar to the Commencement Irrevocable Transfer Agent
38
Instructions executed by the Company and acknowledged in writing by the Transfer Agent and (b) the Notice of Effectiveness, in each case modified as necessary to refer to such Registration Statement or post-effective amendment and the Registrable Securities included therein, to issue the Registrable Securities included therein as DWAC Shares in accordance with the terms of this Agreement and the Registration Rights Agreement.
(v)No Material Notices. None of the following events shall have occurred and be continuing: (a) receipt of any request by the Commission or any other federal or state governmental authority for any additional information relating to the Initial Registration Statement or any post-effective amendment thereto, any New Registration Statement or any post- effective amendment thereto, or the Prospectus contained in any of the foregoing or any Prospectus Supplement thereto, or for any amendment of or supplement to the Initial Registration Statement or any post-effective amendment thereto, any New Registration Statement or any post-effective amendment thereto, or the Prospectus contained in any of the foregoing or any Prospectus Supplement thereto; (b) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of the Initial Registration Statement or any post-effective amendment thereto, any New Registration Statement or any post-effective amendment thereto, or prohibiting or suspending the use of the Prospectus contained in any of the foregoing or any Prospectus Supplement thereto, or of the suspension of qualification or exemption from qualification of the Shares for offering or sale in any jurisdiction, or the initiation or contemplated initiation of any proceeding for such purpose; (c) the objection of FINRA to the terms of the transactions contemplated by the Transaction Documents or (d) the occurrence of any event or the existence of any condition or state of facts, which makes any statement of a material fact made in the Initial Registration Statement or any post-effective amendment thereto, any New Registration Statement or any post-effective amendment thereto, or the Prospectus contained in any of the foregoing or any Prospectus Supplement thereto untrue or which requires the making of any additions to or changes to the statements then made in the Initial Registration Statement or any post-effective amendment thereto, any New Registration Statement or any post-effective amendment thereto, or the Prospectus contained in any of the foregoing or any Prospectus Supplement thereto in order to state a material fact required by the Securities Act to be stated therein or necessary in order to make the statements then made therein (in the case of the Prospectus or any Prospectus Supplement, in the light of the circumstances under which they were made) not misleading, or which requires an amendment to the Initial Registration Statement or any post-effective amendment thereto, any New Registration Statement or any post-effective amendment thereto, or the Prospectus contained in any of the foregoing or any Prospectus Supplement thereto to comply with the Securities Act or any other law (other than the transactions contemplated by the applicable VWAP Purchase Notice delivered by the Company to the Investor with respect to a VWAP Purchase to be effected hereunder on such applicable VWAP Purchase Date and the settlement thereof). The Company shall have no Knowledge of any event that would reasonably be expected to have the effect of causing the suspension of the effectiveness of the Initial Registration Statement or any post-effective amendment thereto, any New Registration Statement or any post-effective amendment thereto, or the prohibition or suspension of the use of the Prospectus contained in any of the foregoing or any Prospectus Supplement thereto in connection with the resale of the Registrable Securities by the Investor.
39
(vi)Other Commission Filings. The final Prospectus included in any post- effective amendment to the Initial Registration Statement, and any Prospectus Supplement thereto, required to be filed by the Company with the Commission pursuant to Section 2.3 and the Registration Rights Agreement after the Commencement Date and prior to the applicable VWAP Purchase Date, shall have been filed with the Commission in accordance with Section 2.3 and the Registration Rights Agreement. The final Prospectus included in any New Registration Statement and in any post-effective amendment thereto, and any Prospectus Supplement thereto, required to be filed by the Company with the Commission pursuant to Section 2.3 and the Registration Rights Agreement after the Commencement Date and prior to the applicable VWAP Purchase Date, shall have been filed with the Commission in accordance with Section 2.3 and the Registration Rights Agreement. All reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the Commission pursuant to the reporting requirements of the Exchange Act, including all material required to have been filed pursuant to Section 13(a) or 15(d) of the Exchange Act, after the Commencement Date and prior to the applicable VWAP Purchase Date, shall have been filed with the Commission.
(vii)No Suspension of Trading in or Notice of Delisting of Shares. Trading in the Shares shall not have been suspended by the Commission, the Principal Market or FINRA (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the applicable VWAP Purchase Date), the Company shall not have received any final and non-appealable notice that the listing or quotation of the Shares on the Principal Market shall be terminated on a date certain (unless, prior to such date certain, the Shares are listed or quoted on any other Principal Market), nor shall there have been imposed any suspension of, or restriction on, accepting additional deposits of the Shares, electronic trading or book-entry services by DTC with respect to the Shares that is continuing, the Company shall not have received any notice from DTC to the effect that a suspension of, or restriction on, accepting additional deposits of the Shares, electronic trading or book-entry services by DTC with respect to the Shares is being imposed or is contemplated (unless, prior to such suspension or restriction, DTC shall have notified the Company in writing that DTC has determined not to impose any such suspension or restriction).
(viii)Certain Limitations. The issuance and sale of the Shares issuable pursuant to the applicable VWAP Purchase Notice shall not (a) exceed the applicable VWAP Purchase Maximum Amount or (b) cause the Aggregate Limit or the Beneficial Ownership Limitation to be exceeded.
(ix)Shares Authorized and Delivered. All of the Shares issuable pursuant to the applicable VWAP Purchase Notice shall have been duly authorized by all necessary corporate action of the Company. All Shares relating to all prior VWAP Purchase Notices required to have been issued to the Investor as DWAC Shares under this Agreement prior to the applicable VWAP Purchase Condition Satisfaction Time for the applicable VWAP Purchase shall have been issued to the Investor as DWAC Shares in accordance with this Agreement.
(x)Bring-Down Opinions of Counsel, Bring-Down Comfort Letter and Compliance Certificates. The Investor shall have received (a) all Bring-Down Opinions which the Company was obligated to instruct its outside counsel to deliver prior to the applicable
40
VWAP Purchase Condition Satisfaction Time for the applicable VWAP Purchase, (b) all Bring- Down Opinions from its outside counsel prior to the applicable VWAP Purchase Condition Satisfaction Time for the applicable VWAP Purchase (c) a Bring-Down Comfort Letter which the Company was obligated to instruct the Accountant to deliver prior to the applicable VWAP Purchase Condition Satisfaction Time for the applicable VWAP Purchase and (d) all Compliance Certificates which the Company was obligated to deliver to the Investor prior to the applicable VWAP Purchase Condition Satisfaction Time for the applicable VWAP Purchase, in each case in accordance with Section 6.16. Notwithstanding the foregoing, the Company shall not be obligated to deliver such documents in accordance with (a), (b), (c) and (d) contained in this Section 7.3(x) more than once per calendar quarter in accordance with Section 6.16.
(xi)Material Non-Public Information. Neither the Company nor, in the Investor’s sole discretion, the Investor, shall be in possession of any material non-public information concerning the Company.
ARTICLE VIII
TERMINATION
Section 8.1.Automatic Termination. Unless earlier terminated as provided hereunder, this Agreement shall terminate automatically on the earliest to occur of (i) the first day of the month next following the date that is 36 months after the Effective Date of the Initial Registration Statement, (ii) the date on which the Investor shall have purchased the Total Commitment worth of Shares pursuant to this Agreement, (iii) the date on which the Shares shall have failed to be listed or quoted on the Principal Market or any other Principal Market, and (iv) the date on which, pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary case or any Person commences a proceeding against the Company, a Custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors.
Section 8.2.Other Termination. Subject to Section 8.3, the Company may terminate this Agreement after the Commencement Date effective upon three (3) Trading Days’ prior written notice to the Investor in accordance with Section 10.4; provided, however, that prior to issuing any press release, or making any public statement or announcement, with respect to such termination, the Company shall consult with the Investor and its counsel on the form and substance of such press release or other disclosure. Subject to Section 8.3, this Agreement may be terminated at any time by the mutual written consent of the parties, effective as of the date of such mutual written consent unless otherwise provided in such written consent. Subject to Section 8.3, the Investor shall have the right to terminate this Agreement effective upon three (3) Trading Days’ prior written notice to the Company, which notice shall be made in accordance with Section 10.4 of this Agreement, if: (a) any condition, occurrence, state of facts or event constituting a Material Adverse Effect has occurred and is continuing; (b) a Fundamental Transaction shall have occurred; (c) the Company is in breach or default in any material respect of any of its covenants and agreements in the Registration Rights Agreement, and, if such breach or default is capable of being cured, such breach or default is not cured within fifteen (15) Trading Days after notice of such breach or default is delivered to the Company pursuant to Section 10.4 of this Agreement; (d) while a Registration Statement, or any post-effective amendment thereto, is required to be maintained effective pursuant to the terms of the
41
Registration Rights Agreement and the Investor holds any Registrable Securities, the effectiveness of such Registration Statement, or any post-effective amendment thereto, lapses for any reason (including, without limitation, the issuance of a stop order by the Commission) or such Registration Statement or any post-effective amendment thereto, the Prospectus contained therein or any Prospectus Supplement thereto otherwise becomes unavailable to the Investor for the resale of all of the Registrable Securities included therein in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of sixty (60) consecutive Trading Days or for more than an aggregate of ninety (90) Trading Days in any three hundred and sixty-five (365)-day period, other than due to acts of the Investor; (e) trading in the Shares on the Principal Market shall have been suspended and such suspension continues for a period of five (5) consecutive Trading Days; or (f) the Company is in material breach or default of any of its covenants and agreements contained in this Agreement, and, if such breach or default is capable of being cured, such breach or default is not cured within fifteen (15) Trading Days after notice of such breach or default is delivered to the Company pursuant to Section 10.4 of this Agreement. Unless notification thereof is required elsewhere in this Agreement (in which case such notification shall be provided in accordance with such other provision), the Company shall promptly (but in no event later than twenty-four (24) hours) notify the Investor (and, if required under applicable law, including, without limitation, Regulation FD promulgated by the Commission, or under the applicable rules and regulations of the Principal Market, the Company shall publicly disclose such information in accordance with Regulation FD, if applicable, and the applicable rules and regulations of the Principal Market upon becoming aware of any of the events set forth in the immediately preceding sentence.
Section 8.3.Effect of Termination. In the event of termination by the Company or the Investor (other than by mutual termination) pursuant to Section 8.2, written notice thereof shall forthwith be given to the other party as provided in Section 10.4 and the transactions contemplated by this Agreement shall be terminated without further action by either party. If this Agreement is terminated as provided in Section 8.1 or Section 8.2, this Agreement shall become void and of no further force and effect, except that (i) the provisions of Article IX (Indemnification), Article X (Miscellaneous) and this Article VIII (Termination) shall remain in full force and effect indefinitely notwithstanding such termination, and, (ii) so long as the Investor owns any Shares, the covenants and agreements of the Company contained in Article V (Representations, Warranties and Covenants of the Company) and Article VI (Additional Covenants) shall remain in full force and notwithstanding such termination for a period of thirty (30) days following such termination. Notwithstanding anything in this Agreement to the contrary, no termination of this Agreement by any party shall (i) become effective prior to the second (2nd) Trading Day immediately following the date on which the purchase of Shares by the Investor pursuant to any pending VWAP Purchase has been fully settled, including, without limitation, the issuance by the Company to the Investor of all Shares purchased by the Investor pursuant to such pending VWAP Purchase as DWAC Shares on the applicable VWAP Purchase Share Delivery Date therefor, and the delivery by the Investor to the Company of the aggregate VWAP Purchase Price payable by the Investor for such Shares, in each case in accordance with the settlement procedures set forth in Section 3.2 of this Agreement (it being hereby acknowledged and agreed that no termination of this Agreement shall limit, alter, modify, change or otherwise affect any of the Company’s or the Investor’s rights or obligations under the Transaction Documents with respect to any pending VWAP Purchase that has not fully settled, and that the parties shall fully perform their respective obligations with respect to any such
42
pending VWAP Purchase under the Transaction Documents) or (ii) limit, alter, modify, change or otherwise affect the Company’s or the Investor’s rights or obligations under the Registration Rights Agreement, all of which shall survive any such termination. Nothing in this Section 8.3 shall be deemed to release the Company or the Investor from any liability for any breach or default under this Agreement, the Registration Rights Agreement or any of the other Transaction Documents to which it is a party, or to impair the rights of the Company and the Investor to compel specific performance by the other party of its obligations under this Agreement, the Registration Rights Agreement or any of the other Transaction Documents to which it is a party.
ARTICLE IX
INDEMNIFICATION
Section 9.1.Indemnification of Investor.
(a)In consideration of the Investor’s execution and delivery of this Agreement and acquiring the Shares hereunder and in addition to all of the Company’s other obligations under the Transaction Documents to which it is a party, subject to the provisions of this Section 9.1, the Company shall indemnify and hold harmless the Investor, its Affiliates, each of their respective directors, officers, shareholders, members, partners, employees, representatives and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding the lack of such title or any other title), each Person, if any, who controls the Investor (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act), and the respective directors, officers, shareholders, members, partners, employees, representatives and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding the lack of such title or any other title) of such controlling Persons (each, an “Investor Party”), from and against all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses (including all judgments, amounts paid in settlement, court costs, reasonable attorneys’ fees and costs of defense and investigation) (collectively, “Damages”) that any Investor Party has suffered or incurred: (i) as a result of, relating to or arising out of or based upon, any untrue statement or alleged untrue statement of a material fact contained in any Commission Document (or any amendment thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact included in any Commission Document, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) to the extent of the aggregate amount paid in settlement of (1) any litigation, or any investigation or proceeding by any Governmental Authority, commenced or threatened, or (2) of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; (iii) in investigating, preparing or defending against any litigation, or any investigation or proceeding by any Governmental Authority, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission (whether or not a party), to the extent that any such expense is not paid under (i) or (ii) above; (iv) as a result of, relating to or arising out of any breach by the Company of its representations, warranties, covenants or agreements under this Agreement; or (v) as a result of, relating to or arising out of any other action, suit, claim or proceeding against an Investor Party arising out of or otherwise in connection with the
43
Transaction Documents (except solely to the extent in the case of this subsection (v), to the extent any Damage is determined by a court of competent jurisdiction, not subject to further appeal, to have resulted primarily and directly from the bad faith, gross negligence, or willful misconduct of such Investor Party). Notwithstanding anything to the contrary contained therein, the indemnity contained in this Section 9.1(a) shall not apply to (i) any Damage to the extent arising out of an untrue statement or omission, or alleged untrue statement or omission in a Commission Document, made in reliance upon and in conformity with information furnished in writing to the Company by the Investor expressly for use in connection with the preparation of the Registration Statement, Prospectus or Prospectus Supplement or any such amendment thereof or supplement thereto (it being hereby acknowledged and agreed that the written information set forth on Exhibit B to the Registration Rights Agreement is the only written information furnished to the Company by or on behalf of the Investor expressly for use in any Registration Statement, Prospectus or Prospectus Supplement); and (ii) amounts paid in settlement of any Damage if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed.
(b)The Company shall reimburse any Investor Party promptly upon demand (with accompanying presentation of documentary evidence) for all legal and other costs and expenses reasonably incurred by such Investor Party in connection with investigating or defending (i) any action, suit, claim or proceeding, whether at law or in equity, to enforce compliance by the Company with any provision of the Transaction Documents or (ii) any other action, suit, claim or proceeding, whether at law or in equity, with respect to which it is entitled to indemnification under this Section 9.1; provided that the Investor shall promptly reimburse the Company for all such legal and other costs and expenses to the extent a court of competent jurisdiction determines through a final, non-appealable determination that any Investor Party was not entitled to such reimbursement.
(c)To the extent that the foregoing undertakings by the Company set forth in this Section 9.1 may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Damages which is permissible under applicable law, provided that in no event shall the Investor be obligated to contribute any amount in excess of the fees it actually received pursuant to this Agreement.
Section 9.2.Indemnification Procedures.
(a)Promptly after an Investor Party receives notice of a claim or the commencement of an action for which the Investor Party intends to seek indemnification under Section 9.1, the Investor Party will notify the Company in writing of the claim or commencement of the action, suit or proceeding; provided, however, that failure to notify the Company will not relieve the Company from liability under Section 9.1, unless and solely to the extent it has been materially prejudiced by the failure to give such notice as evidenced by the forfeiture by the Company of substantive rights or defenses. The Company will be entitled to participate in the defense of any claim, action, suit or proceeding as to which indemnification is being sought, and if the Company acknowledges in writing the obligation to indemnify the Investor Party against whom the claim or action is brought, the Company may (but will not be required to) assume the defense against the claim, action, suit or proceeding with counsel satisfactory to it. After the Company notifies the Investor Party that the Company wishes to
44
assume the defense of a claim, action, suit or proceeding, the Company will not be liable for any further legal or other expenses incurred by the Investor Party in connection with the defense against the claim, action, suit or proceeding unless (1) the employment of counsel by the Investor Party has been authorized in writing by the Company, (2) the Investor Party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or another Investor Party that are different from or in addition to those available to the Company, (3) a conflict or potential conflict exists (based on advice of counsel to the Investor Party) between an Investor Party and the Company (in which case the Company will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the Company has not in fact employed counsel to assume the defense of such action or counsel reasonably satisfactory to the indemnified party, in each case, within a reasonable time after receiving notice of the commencement of the action; in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the Company. It is understood that the Company shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm (plus local counsel) admitted to practice in such jurisdiction at any one time for all such similarly situated Investor Parties. The Company will not be liable for any settlement of any action effected without its prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned. The Company shall not, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this section (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent (1) includes an express and unconditional release of each indemnified party, in form and substance reasonably satisfactory to such indemnified party, from all liability arising out of such litigation, investigation, proceeding or claim and (2) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(b)In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Article IX for any reason is held to be unavailable or insufficient to hold an Investor Party harmless, the Company and the Investor Party will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which the Company and the Investor Party may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Investor on the other hand. The relative benefits received by the Company on the one hand and the Investor Party on the other hand shall be deemed to be in the same proportion as the total net proceeds from the aggregate of all VWAP Purchase Amounts (before deducting expenses) received by the Company bear to the total aggregate discount to the VWAP Purchase Price received by the Investor pursuant to this Agreement. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company, on the one hand, and the Investor, on the other hand, with respect to the statements or omission that resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by
45
reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Investor Party, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Investor Party agree that it would not be just and equitable if contributions pursuant to this Section 9.2(b) were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense, or damage, or action in respect thereof, referred to above in this Section 9.2(b) shall be deemed to include, for the purpose of this Section 9.2(b), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim to the extent consistent with Section 9.2(a) hereof. Notwithstanding the foregoing provisions of this Section 9.2(b), the Investor shall not be required to contribute any amount in excess of the aggregate discount to the VWAP Purchase Price under this Agreement and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9.2(b), any person who controls a party to this Agreement within the meaning of the Securities Act, any Affiliates of the Investor Party and any officers, directors, partners, employees or agents of the Investor Party or any of its Affiliates, will have the same rights to contribution as that party, and each director of the Company and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 9.2(b), will notify any such party or parties from whom contribution may be sought, but the omission to so notify will not relieve that party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 9.2(b) except to the extent that the failure to so notify such other party materially prejudiced the substantive rights or defenses of the party from whom contribution is sought. No party will be liable for contribution with respect to any action or claim settled without its written consent if such consent is required pursuant to Section 9.2(a) hereof.
The remedies provided for in this Article IX are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Investor Party at law or in equity.
ARTICLE X
MISCELLANEOUS
Section 10.1.Certain Fees and Expenses. Each party shall bear its own fees and expenses related to the transactions contemplated by this Agreement except that the Company will reimburse the fees and disbursements of legal counsel to the Investor in an amount not to exceed $75,000 in connection with the entry into this Agreement. The Company shall pay all U.S. federal, state and local stamp and other similar transfer and other taxes and duties levied in connection with issuance of the Shares pursuant hereto. For the avoidance of doubt, this Section 10.1 shall not be construed to limit the amount of Damages to which any Investor Party may be entitled to under Section 9 of this Agreement or otherwise.
46
Section 10.2.Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial.
(i)The Company and the Investor acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that either party shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement by the other party and to enforce specifically the terms and provisions hereof (without the necessity of showing economic loss and without any bond or other security being required), this being in addition to any other remedy to which either party may be entitled by law or equity.
(ii)Each of the Company and the Investor (a) hereby irrevocably submits to the jurisdiction of the courts of the State of New York located in the county of New York or in the United States District Court for the Southern District of New York in New York county for the purposes of any suit, action or proceeding arising out of or relating to this Agreement, and (b) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Company and the Investor consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. The Company hereby appoints, without power of revocation, Cogency Global Inc. as its agent to accept and acknowledge on its behalf service of any and all process which may be served in any proceeding arising out of or relating to this Agreement. Nothing in this Section 10.2 shall affect or limit any right to serve process in any other manner permitted by law.
(iii)EACH OF THE COMPANY AND THE INVESTOR HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR DISPUTES RELATING HERETO. EACH OF THE COMPANY AND THE INVESTOR (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE ENTERED INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.2.
Section 10.3.Entire Agreement. The Transaction Documents set forth the entire agreement and understanding of the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written, with respect to such matters. There are no promises, undertakings, representations or warranties by either party relative to subject matter hereof not expressly set forth in the Transaction Documents. All exhibits to this Agreement are hereby incorporated by reference in, and made a part of, this Agreement as if set forth in full herein.
47
Section 10.4.Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or electronic mail delivery at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The address for such communications shall be:
| If to the Company: |
| |
| Vertical Aerospace Ltd. |
| Unit 1 Camwal Court, |
| Chapel Street |
| Bristol BS2 0UW |
| United Kingdom |
| Attn: General Counsel |
| Email: legal@vertical-aerospace.com |
| |
| With a copy (which shall not constitute notice) to: |
| |
| Latham & Watkins (London) LLP |
| 99 Bishopsgate, London, EC2M 3XF, United Kingdom |
| Attn: Robbie McLaren; J. David Stewart |
| Email: Robbie.McLaren@lw.com; j.david.stewart@lw.com |
| |
| If to the Investor: |
| |
| Nomura Securities International, Inc. |
| 309 West 49th Street |
| New York, New York 10019 |
| Attn: James Chenard |
| Email: james.chenard@nomura.com |
| |
| With a copy (which shall not constitute notice) to: |
| |
| Winston & Strawn LLP |
| 200 Park Avenue |
| New York, NY 10166-4193 |
| Attn: David Sakowitz; Paul Amiss |
| Email: DSakowitz@winston.com; PAmiss@winston.com |
Either party hereto may from time to time change its address for notices by giving at least five (5) days’ advance written notice of such changed address to the other party hereto.
Section 10.5.Waivers. No provision of this Agreement may be waived by the parties from and after the date that is one (1) Trading Day immediately preceding the filing of the Initial
48
Registration Statement with the Commission. Subject to the immediately preceding sentence, no provision of this Agreement may be waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought. No failure or delay in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercises thereof or of any other right, power or privilege.
Section 10.6.Amendments. No provision of this Agreement may be amended by the parties from and after the date that is one (1) Trading Day immediately preceding the filing of the Initial Registration Statement with the Commission. Subject to the immediately preceding sentence, no provision of this Agreement may be amended other than by a written instrument signed by both parties hereto.
Section 10.7.Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found.
Section 10.8.Construction. The parties agree that each of them and their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents. In addition, each and every reference to share prices and number of Shares in any Transaction Document shall, in all cases, be subject to adjustment for any share subdivisions, share capitalizations, reorganizations, recapitalizations, exchange and other similar transactions that occur on or after the date of this Agreement. Any reference in this Agreement to “Dollars” or “$” shall mean the lawful currency of the United States of America. Any references to “Section” or “Article” in this Agreement shall, unless otherwise expressly stated herein, refer to the applicable Section or Article of this Agreement.
Section 10.9.Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors. Neither the Company nor the Investor may assign this Agreement or any of their respective rights or obligations hereunder to any Person.
Section 10.10.No Third-Party Beneficiaries. Except as expressly provided in Article IX, this Agreement is intended only for the benefit of the parties hereto and their respective successors, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
Section 10.11.Governing Law. This Agreement shall be governed by and construed in accordance with the internal procedural and substantive laws of the State of New York, without
49
giving effect to the choice of law provisions of such state that would cause the application of the laws of any other jurisdiction.
Section 10.12.Survival. The representations, warranties, covenants and agreements of the Company and the Investor contained in this Agreement shall survive the execution and delivery hereof until the termination of this Agreement; provided, however, that (i) the provisions of Article VIII (Termination), Article IX (Indemnification) and this Article X (Miscellaneous) shall remain in full force and effect indefinitely notwithstanding such termination, and, (ii) so long as the Investor owns any Shares, the covenants and agreements of the Company and the Investor contained in Article VI (Additional Covenants), shall remain in full force and effect notwithstanding such termination for a period of thirty (30) days following such termination.
Section 10.13.Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature or signature delivered by e mail in a “.pdf” format data file, including any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com, www.echosign.adobe.com, etc., shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original signature.
Section 10.14.Publicity. The Company shall afford the Investor and its counsel a reasonable opportunity to review and comment upon, shall consult with the Investor and its counsel on the form and substance of, and shall give due consideration to all such comments from the Investor or its counsel on, any press release, Commission filing or any other public disclosure made by or on behalf of the Company relating to the Investor, its purchases hereunder or any aspect of the Transaction Documents or the transactions contemplated thereby, prior to the issuance, filing or public disclosure thereof. For the avoidance of doubt, the Company shall not be required to submit for review any such disclosure (i) contained in periodic reports filed with the Commission under the Exchange Act if it shall have previously provided the same disclosure to the Investor or its counsel for review in connection with a previous filing or (ii) any Prospectus Supplement if it contains disclosure that does not reference the Investor, its purchases hereunder or any aspect of the Transaction Documents or the transactions contemplated thereby.
Section 10.15.Severability. The provisions of this Agreement are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement, and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible.
Section 10.16.Further Assurances. From and after the Closing Date, upon the request of the Investor or the Company, each of the Company and the Investor shall execute and deliver
50
such instrument, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.
51
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.
| Vertical Aerospace Ltd. | |
| | |
| By: | /s/ Vincent Casey |
| Name: | Vincent Casey |
| Title: | Chief Financial Officer |
| | |
| Nomura Securities International, Inc. | |
| | |
| By: | |
| Name: | |
| Title: | |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.
| Vertical Aerospace Ltd. | |
| | |
| By: | |
| Name: | |
| Title: | |
| | |
| Nomura Securities International, Inc. | |
| | |
| By: | /s/ Paul Robinson |
| Name: | Paul Robinson |
| Title: | Managing Director |
[Signature Page to Equity Line Agreement]
ANNEX I TO THE
SHARE PURCHASE AGREEMENT
DEFINITIONS
“Accountant” means the meaning assigned to it in Section 7.2 of this Agreement.
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a Person, as such terms are used in and construed under Rule 144.
“Bankruptcy Law” means Title 11, U.S. Code, or any similar U.S. federal or state law for the relief of debtors.
“Bloomberg” means Bloomberg, L.P.
“Business Data” means all business information and data, including Personal Information (whether of employees, contractors, consultants, customers, consumers, or other persons and whether in electronic or any other form or medium) that is accessed, collected, used, stored, shared, distributed, transferred, disclosed, destroyed, disposed of or otherwise processed by any of the Business Systems or otherwise in the course of the conduct of the business of the Company and its Subsidiaries.
“Business Systems” means all software, computer hardware (whether general or special purpose), electronic data processors, databases, communications, telecommunications, networks, interfaces, platforms, servers, peripherals, and computer systems, including any outsourced systems and processes, that are owned or used in the conduct of the business of the Company and its Subsidiaries.
“Closing Date” means the date of this Agreement.
“Closing Sale Price” means, for the Shares as of any date, the last closing trade price for the Shares on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price for the Shares, then the last trade price for the Shares prior to 4:00 p.m., New York City time, as reported by Bloomberg. All such determinations shall be appropriately adjusted for any share subdivision, share capitalization, reorganization, recapitalization, exchange or similar event during such period.
“Commission” means the U.S. Securities and Exchange Commission or any successor entity.
“Commission Documents” means (1) the Company’s registration statement on Form F-4 (File No. 333-247785), as amended, initially filed with the Commission on July 9, 2021, including any related prospectus or prospectuses, for the registration of the Shares issued pursuant to the business combination agreement and plan of merger by and among the Company, Broadstone Acquisition Corp. and the other parties thereto, on file with the Commission at the time such registration statement became effective, including the financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the effective date of such registration statement under the Securities Act, (2) the proxy statement/prospectus, dated December 1, 2021, including all documents incorporated or deemed incorporated therein by reference, included in the Registration Statement, as it may be supplemented, in the form in which such proxy statement/prospectus has most recently been filed with the Commission pursuant to Rule 424(b) under the Securities Act, (3) the Company’s registration statement on Form F-1 (File No. 333- 262207), as amended, initially filed with the Commission on January 18, 2022 including any related prospectus or prospectuses and the Company’s registration statement on Form F-1 (File No. 333-264601) initially filed with the Commission on May 2, 2022, including any related prospectus or prospectuses, (4) all reports, schedules, registrations, forms, statements, information and other documents filed with or furnished to the Commission by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act since December 16, 2021, including, without limitation, the Current Report (as defined in Section 2.3 of this Agreement) and the Company’s Annual Report on Form 20-F filed with the Commission on April 29, 2022, (5) each Registration Statement, as the same may be amended from time to time, the Prospectus contained therein and each Prospectus Supplement thereto and (6) all information contained in such filings and all documents and disclosures that have been and heretofore shall be incorporated by reference therein.
“Contract” means any written or oral legally binding contract, agreement, understanding, arrangement, subcontract, loan or credit agreement, note, bond, indenture, mortgage, purchase order, deed of trust, lease, sublease, instrument, or other legally binding commitment, obligation or undertaking.
“Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.
“DTC” means The Depository Trust Company, a subsidiary of The Depository Trust & Clearing Corporation, or any successor thereto.
“DWAC” means DTC’s “Deposit/Withdrawal at Custodian” delivery system.
“DWAC Shares” means Shares issued pursuant to this Agreement that are (i) issued in electronic form, (ii) freely tradable and transferable and without restriction on resale and without stop transfer instructions maintained against the transfer thereof and (iii) timely credited by the Company to the Investor’s or its designated Broker-Dealer at which the account or accounts to be credited with the Shares being purchased by Investor are maintained specified DWAC account with DTC under its Fast Automated Securities Transfer (FAST) Program, or any similar program hereafter adopted by DTC performing substantially the same function.
“EDGAR” means the Commission’s Electronic Data Gathering, Analysis and Retrieval System.
“Effective Date” means, with respect to the Initial Registration Statement filed pursuant to Section 2(a) of the Registration Rights Agreement (or any post-effective amendment thereto) or any New Registration Statement filed pursuant to Section 2(c) of the Registration Rights
Annex I-2
Agreement (or any post-effective amendment thereto), as applicable, the date on which the Initial Registration Statement (or any post-effective amendment thereto) or any New Registration Statement (or any post-effective amendment thereto) becomes effective.
“Environmental Law” means any statute, law, ordinance, regulation, rule or code concerning or relating to: (i) the protection of the environment or natural resources or, as such relates to exposure to hazardous materials, human health and safety (including workplace and industrial hygiene); (ii) the presence, release, generation, use, management, handling, transportation, treatment, storage or disposal of hazardous materials; (iii) noise or odor including, without limitation, in the United States, the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601, et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. 2601, et seq.; the Federal Water Pollution Control Act, 33 U.S.C. 1251, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. 5101; the Safe Drinking Water Act, 42 U.S.C. 300f, et seq.; as it relates to exposure to hazardous materials, the Occupational Safety and Health Act, 29 U.S.C. 651, et seq.; the Emergency Planning and Community Right to Know Act of 1986, 42 U.S.C. 11001, et seq.; the Atomic Energy Act, 42 U.S.C. 2014, et seq.; the Endangered Species Act, 16 U.S.C. 1531, et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. 136, et seq.; the Clean Air Act, 42 U.S.C. 7401, et seq.; and the foreign, state and local analogues of each of the foregoing federal statutes.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder.
“Exempt Issuance” means the issuance of (a) Shares, options or other equity incentive awards to employees, officers, directors or vendors of the Company pursuant to any equity incentive plan duly adopted for such purpose, by the Company’s Board of Directors or a majority of the members of a committee of the Board of Directors established for such purpose, (b) (1) any Shares issued to the Investor pursuant to this Agreement, (2) any securities issued upon the exercise or exchange of or conversion of any Shares or Shares Equivalents held by the Investor at any time, or (3) any securities issued upon the exercise or exchange of or conversion of any Shares Equivalents issued and outstanding on the date of this Agreement; provided that except as set forth in any agreement applicable to such Share Equivalents and as disclosed in the Commission Documents, such securities referred to in this clause (3) have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities, (c) securities issued pursuant to acquisitions, divestitures, licenses, partnerships, collaborations or strategic transactions approved by the Company’s Board of Directors or a majority of the members of a committee of directors established for such purpose, which acquisitions, divestitures, licenses, partnerships, collaborations or strategic transactions can have a Variable Rate Transaction component, provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) Shares issued by the Company to the Investor or an Affiliate of the Investor in connection with any “equity line of credit” or other
Annex I-3
continuous offering or similar offering of Shares pursuant to a written agreement between the Company and the Investor or an Affiliate of the Investor, whereby the Company may sell Shares to the Investor or an Affiliate of the Investor at a future determined price or (e) Shares issued by the Company by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act, exclusively to or through Nomura, as the Company’s sales agent, pursuant to one or more written agreements between the Company and Nomura.
“FINRA” means the Financial Industry Regulatory Authority.
“Floor Price” means that, notwithstanding the VWAP on a particular VWAP Purchase Date, a fixed price as may be set out by the Company in any VWAP Purchase Notice delivered to Investor. The VWAP for such VWAP Purchase Date shall exclude any trades at prices below the Floor Price.
“Fundamental Transaction” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, with the result that the holders of the Company’s shares immediately prior to such consolidation or merger together beneficially own less than 50% of the outstanding voting power of the surviving or resulting corporation, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (3) take action to facilitate a purchase, tender or exchange offer by another Person that is accepted by the holders of more than 50% of the outstanding Shares (excluding any Shares held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding Shares (not including any Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify its Shares, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Shares.
“Governmental Authority” means (i) any federal, provincial, state, local, municipal, national or international government or governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body (public or private); (ii) any self-regulatory organization; or (iii) any political subdivision of any of the foregoing.
“Initial Registration Statement” shall have the meaning assigned to such term in the Registration Rights Agreement.
“Investment Period” means the period commencing on the Effective Date of the Initial Registration Statement and expiring on the date this Agreement is terminated pursuant to Article VIII.
Annex I-4
“Knowledge” means the actual knowledge of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, in each case after reasonable inquiry of all officers, directors and employees of the Company and its Subsidiaries who would reasonably be expected to have knowledge or information with respect to the matter in question.
“Material Contracts” means any other Contract that is expressly referred to in or filed or incorporated by reference as an exhibit to a Commission Document or that, individually or in the aggregate, if terminated or subject to default by a party thereto, would have or would reasonably be expected to have a Material Adverse Effect.
“New Registration Statement” shall have the meaning assigned to such term in the Registration Rights Agreement.
“PEA Period” means the period commencing at 9:30 a.m., New York City time, on the fifth (5th) Trading Day immediately prior to the filing of any post-effective amendment to the Initial Registration Statement or any New Registration Statement, and ending at 9:30 a.m., New York City time, on the Trading Day immediately following, the Effective Date of such post- effective amendment.
“Person” means any person or entity, whether a natural person, trustee, corporation, company, partnership, limited partnership, limited liability company, trust, unincorporated organization, business association, firm, joint venture, governmental agency or authority.
“Personal Information” means (a) information related to an identified or identifiable individual (e.g., name, address telephone number, email address, financial account number, government-issued identifier), (b) any other data used or intended to be used or which allows one to identify, contact, or precisely locate an individual, including any internet protocol address or other persistent identifier, and (c) any other, similar information or data regulated by Privacy/Data Security Laws.
“Principal Market” means the New York Stock Exchange; provided, however, that in the event the Company’s Shares are ever listed or traded on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Select Market, or the Nasdaq Global Market, then the “Principal Market” shall mean such other market or exchange on which the Company’s Shares are then listed or traded.
“Privacy/Data Security Laws” means all laws governing the receipt, collection, use, storage, processing, sharing, security, disclosure, or transfer of Personal Information or the security of the Business Systems or Business Data.
“Prospectus” means the prospectus in the form included in a Registration Statement, as supplemented from time to time by any Prospectus Supplement, including the documents incorporated by reference therein.
“Prospectus Supplement” means any prospectus supplement to the Prospectus filed with the Commission from time to time pursuant to Rule 424(b) under the Securities Act, including the documents incorporated by reference therein.
Annex I-5
“Qualified Independent Underwriter” shall have the meaning assigned to such term in FINRA Rule 5121(f)(12).
“Registrable Securities” shall have the meaning assigned to such term in the Registration Rights Agreement.
“Registration Statement” shall have the meaning assigned to such term in the Registration Rights Agreement.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect.
“Sale Price” means any trade price for the Shares on the Principal Market during normal trading hours, as reported by the Principal Market.
“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.
“Share Equivalents” means any securities of the Company or its Subsidiaries which entitle the holder thereof to acquire at any time Shares, including, without limitation, any debt, preference shares, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Shares.
“Shares” shall mean the Shares that are and/or may be purchased by the Investor under this Agreement pursuant to one or more VWAP Purchase Notices.
“Short Sales” shall mean “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act.
“Subsidiary” shall mean any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other Subsidiaries.
“Total Commitment” shall have the meaning assigned to such term in Section 2.1. “Trading Day” shall mean any day on which the Principal Market is open for trading (regular way), including any day on which the Principal Market is open for trading (regular way) for a period of time less than the customary time.
“Transaction Documents” means, collectively, this Agreement (as qualified by the Commission Documents) and the exhibits hereto, the Registration Rights Agreement and the exhibits thereto, and each of the other agreements, documents, certificates and instruments entered into or furnished by the parties hereto in connection with the transactions contemplated hereby and thereby.
Annex I-6
“Transfer Agent” shall mean Continental Stock Transfer & Trust Company or any successor thereof as the Company’s transfer agent.
“Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any equity or debt securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional Shares or Shares Equivalents either at a conversion price, exercise price, exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the Shares at any time after the initial issuance of such equity or debt securities, or (ii) issues or sells any equity or debt securities, including without limitation, Shares or Shares Equivalents, either (A) at a price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Shares (other than standard anti-dilution protection for any share subdivision, share capitalization, reorganization, recapitalization, exchange or similar event), or (B) that are subject to or contain any put, call, redemption, buy-back, price-reset or other similar provision or mechanism (including, without limitation, a “Black-Scholes” put or call right, other than in connection with a “fundamental transaction”) that provides for the issuance of additional equity securities of the Company or the payment of cash by the Company, or (iii) enters into any agreement, including, but not limited to, an “equity line of credit” or “at the market offering” or other continuous offering or similar offering of Shares or Shares Equivalents, whereby the Company may sell Shares or Shares Equivalents at a future determined price.
“VWAP” means, for the Shares for a specified period, the dollar volume-weighted average price for the Shares on the Principal Market for such period, excluding opening and closing transactions and any block trades, as reported by Bloomberg through its AQR function. All such determinations shall be appropriately adjusted for any Floor Price set forth by the Company in a corresponding VWAP Purchase Notice and for any share subdivision, share capitalization, reorganization, recapitalization, exchange or similar event during such period.
“VWAP Purchase Commencement Time” means, with respect to a VWAP Purchase made pursuant to Section 3.1, 9:30:01 a.m., New York City time, on the applicable VWAP Purchase Date, or such later time on such VWAP Purchase Date publicly announced by the Principal Market as the official open (or commencement) of trading (regular way) on the Principal Market on such VWAP Purchase Date; provided, however, that if a VWAP Purchase Notice is delivered after 9:00 a.m. but (i) prior to 10:00 a.m., or (ii) after 10:00 a.m. but prior to 11:00 a.m., New York City time, on a VWAP Purchase Date, then the VWAP Purchase Commencement Time for such VWAP Purchase Date shall start at 10:30 a.m. or 11:30 a.m., respectively, provided further that in the case of clauses (i) and (ii) the Investor may specify an earlier commencement time by notice to the Company.
“VWAP Purchase Date” means, with respect to a VWAP Purchase made pursuant to Section 3.1, either (i) the Trading Day which immediately follows the date on which the Investor receives a valid VWAP Purchase Notice for such VWAP Purchase after 5:00 p.m., New York City time, in accordance with this Agreement, or (ii) the Trading Day on which the Investor receives, after 6:00 a.m., New York City time, but prior to 11:30 a.m., New York City time, on such Trading Day, a valid VWAP Purchase Notice for such VWAP Purchase in accordance with this Agreement.
Annex I-7
“VWAP Purchase Maximum Amount” means, with respect to a VWAP Purchase made pursuant to Section 3.1, a number of Shares equal to the lesser of (i) a number of Shares which, when aggregated with all other Shares then beneficially owned by the Investor and its Affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by the Investor of more than the Beneficial Ownership Limitation, (ii) a number of Shares equal to the product of (A) the VWAP Purchase Share Percentage, multiplied by (B) the total number (or volume) of Shares traded on the relevant Principal Market during the applicable VWAP Purchase Period on the applicable VWAP Purchase Date for such VWAP Purchase and (iii) 7 million Shares.
“VWAP Purchase Notice” means, with respect to a VWAP Purchase made pursuant to Section 3.1, an irrevocable written notice, in substantially the form attached hereto as Exhibit D, delivered by the Company to the Investor directing the Investor to purchase a VWAP Purchase Share Amount (such specified VWAP Purchase Share Amount subject to adjustment as set forth in Section 3.1 as necessary to give effect to the VWAP Purchase Maximum Amount), at the applicable VWAP Purchase Price therefor on the applicable VWAP Purchase Date for such VWAP Purchase in accordance with this Agreement.
“VWAP Purchase Period” means, with respect to a VWAP Purchase made pursuant to Section 3.1, the period on the applicable VWAP Purchase Date for such VWAP Purchase beginning at the applicable VWAP Purchase Commencement Time and ending at the applicable VWAP Purchase Termination Time.
“VWAP Purchase Price” means the purchase price per Share to be purchased by the Investor in such VWAP Purchase on such VWAP Purchase Date equal to 95.75% of the VWAP (as previously adjusted for any Floor Price set forth by the Company in a corresponding VWAP Purchase Notice) over the applicable VWAP Purchase Period on such VWAP Purchase Date for such VWAP Purchase, to be appropriately adjusted for any share subdivisions, share capitalization, reorganization, recapitalization, exchange or similar event. For the avoidance of doubt, when calculating the VWAP Purchase Price, the VWAP shall be adjusted for any Floor Price prior to multiplying such adjusted VWAP by 95.75%.
“VWAP Purchase Share Amount” means, with respect to a VWAP Purchase made pursuant to Section 3.1, the number of Shares to be purchased by the Investor in such VWAP Purchase as specified by the Company in the applicable VWAP Purchase Notice, which number of Shares shall not exceed the applicable VWAP Purchase Maximum Amount.
“VWAP Purchase Share Delivery Date” means the date upon which the Shares constituting the applicable VWAP Purchase Share Amount purchased by the Investor in each VWAP Purchase are validly issued to the Investor as DWAC Shares no later than 1:00 p.m., New York City time, on the Trading Day immediately following the applicable VWAP Purchase Date for such VWAP Purchase.
“VWAP Purchase Share Estimate” means the number of Shares constituting a good faith estimate by the Company of the number of Shares that the Investor shall have the obligation to buy pursuant to the VWAP Purchase Notice.
Annex I-8
“VWAP Purchase Share Percentage” means, with respect to a VWAP Purchase made pursuant to Section 3.1, twenty percent (20%).
“VWAP Purchase Termination Time” means, with respect to a VWAP Purchase made pursuant to Section 3.1, 4:00 p.m., New York City time, on the applicable VWAP Purchase Date, or such earlier time publicly announced by the Principal Market as the official close of trading (regular way) on the Principal Market on such applicable VWAP Purchase Date; provided that if the VWAP Purchase Share Estimate is less than the VWAP Purchase Maximum Amount, as defined in clause (ii) of the definition thereof, the Investor shall adjust, in its good faith discretion, the VWAP Purchase Termination Time, which shall be when the VWAP Purchase Share Estimate is equal to the VWAP Purchase Maximum Amount.
Annex I-9
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT B
CLOSING CERTIFICATE
[●], 202[●]
The undersigned, the [●] of Vertical Aerospace Ltd., a Cayman Islands exempted company with limited liability (the “Company”), delivers this certificate in connection with the Amended and Restated Share Purchase Agreement, dated as of [●], 2022 (the “Agreement”), by and between the Company and Nomura Securities International, Inc., a New York corporation (the “Investor”), and hereby certifies on the date hereof that (capitalized terms used herein without definition have the meanings assigned to them in the Agreement):
1. Attached hereto as Exhibit A is a true, complete and correct copy of the Amended and Restated Memorandum and Articles of Association of the Company, as amended through the date hereof, as filed with the Registrar of Companies of the Cayman Islands (the “Articles”). The Articles have not been further amended or restated, and no document with respect to any amendment to the Articles have been filed with the Registrar of Companies in the Cayman Islands since the adoption date shown on the face of the Articles, which are in full force and effect on the date hereof, and no action has been taken by the Company in contemplation of any such amendment or the dissolution, merger or consolidation of the Company.
3. The Board of Directors of the Company has approved the transactions contemplated by the Transaction Documents; said approval has not been amended, rescinded or modified and remains in full force and effect as of the date hereof. Attached hereto as Exhibit B are true, correct and complete copies of the resolutions approving the Agreement duly adopted by the Board of Directors of the Company on [●], 202[●].
4. Each person who, as an officer of the Company, or as attorney-in-fact of an officer of the Company, signed the Transaction Documents to which the Company is a party, was duly appointed and acting as such officer or attorney-in-fact, and the signature of each such person appearing on any such document is his genuine signature.
IN WITNESS WHEREOF, I have signed my name as of the date first above written.
| |
| Name: |
| Title: |
EXHIBIT C
COMPLIANCE CERTIFICATE
The undersigned, the [●] of Vertical Aerospace Ltd., a Cayman Islands exempted company with limited liability (the “Company”), delivers this certificate in connection with the Amended and Restated Share Purchase Agreement, dated as of [●], 2022 (the “Agreement”), by and between the Company and Nomura Securities International, Inc., a New York Corporation (the “Investor”), and hereby certifies on the date hereof that, to the best of his or her knowledge after reasonable investigation, on behalf of the Company (capitalized terms used herein without definition have the meanings assigned to them in the Agreement):
1. The undersigned is the duly appointed [●] of the Company.
2. Except as set forth in the Commission Documents, the representations and warranties of the Company set forth in Article V of the Agreement (i) that are not qualified by “materiality” or “Material Adverse Effect” are true and correct in all material respects as of [the Commencement Date] [the date hereof] with the same force and effect as if made on [the Commencement Date] [the date hereof], except to the extent such representations and warranties are as of another date, in which case, such representations and warranties are true and correct in all material respects as of such other date and (ii) that are qualified by “materiality” or “Material Adverse Effect” are true and correct as of [the Commencement Date] [the date hereof] with the same force and effect as if made on [the Commencement Date] [the date hereof], except to the extent such representations and warranties are as of another date, in which case, such representations and warranties are true and correct as of such other date.
3. The Company has performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Company [at or prior to Commencement] [on or prior to the date hereof].
4. The Shares issuable in respect of each VWAP Purchase Notice effected pursuant to the Agreement shall be issued to the Investor electronically as DWAC Shares, and shall be freely tradable and transferable and without restriction on resale and without any stop transfer instructions maintained against such Shares.
5. As of [the Commencement Date] [the date hereof], the Company does not possess any material non-public information.
6. As of [the Commencement Date] [the date hereof], the Company has reserved out of its authorized and unissued share capital [●] ordinary shares solely for the purpose of effecting VWAP Purchases under the Agreement.
7. No stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus under the Securities Act has been issued and no proceedings for such purpose or pursuant to Section 8A of the Securities Act are pending before or, to the knowledge of the Company, threatened by the Commission.
The undersigned has executed this Certificate this [●] day of [●], 202[●].
| |
| Name: |
| Title: |
EXHIBIT D
FORM OF VWAP PURCHASE NOTICE
From: | Vertical Aerospace Ltd. |
To: | Nomura Securities International, Inc. |
Attention: | Equity Capital Markets and Solutions at volcanopurchaseorder@nomura.com |
| |
Subject: | VWAP Purchase Notice |
| |
Date: | [●], 202[●] |
Time: | [●] (New York City time) |
Ladies and Gentlemen:
Pursuant to the terms and subject to the conditions contained in the Amended and Restated Share Purchase Agreement (the “Agreement”) between Vertical Aerospace Ltd., a Cayman Islands exempted company with limited liability (the “Company”), and Nomura Securities International, Inc. (the “Investor”), dated [●], 2022, the Company hereby directs the Investor to purchase a number of ordinary shares in the capital of the Company equal to [●] ordinary shares in the capital of the Company, par value $0.0001 per share, which number shall also constitute the VWAP Purchase Share Estimate and which the Company represents is no greater than the VWAP Purchase Maximum Amount (as defined in the Agreement, but excluding clause (ii) thereof), at the relevant VWAP Purchase Price (as defined in the Agreement). [The Company hereby specifies a Floor Price of $[●], and for the avoidance of doubt, the VWAP for such VWAP Purchase Date shall exclude all trades at a price below such Floor Price]. The Company represents that all conditions set forth in Section 7.3 of the Agreement have been satisfied. Capitalized terms used herein without definition have the meanings assigned to them in the Agreement.
| Vertical Aerospace Ltd. | |
| | |
| By: | |
| Name: | Vincent Casey |
| Title: | Director & Chief Financial Officer |
Exhibit 8.1
Subsidiaries of Vertical Aerospace Ltd.
(as of December 31, 2022)
Legal Name of Subsidiary | Place of Incorporation |
| |
Vertical Aerospace Group Ltd. | United Kingdom |
| |
Broadstone Acquisition Corp. | Cayman Islands |
| |
Vertical Aerospace France SAS | France |
| |
Vertical Aerospace North America LLC | Delaware (USA) |
Exhibit 12.1
CERTIFICATION
I, Stephen Fitzpatrick, Chief Executive Officer, certify that:
1. | I have reviewed this annual report on Form 20-F of Vertical Aerospace Ltd.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
By: | /s/ Stephen Fitzpatrick | |
Stephen Fitzpatrick | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
Date: March 22, 2023
Exhibit 12.2
CERTIFICATION
I, John Martin, Chief Financial Officer, certify that:
1. | I have reviewed this annual report on Form 20-F of Vertical Aerospace Ltd.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
By: | /s/ John Martin | |
John Martin | ||
Chief Financial Officer | ||
(Principal Financial and | ||
Accounting Officer) |
Date: March 22, 2023
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Vertical Aerospace Ltd. (the “Company”) for the year ended December 31, 2022 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d- 14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
I, Stephen Fitzpatrick, Chief Executive Officer of the Company, certify that to the best of my knowledge:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: | /s/ Stephen Fitzpatrick | |
Stephen Fitzpatrick | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
Date: March 22, 2023
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Vertical Aerospace Ltd. (the “Company”) for the year ended December 31, 2022 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d- 14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
I, John Martin, Chief Financial Officer of the Company, certify that to the best of my knowledge:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: | /s/ John Martin | |
John Martin | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
Date: March 22, 2023
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No.333-263815) of Vertical Aerospace Ltd. of our report dated March 22, 2023 relating to the financial statements, which appears in this Form 20-F.
/s/ PricewaterhouseCoopers LLP
Bristol, United Kingdom
March 22, 2023
1
Consolidated Statement of Comprehensive Income - GBP (£) £ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Consolidated Statement of Comprehensive Income | |||
| Revenue | £ 132 | £ 87 | |
| Cost of sales | (64) | (44) | |
| Gross profit | 68 | 43 | |
| Research and development expenses | £ (49,129) | (24,291) | (9,971) |
| Administrative expenses | (54,806) | (264,260) | (3,760) |
| Related party administrative expenses | (83) | (108) | (144) |
| Other operating income | 5,911 | 11,352 | 2,317 |
| Operating loss | (98,107) | (277,239) | (11,515) |
| Finance income/(costs) | 3,732 | 32,498 | (98) |
| Related party finance costs | (483) | (709) | |
| Total finance income/(costs) | 3,732 | 32,015 | (807) |
| Loss before tax | (94,375) | (245,224) | (12,322) |
| Income tax expense | (4) | ||
| Net loss for the period | (94,375) | (245,224) | (12,326) |
| Foreign exchange translation differences | 8,450 | (85) | |
| Total comprehensive loss for the year | £ (85,925) | £ (245,309) | £ (12,326) |
| Basic loss per share | £ (0.53) | £ (1.98) | £ (0.12) |
| Diluted loss per share | £ (0.53) | £ (1.98) | £ (0.12) |
Consolidated Statement of Financial Position - GBP (£) |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Non-current assets | ||
| Property, plant and equipment | £ 2,690,000 | £ 1,834,000 |
| Right of use assets | 3,121,000 | 1,969,000 |
| Intangible assets | 2,048,000 | 4,208,000 |
| Non-current assets | 7,859,000 | 8,011,000 |
| Current assets | ||
| Trade and other receivables | 18,864,000 | 12,658,000 |
| Financial assets at amortised cost | 59,886,000 | |
| Restricted cash | 1,700,000 | |
| Cash at bank | 62,927,000 | 212,660,000 |
| Current assets | 143,377,000 | 225,318,000 |
| Total assets | 151,236,000 | 233,329,000 |
| Equity | ||
| Share capital | 15,952 | 15,804 |
| Other reserve | 94,857,000 | 63,314,000 |
| Share premium | 257,197,000 | 248,354,000 |
| Accumulated deficit | (344,752,000) | (250,123,000) |
| Total equity | 7,318,000 | 61,561,000 |
| Non-current liabilities | ||
| Lease liabilities | 2,645,000 | 1,580,000 |
| Provisions | 365,000 | 95,000 |
| Derivative financial liabilities | 115,247,000 | 112,799,000 |
| Trade and other payables | 4,153,000 | 5,975,000 |
| Non-current liabilities | 122,410,000 | 120,449,000 |
| Current liabilities | ||
| Lease liabilities | 516,000 | 362,000 |
| Warrant liabilities | 4,961,000 | 10,730,000 |
| Trade and other payables | 16,031,000 | 40,227,000 |
| Current liabilities | 21,508,000 | 51,319,000 |
| Total liabilities | 143,918,000 | 171,768,000 |
| Total equity and liabilities | £ 151,236,000 | £ 233,329,000 |
General information |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| General information | |
| General information | 1General information Vertical Aerospace Ltd (the “Company”, or the “Group” if together with its subsidiaries) is incorporated under the Companies Law (as amended) of the Cayman Islands. The address of its principal executive office is: Unit 1 Camwal Court, Bristol, United Kingdom. The Group’s main operations are in the United Kingdom and these financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£’000) except where otherwise indicated. These financial statements were authorised for issue by the Board of Directors on March 20, 2023. Principal activities The principal activity of the Company and its wholly owned subsidiary, Vertical Aerospace Group Ltd (“VAGL”), is the development and commercialization of vertical take-off and landing electrically powered aircraft (“eVTOL”). VAGL became a subsidiary of the Company on December 15, 2021 as part of the capital reorganization. Prior to December 15, 2021, the Company was a shell company with no active trade or business, and all relevant assets and liabilities, as well as income and expenses, were borne by VAGL. Therefore the comparatives of 2020 in these consolidated financial statements reflects the financial position and results of operations of VAGL. |
Significant accounting policies |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Significant accounting policies | |||||||||||||||||||||||||||||||||||||||||||||||||
| Significant accounting policies | 2Significant accounting policies Presentation of these financial statements The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, as modified by the revaluation of certain financial assets and liabilities (including derivative financial instruments) which are recognized at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The functional currency of the Company is US Dollars (‘$’ or ‘USD’) and the functional currency of VAGL is pounds sterling (‘£’ or ‘GBP’). The financial statements are presented in pounds sterling (‘£’ or ‘GBP’), which is the Group’s presentation currency. Items included in the financial statements are measured using the currency of the primary economic environment in which the entity and its subsidiaries operate (“the functional currency”). Cumulative translation adjustments resulting from translating foreign functional currency financial statements into GBP are reported within other reserves. All amounts are presented in and rounded to the nearest thousand unless otherwise indicated. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Basis of consolidation Vertical Aerospace Ltd is the parent of the Group and has 100% ownership interest and voting rights of Vertical Aerospace Group Limited, which is its only material subsidiary. The consolidated financial statements incorporate the financial positions and the results of operations of the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of the subsidiaries are prepared for the same reporting period as the Company using consistent accounting policies. Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated. 2Significant accounting policies (continued) The capital reorganization On December 15, 2021 the Company consummated the capital reorganization whereby the Company acquired all the ordinary shares of VAGL in consideration for the issuance of ordinary shares in the Company, by way of a share for share exchange. At the same time Broadstone Acquisition Corp., (“Broadstone”, a Cayman Islands exempted company), a special purpose acquisition company, was acquired by the Group. This Business Combination is accounted for as a capital reorganization in accordance with IFRS. Under this method of accounting, Broadstone is treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination is treated as the equivalent of the VAGL issuing shares at the closing of the Business Combination for the net assets of Broadstone as of the closing date, accompanied by a recapitalization. The reorganization was accounted for within the scope of IFRS 2. Accordingly, during the year ended December 31, 2021 the Company recorded a one-time non-cash expense of £84,712 thousand, recognized as a share listing expense, based on the excess of the fair value of Company shares issued considering a fair value of a share, at $10.68 per share, over the fair value of Broadstone’s identifiable net assets. Summary of significant accounting policies and key accounting estimates The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Going concern Management has prepared a cash flow forecast for the Group and has considered the ability for the Group to continue as a going concern for the foreseeable future, being at least 12 months after approving these financial statements. The Group is currently in the research and development phase of its journey to commercialisation of eVTOL technology. Commensurate with being in the development phase, the Group has invested heavily in research to support the development of its aircraft. The Group is not currently generating revenue and has incurred net losses and net cash outflows from operating activities since inception. As of December 31, 2022, the Group had £122.8 million of cash and cash equivalents on hand including Short-term deposits held by the Company. Within the next 12 months following the date of this Annual Report, management expects the funding requirements to be approximately £90 million, which will be used primarily to fund the creation and testing of the prototype aircraft, support the certification process and invest in additional personnel across both engineering and support functions. The Group will need to raise additional capital to fund its future operations and remain as a going concern, before the Group uses all of its existing resources. There can be no assurance that the Group will be able to obtain additional funding on acceptable terms and thus have sufficient funds to meet Group’s funding requirements. As a result, the timely completion of financing is important for the Group’s ability to continue as a going concern when it has exhausted its existing resources. 2Significant accounting policies (continued) The dependency on raising additional capital indicates that a material uncertainty exists that may cast significant doubt (or raise substantial doubt as contemplated by PCAOB standards) on the Group’s ability to continue as a going concern and therefore the Group may be unable to realise the assets and discharge the liabilities in the normal course of business. The consolidated financial statements have been prepared assuming that the Group will continue as a going concern, which contemplates the continuity of operations, realisation of assets and the satisfaction of liabilities in the ordinary course of business and do not include any adjustments that would result if the Group were unable to continue as a going concern. Changes in accounting policy The Group adopted the following amendments for the first time during the period commencing January 1, 2022:
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. No accounting standards and interpretations that have been published but not effective for periods ending December 31, 2022 have been early adopted by the Group or are expected to have a material impact on the Group. Government grants Government grants are recognised as Other operating income and are recognised in the period when the expense to which the grant relates is incurred. Grants are only recognised when there is a signed grant offer letter or equivalent from the government body and there is reasonable assurance that the Group will be able to satisfy all conditions of the grant. Benefit from Research and Development Tax Credit As a company that carries out extensive research and development activities, the Company benefits from the UK research and development tax credit regime. Qualifying expenditures largely comprise of R&D staff employment costs, R&D components, consumables, parts, tooling and outsourced contracting support for R&D activities and utilities costs. Due to the nature of the business, the Company has generated losses since inception. The benefit from research and development, or R&D, tax credits is recognized in the consolidated statements of comprehensive income, net, and represents the sum of the research and development tax credits recoverable in the UK. The UK research and development tax credit is fully refundable to the Company and is not dependent on current or future taxable income. As a result, the Company has recorded the entire benefit from the UK research and development tax credit as a benefit which is included in net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any UK research and development tax credits generated are needed to offset a corporate income tax liability in the UK, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other operating income. 2Significant accounting policies (continued) Research and development expenses Research expenditure is charged to profit or loss in the period in which it occurred. Development expenditure is recognised as an intangible asset when it is probable that the project will generate future economic benefit, considering factors such as technological, commercial and regulatory feasibility. Other development expenditure is charged to profit or loss in the period in which it occurred. Refer to note 3 Critical accounting judgements and key sources of estimation uncertainty for a discussion on the judgement of this classification. The amounts included in research and development expenses include staff costs for staff working directly on research and development projects and for expenses directly attributable to a research project, excluding software costs. Finance income and costs Finance income and costs includes the fair value movement on publicly traded warrants and convertible loan notes. Finance costs includes interest payable and is recognised in profit or loss using the effective interest method. Interest income is recognised in profit or loss as it accrues, using the effective interest method. Foreign currency transactions and balances Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in profit or loss. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences arising from the consolidation of subsidiaries whose functional currency differs to the presentational currency of the group are recoded within other comprehensive income. The most important exchange rates that have been used in preparing the financial statements are: Closing rate as at December 31, 2022: USD $1 = GBP £0.8306 (2021: £0.7420) Average rate for the year ending December 31, 2022: USD $1 = GBP £ 0.8117 (2021: £0.7270) Non-monetary items measured in terms of historical cost in a foreign currency are not retranslated. Tax The tax expense for the period comprises current tax and deferred tax. Tax is recognised in profit or loss, except that a change attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the company operates and generates taxable income. 2Significant accounting policies (continued) Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Property, plant and equipment Property, plant and equipment is stated at cost, which includes directly attributable incremental costs incurred in their acquisition and installation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Depreciation Depreciation is charged to write off the cost of assets over their estimated useful lives, as follows:
Intangible assets Intangible assets are carried at cost, less accumulated amortization and impairment losses. Computer software licences acquired for use within the Company are capitalized as an intangible asset on the basis of the costs incurred to acquire and bring to use the specific software. 2Significant accounting policies (continued) Amortization Amortization is provided on intangible assets so as to write off the cost on a straight-line basis, less any estimated residual value, over their expected useful economic life as follows:
Business combinations and goodwill The purchase method is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at their fair values on the date of acquisition. The excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets, including intangible assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of net assets of the subsidiary acquired, the difference is recognised directly in profit or loss. Goodwill is stated at cost, less any accumulated impairment losses. Goodwill is tested annually for impairment or when there are indicators of impairment. Cash at bank Cash at bank is held on deposit with financial institutions located within the United Kingdom and is immediately available. Management has assessed the financial institutions that hold the Company’s cash at bank to be financially sound, with minimal credit risk in existence. Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest. The cash at bank excludes restricted cash deposits, which are subject to restrictions and are therefore not available for general use. Restricted cash The Company presents restricted cash as a separate line item in the balance sheet where this is relevant to an understanding of the Group’s financial position. Restricted cash refers to cash that is held by the Company for specific reasons and is, therefore, not available for immediate ordinary business use. Short term deposits Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest. Trade and other receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is established using an expected credit loss model as per the Group’s accounting policy for the impairment of financial assets. Other receivables represent amounts due from parties who are not customers and are measured at amortized cost. 2Significant accounting policies (continued) Trade and other payables Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade and other payables are recognised initially at the transaction price and subsequently measured at amortized cost using the effective interest method. Borrowings All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are subsequently carried at amortized cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge to profit or loss over the period of the relevant borrowing using the effective interest method. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Provisions Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material. Leases Definition A lease is a contract, or part of a contract, that conveys the right to use an asset or a physically distinct part of an asset (‘the underlying asset’) for a period of time in exchange for consideration. Further, the contract must convey the right to the company to control the asset or a physically distinct portion thereof. A contract is deemed to convey the right to control the underlying asset, if throughout the period of use, the company has the right to:
Initial recognition and measurement The company initially recognizes a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments, purchase options at exercise price (where reasonably certain), expected amount of residual value guarantees, termination option penalties (where reasonably certain) and variable lease payments that depend on an index or rate. 2Significant accounting policies (continued) The right of use asset is initially measured at the amount of the lease liability, adjusted for lease prepayments, lease incentives received, the company’s initial direct costs and an estimate of restoration, removal and dismantling costs. Subsequent measurement After the commencement date, the company measures the lease liability by: (a)Increasing the carrying amount to reflect interest on the lease liability; (b)Reducing the carrying amount to reflect the lease payments made; and (c)Re-measuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in substance fixed lease payments or on the occurrence of other specific events. Interest on the lease liability in each period during the lease term is the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. Interest charges are included in finance costs in profit or loss, unless the costs are included in the carrying amount of another asset applying other applicable standards. Variable lease payments not included in the measurement of the lease liability, are included in operating expenses in the period in which the event or condition that triggers them arises. Right-of-use assets The related right-of-use asset is accounted for using the cost model in IFRS 16 and depreciated and charged in accordance with the depreciation requirements of IAS 16 Property, Plant and Equipment as disclosed in the accounting policy for Property, Plant and Equipment. Adjustments are made to the carrying value of the right of use asset where the lease liability is re-measured in accordance with the above. Right of use assets are tested for impairment in accordance with IAS 36 Impairment of Assets as disclosed in the accounting policy in impairment. Short term and low value leases The company has made an accounting policy election, by class of underlying asset, not to recognize lease assets and lease liabilities for leases with a lease term of 12 months or less (short term leases). The company has made an accounting policy election on a lease-by-lease basis, not to recognize lease assets on leases for which the underlying asset is of low value. Lease payments on short term and low value leases are accounted for on a straight-line bases over the term of the lease or other systematic basis. Short term and low value lease payments are included in operating expenses. Impairment (non-financial assets) All assets are reviewed for impairment when there is an indicator of impairment. In addition, goodwill is reviewed for impairment at least annually. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. 2Significant accounting policies (continued) Share capital and reserves Ordinary shares are classified as equity and share capital is carried at par value. Share capital issued meets the definition of an equity instrument as defined in IAS 32 ‘Financial Instruments’ when the contract evidences a residual interest in the assets of the Company after deducting all of its liabilities. Incremental costs directly attributable to the issue of shares are accounted for as a deduction from consideration received, and are recorded in share premium. Share premium reflects the proceeds received (net of allowable costs) in excess of the par value. Equity instruments are measured at the fair value of the cash or other resources received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement is on a present value basis. Employee Benefits A defined contribution plan is a pension plan under which fixed contributions are paid into a separate entity and has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense when they are due. For defined contribution plans, contributions are paid into publicly or privately administered pension insurance plans on a mandatory or contractual basis. The contributions are recognized as employee benefit expense when they are due. Liabilities for wages and salaries, including non-monetary benefits and annual leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service, are recognized in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as accruals and classified as current liabilities in the balance sheet. Share based payments – Enterprise Management Incentive and 2021 Incentive Plan The Company operates an equity-settled, share based compensation plan, under which the entity receives services from employees as consideration for equity instruments (share options or shares). The fair value of the employee services received in exchange for the grant of the shares is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the shares granted:
Non-market performance and service conditions are included in assumptions about the number of shares that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. In addition, in some circumstances employees may provide services in advance of the grant date and therefore, the grant date fair value is estimated for the purposes of recognizing the expense during the period between service commencement period and grant date. 2Significant accounting policies (continued) At the end of each reporting period, the Company revises its estimates of the number of shares that are expected to vest based on the non-market vesting conditions. The Company recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. See note 23 for further details. Other non-current share-based payments were made during the prior year as detailed within the significant accounting policy for the capital reorganization. Further information is included with the critical accounting judgements and key sources of estimation uncertainty. Financial instruments Financial instruments are contracts that give rise to a financial asset for one entity and to a financial liability or equity instrument for another entity. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the settlement date.The company recognizes financial assets and financial liabilities in the statement of financial position when, and only when, the company becomes party to the contractual provisions of the financial instrument. Financial assets and financial liabilities are offset, and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously. Financial assets The Group’s financial assets include cash at bank and other financial assets. Financial assets are initially measured at fair value plus, in the case of a financial asset not measured at fair value through profit or loss, transaction costs. Trade receivables are measured at their transaction price. For all financial assets the Group has the objective to hold financial assets in order to collect the contractual cash flows. The contractual terms of all the Group’s financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the outstanding amount. All financial assets are therefore measured at amortized cost. Impairment of financial assets — expected credit losses (“ECL”) All financial assets measured at amortized cost are required to be impaired at initial recognition in the amount of their expected credit loss (“ECL”), based on the difference between the contractual and expected cash flows The simplification available for financial instruments with a low credit risk (“low credit risk exemption”) is applied as of the reporting date. Factors that can contribute to a low credit risk assessment are debtor specific rating information and related outlooks. The requirement for classification with a low credit risk is regarded to be fulfilled for counterparties that have at least an investment grade rating; in this case there is no need to monitor credit risks for financial instruments with a low credit risk. 2Significant accounting policies (continued) Financial liabilities The Group’s financial liabilities include warrants, lease liabilities, convertible loans, trade and other payables, and other financial liabilities. Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (“FVTPL”). All financial liabilities are recognized initially at fair value less, in the case of a financial liability not at fair value through profit or loss, directly attributable transaction costs. Financial liabilities at FVTPL are measured at fair value and gains and losses resulting from changes in fair value are recognized in finance income/expenses. The Group only accounts for convertible loans and warrants as a financial liability at FVTPL. All other financial liabilities are subsequently measured at amortized cost. An embedded derivative in a hybrid contract, with a financial liability or a non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. The assessment whether to separate an embedded derivative is done only once at initial recognition of the hybrid contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. Convertible Loans Convertible loans are bifurcated into a debt component and a conversion right if the latter is an equity instrument. The conversion right of a convertible loan is not an equity instrument but a liability if some conversion features of the loan lead to a conversion into a variable number of shares. In this case it has to be assessed if embedded derivatives need to be separated from the host contract. If this is the case, the remaining host contract is measured at amortized cost and the separated embedded derivative is measured at fair value through profit or loss until the loan is converted into equity or becomes due for repayment. The conversion features and other repayment options provided for in the contract are identified as a combined embedded derivative if they share the same risk exposure and are interdependent. Warrant Liabilities Public warrants are recognized as liabilities in accordance with IFRS 9 at fair value. The liabilities are subject to re-measurement at each balance sheet date until exercised. Private warrants linked to sales targets are recognised within equity as these satisfy the “fix to fix” criterion within IAS 32. 2Significant accounting policies (continued) Fair value measurements IFRS 13 clarifies that fair value is a market price, representing the amount received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier hierarchy is established as follows: Level 1Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2Other than quoted prices included in level 1, inputs that are observable for the asset or liability, either directly or indirectly, for suitability for the full term of the asset or liability. Level 3Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. |
Critical accounting judgements and key sources of estimation uncertainty |
12 Months Ended | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||
| Critical accounting judgements and key sources of estimation uncertainty | ||||||||||||||||||||||||||||
| Critical accounting judgements and key sources of estimation uncertainty | 3Critical accounting judgements and key sources of estimation uncertainty The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The Company’s most significant estimates and judgments involve valuation of the stock-based consideration, including the fair value of common stock and market-based restricted stock units, the valuations of warrant liabilities, derivative liabilities including convertible loan notes, and the valuation of call options. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Such estimates often require the selection of appropriate valuation methodologies and models and may involve significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ from those estimates under different assumptions, financial inputs, or circumstances. Capitalization of development costs The business incurs a significant amount of research and development cost. The point in time at which the business begins capitalization of any project is a critical accounting judgement. The business assesses the technology readiness level of its research and development projects, along with the commercialization potential and guidance from the accounting standards to assess whether a particular development project should be capitalized or not. 3Critical accounting judgements and key sources of estimation uncertainty (continued) Costs for internally generated research and development are capitalized only if: - the product or process is technically feasible; - adequate resources are available to successfully complete the development; - the benefits from the assets are demonstrated; - the costs attributable to the projects are reliably measured; - an intention exists to produce and market or use the developed product or process and market relevance can be demonstrated. Management has concluded none of the projects currently meet the requirements for capitalization as the market for the use of eVTOL technologies is not yet established or proven, and uncertainties remain regarding the successful completion of this development. If costs relating to a research and development projects are not capitalized, they are expensed as incurred and presented in Research and Development expenses in profit or loss (note 7). Share acquisition – business combination under common control There is currently no guidance in IFRS on the accounting treatment for combinations among entities under common control. IAS 8 requires management, if there is no specifically applicable standard or interpretation, to develop a policy that is relevant to the decision-making needs of users and that is reliable. In the prior period, management made a judgement and applied a method broadly described as predecessor accounting. The principles of predecessor accounting are:
The share acquisition of all the ordinary shares of VAGL in the prior period has been considered as a business combination under common control and resulted in VAGL's operations and all of its net assets being recognized by the Company at their historical net book values. Share-based Payments During the year ended December 31, 2021, judgments were made in determining the valuation of shares prior to the business combination, including in relation to the issuance of Z-Shares to American Airlines (“American”) on June 10, 2021. For periods prior to the business combination, a probability-weighted model using option pricing methods has been used. For valuations as at or subsequent to the business combination the market value of the publicly traded shares has been used. The issuance of Class Z-Shares to American The issuance of Class Z-Shares to American was concluded to be a stand-alone transaction. The transaction ensured that American had an equity interest in VAGL in the event that the business combination did not complete and provided an incentive for American to invest in the PIPE. As a transaction in the Company’s own stock this would generally be within scope of IAS 32, however the compensatory nature of the transaction required consideration of other IFRS guidance, specifically IFRS 2. 3Critical accounting judgements and key sources of estimation uncertainty (continued) The valuation of the class Z-Shares took considered the following substantive terms and features:
Two probability weighted scenarios were considered: a) the Z-Shares convert into to 6,125,000 shares in the Company, subject to lock up and call option, or b) they remain shares of VAGL if the business combination did not complete. During the year ended December 31, 2021 An expense of £16,739 thousand was recognised based on the total fair value of the class Z-Shares issued to American over the total consideration received (£nil). Enterprise Management Initiative (EMI) On March 15, 2022, and as a result of the Business Combination, the Company entered into option agreements with certain employees of the Company as replacement option agreements for share options previously granted over shares in VAGL. New equity instruments are granted to eligible employees and on March 15, 2022, the Company identified the new option agreements granted as replacement option agreements for the option agreements cancelled. As such the granting of these replacement option agreements has been accounted for in the same way as a modification of the original grant of equity instruments. It has been concluded that this modification increased the fair value of the option agreements granted, measured immediately before and after the modification, and therefore the Company has subsequently included the incremental fair value granted in the measurement of the amount recognised for services received as consideration for the option agreements granted. The incremental fair value granted is the difference between the fair value of the replacement option agreements and the net fair value of the cancelled option agreements, at the date the replacement equity instruments were granted – see note 23 for further details. 2021 Incentive Plan During the year ended December 31, 2022 the Board of Directors adopted the “2021 Incentive Award Plan” in order to facilitate the grant of cash and equity incentives to employees. The share options were given to employees of VAGL in relation to shares in the Company. Under the scheme, the participants are granted options which only vest if the employee remains in employment with the company at the vesting date. Options are vested after the first anniversary of the grant date with 6.25% vest quarterly until the options are fully vested. The “vesting period” is specified in IFRS 2 as the period during which all of the specified vesting conditions are to be satisfied in order for the employees to be entitled unconditionally to the equity instrument. The options expire at the end of the day before the tenth anniversary of the grant date. Management is required to use an appropriate pricing model to value the issue of equity to employees or those providing similar services. Any charge to the profit and loss account is therefore a function of the chosen pricing model, which is based on a range of assumptions. The fair value of the equity instruments granted was derived using a Black-Scholes Model and based upon actual share price on grant date ($9.36). Risk free rate has been determined based upon US Government five year gilts. Expected volatility was determined by the historical volatility of the Company since the completion of the business combination. An attrition rate of 10% has been determined based upon historical experience. 3Critical accounting judgements and key sources of estimation uncertainty (continued) Convertible Loans and Embedded Derivatives The fair value of the convertible senior secured notes has been estimated using an option pricing model, in accordance with the International Valuation Standards definition of “market value”. This approach is deemed appropriate because:
The Convertible Notes, which have a five-year term from the date of issuance, have a payment-in-kind interest rate of 9.0% (compounding semi-annually), or a cash interest rate of 7.0% (paid semi-annually). The holder of the Convertible Notes may convert them into ordinary shares in the Company at any time at a conversion ratio of 90.9091 per $1,000 principal amount (any payment-in-kind accrual converts at the same ratio). Many of the inputs are not observable and Company specific inputs include the expected probability and timing of specific future events. For detailed information on the convertible loans and its embedded derivatives, a description of the valuation model and the input parameters, see note 24. Warrants Public warrants relate to those warrants that commenced trading on the NYSE on December 16, 2021. Prior to that date, there was no public trading market for Company ordinary shares or warrants. Private warrants include those issued upon consummation of the business combination to American, members of the Avolon Group (“Avolon”), Virgin, and Mudrick Capital Management L.P (“Mudrick”). Private options were issued to Marcus Waley-Cohen (“MWC”). 3Critical accounting judgements and key sources of estimation uncertainty (continued) The fair value of the Private Warrants is deemed to be equal to the fair value of the Public Warrants except where the terms of Private Warrants materially differ to Public Warrants. Differences exist, with regards to certain warrant, in the maximum term to exercise as well as the strike price. An option pricing model (Black-Scholes Model) therefore been used to derive the fair value of Private Warrants. This valuation is judgmental. For detailed information on the warrants, a description of the valuation model and the input parameters, see note 21. On December 16, 2021 Private Warrants were issued to Avolon, American and Virgin Atlantic Limited (“Virgin”). Warrants issued to Avolon and American were exercised immediately after issuance. The warrants meet the fixed-for-fixed criterion and are therefore recognised within other reserves until the point of exercise. The amount classified to other reserves on initial recognition reclassified to share capital and share premium upon exercise. Private Warrants and Options issued to Mudrick along Public Warrants, are accounted for as liabilities in accordance with IAS 32, subject to ongoing mark-to-market adjustments (see note 21). |
Operating segments |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| Operating segments | |
| Operating segments | 4Operating segments The Group operates as a single operating segment and one reporting segment, being the development and commercialization of eVTOL technology. An operating segment is defined as a component of an entity for which discrete financial information is available and whose results are regularly reviewed by the chief operating decision maker. The Board of Directors review all financial information as a single segment. |
Revenue |
12 Months Ended | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||
| Revenue | 5Revenue The analysis of the Group’s revenue for the year is as follows:
All revenue relates to non-core ancillary consultancy services and was provided by Vertical Aerospace Engineering Limited, which was disposed of in October 2021. |
Other operating income |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other operating income | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other operating income | 6Other operating income The analysis of the Group’s other operating income for the year is as follows:
Government grants Government grants relate to amounts receivable from the Aerospace Technology Institute (ATI) relating to the research and development of eVTOL technologies. The grant is made to fund research and development expenditure and is recognised in profit or loss in the period to which the expense it is intended to fund relates. R&D tax credit scheme The R&D tax credit relates to the UK’s research and development expenditure credit scheme. |
Expenses by nature |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expenses by nature | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expenses by nature | 7Expenses by nature Included within administrative expenses and research and development expenses are the following expenses.
7Expenses by nature (continued) Staff costs relates primarily to salary and salary related expenses, including social security and pension contributions. Staff costs exclude share based payments. Share based payment expense primary relates both R&D staff and administrative staff and includes the following:
Enterprise Management Incentive and 2021 Incentive Plan The Group operates an Enterprise Management Incentive (“EMI”) scheme, being a tax advantaged share scheme that can be operated by qualifying companies. This scheme was modified during the year ended December 31, 2022 to reflect the revised capital structure of the Company following completion of the Business Combination. As part of this modification, all option holders exchanged their options held in VAGL for newly issued options in the Company. Also, during the year ended December 31, 2022 the Board of Directors adopted the “2021 Incentive Award Plan” in order to facilitate the grant of cash and equity incentives to employees. The impact of both the modification of the EMI scheme and the adoption of the 2021 Inventive Aware Plan is reflected in these financial statements – see note 23 for further details. Issuance of PIPE shares to suppliers and partners Upon consummation of the Business Combination the Company recognised an expense £10,389 thousand in relation to the issuance of PIPE shares to certain suppliers and partners for net proceeds below market value. Issuance of Z-Shares to American On June 10, 2021, VAGL and American executed a subscription agreement by which American subscribed for 5,804 class Z-Shares of VAGL for total consideration of £0.06. Z-Shares refer to Z ordinary shares of £0.00001 par value that did not carry the right to receive distributions.Upon closing of the Business Combination, American exchanged 100% of its class Z-Shares for 6,125,000 common shares of the Company. Two probability weighted scenarios were considered: a) the Z-Shares convert into to 6,125,000 shares in the Company, subject to lock up and call option, or b) they remain shares of VAGL if the business combination did not complete.
The probability weighted calculation as at June 10, 2021 concluded that Business Combination was likely to be completed, giving a valuation of £16,739 thousand, recognised as an expense and within share premium of VAGL. 7Expenses by nature (continued) Capital reorganization The difference in the fair value of the shares issued by the Company over the value of the net monetary assets of the Broadstone represented a listing service, recognized as an expense upon consummation of the Business Combination.
An additional £1,572 thousand was recognised in relation to the issuance of private options to MWC, giving a total charge of £84,712 thousand. |
Finance income/(costs) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Finance income/(costs) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Finance income/(costs) | 8Finance income/(costs)
Fair value movements include a fair value gain on public and private warrants in issue of £5,880 thousand (note 21) in addition to a fair value gain on the senior convertible loan notes of £25,723 thousand (note 25). |
Basic and diluted loss per share |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic and diluted loss per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic and diluted loss per share | 9Basic and diluted loss per share Basic earnings per share, in this case a loss per share, is calculated by dividing the loss for the year attributable to ordinary equity holders of the parent by the number of ordinary shares outstanding. Because a net loss for all period presented has been reported, diluted loss per share is the same as basic loss per share. Therefore, all potentially dilutive common stock equivalents are anti-dilutive and have been excluded from the calculation of net loss per share. The calculation of loss per share is based on the following data:
|
Income tax expense |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 10Income tax expense Tax credited /(charged) in profit or loss
The tax on profit before tax for the year is higher than the standard rate of corporation tax in the UK (2021 - higher than the standard rate of corporation tax in the UK) of 19% (2021: 19%). The differences are reconciled below:
The main rate of UK corporation tax for the years to December 31, 2022 and December 31, 2021 was 19%. At the March Budget 2021, the UK government announced that the Corporation Tax main rate (for all profits except ring fence profits and profits under £50 thousand) for the years starting April 1, 2023 be 25%. 10Income tax expense (continued) No deferred tax assets or liabilities have been recognised as the Group has a surplus of UK tax losses which offset in the same jurisdiction as any deferred tax liabilities. A deferred tax asset for the surplus tax losses has not been recognised as the Group has not yet been profitable and therefore there is uncertainty over the availability of future taxable profits against which to utilise the tax losses. Unused potential tax losses for which no deferred tax asset has been recognised as at December 31, 2022 were estimated as £345,000 thousand (2021: £250,500 thousand). |
Property, plant and equipment |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment | 11Property, plant and equipment
All property, plant and equipment is attributable to the UK.
|
Right of use assets |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Right of use assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Right of use assets | 12Right of use assets
The right of use assets are leasehold properties in Bristol and Kemble, UK. Further information on the lease liability of this lease can be found in note 18. |
Intangible assets |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets | 13Intangible assets
The amortisation charge of £1,195 thousand (2021: £387 thousand) is shown in Administrative expenses. 13Intangible assets (continued) All intangible assets are attributable to the UK and IT software is third party software licences, which includes perpetual licences and implementation costs. The carrying amounts of the software was reviewed at the reporting date and management determined that there were no indicators of impairment. Goodwill previously recognised on the acquisition of Vertical Advanced Engineering Ltd in July 2019 and related to the Formula 1 approach to the use materials and technologies was fully impaired during the year. |
Cash and cash equivalents |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| Cash and cash equivalents | |
| Cash and cash equivalents | 14Cash and cash equivalents Restricted cash is deemed to be restricted by way of a rent guarantee, which the counterparty can call on in the event of default by the Company. Current assets at amortised cost relates to short term deposits, which are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest. All balances are held with financial institutions with a minimum rating of ‘A’. |
Trade and other receivables |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Trade and other receivables | |||||||||||||||||||||||||||||||||||||||||
| Trade and other receivables | 15Trade and other receivables
Included within Government receivables is £7,212 thousand for the R&D tax credit receivable (December 31, 2021: £2,716 thousand). The fair value of trade and other receivables classified as financial instruments are disclosed in note 25 Financial instruments. Expected credit losses were not significant in 2022 or 2021. The Group’s exposure to credit and market risks, including impairments and allowances for credit losses, relating to trade and other receivables is disclosed in note 26 Financial risk management and impairment of financial assets. |
Share capital and other reserves |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share capital and other reserves | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share capital and other reserves | 16Share capital and other reserves Allotted, called up and fully paid shares
Ordinary shares have full voting rights, full dividend rights. The Company is authorized to issue 500,000,000 ordinary shares. During the period 5,075,639 ordinary shares were issued at $0.0001 par value as shown below
This includes 3,821,565 shares were issued as a result of the exercise of EMI options, of which 645,571 relate to exercised EMI options and 3,175,994 remain held in deposit at custodian. On August 5, 2022, we entered into the share purchase agreement with Nomura Securities International (“Nomura”), establishing an equity subscription line whereby the Company has the right to sell to Nomura up to $100 million in aggregate gross purchase price of our newly issued ordinary shares, par value $0.0001 per share. During the year 1,103,863 shares were issued under the equity subscription line with Nomura generating proceeds of £7,734 thousand. The excess of proceeds over the par value of the shares issued is recognised within share premium. Nature and purpose of other reserves The share-based payments reserve is used to recognise the grant date fair value of options issued to employees but not exercised. The translation reserve arises as a result of the retranslation of overseas subsidiaries in consolidated financial statements. The warrant reserve is used to recognise the fair value of warrants issued in exchange for a fixed amount of cash or another financial asset for a fixed number of the Company’s ordinary shares (‘fixed-for-fixed condition’). The merger reserve is used to reflect any difference between the consideration and the book value of net assets acquired as part of a business combination. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans from related parties |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans from related parties | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans from related parties | 17Loans from related parties
17Loans from related parties (continued) Loans from related parties represented a loan from Imagination Industries Ltd, a company wholly owned by Stephen Fitzpatrick. Movements in the prior year were as follows:
|
Leases |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | 18Leases The balance sheet shows the following amounts relating to lease liabilities:
Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case, the Company’s incremental borrowing rate is used, being the rate that the Company would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. Lease liabilities maturity analysis A maturity analysis of lease liabilities based on contractual undiscounted gross cash flow is reported below:
18Leases (continued) Total cash outflows related to leases Total cash outflows related to leases are presented in the table below:
A reconciliation of the lease creditors is shown below:
Lease creditors relate to property in Bristol and Kemble, UK. During 2022, the Company entered into additional lease arrangements in both of these locations. The cost, depreciation charge and carrying value for the right-of-use asset is disclosed in note 12 Right of use assets. The interest expense on lease liabilities is disclosed in note 8 Finance costs. |
Provisions |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provisions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provisions | 19Provisions
The dilapidation provision was recognized as a result of the obligation to return the leased property in Bristol, UK to its original condition at the end of the lease which currently expires in 2028. The provision is recognized at amortized cost with discount unwind being recognized each year. The provision is expected to be utilized at the end of the lease period. |
Trade and other payables |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade and other payables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade and other payables | 20Trade and other payables Amounts falling due within one year:
Amounts falling due after more than one year:
The Group’s exposure to market and liquidity risks, including maturity analysis, related to trade and other payables is disclosed in note 26 Financial risk management and impairment of financial assets. |
Warrant liabilities |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant liabilities | 21Warrant liabilities Warrants recorded as a liability The following warrants are in issue but not exercised:
Recorded as a liability, the following shows the change in fair value during the year ended December 31, 2022:
21Warrant liabilities (continued) Public warrants may only be exercised for a whole number of shares. The public warrants will expire five years from the consummation of the Business Combination or earlier upon redemption or liquidation. Once the public warrants become exercisable, the Company may redeem the public warrants for redemption at a price of $0.01 per public warrant if the closing price of the common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period. Each public warrant entitles the registered holder to purchase one share of common stock at a price of $11.50 per share. The exercise price and number of common stock issuable upon exercise of the public warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger, or consolidation. The public warrants will not be adjusted for issuances of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the public warrants. On December 15, 2021 Mudrick Capital Management were issued with 4,000,000 warrants, which are exercisable for one ordinary share each, with an exercise price of $11.50 per ordinary share (subject to adjustment). During the year ended December 31, 2022 the warrants issued to MWC were reclassified to be recorded within equity. Warrants recorded in reserves issued to Virgin, American and Avolon On October 29, 2021, the Company entered into the Virgin Atlantic Warrant Instrument, which provides for a warrant over 2,625,000 Ordinary Shares issued immediately after the Share Acquisition Closing. As at December 31, 2022, these warrants remained outstanding and were valued at £8,558 thousand, within other reserves, using a Black-Scholes Model with the following inputs:
Had 75% been used as an alternative yet feasible volatility input then a valuation of £11,907 thousand would have been derived as the entry to other reserves. Adjustments to the other inputs would have not derived a materially different valuation. Immediately after the Share Acquisition Closing, the Company entered into the American Warrant Instrument and the Avolon Warrant Instrument, which provides for a warrant over 2,625,000 Ordinary Shares and 6,378,600 Ordinary Shares respectively,that were both issued and exercised immediately after the Share Acquisition Closing. Avolon were also issued with, and exercised, 3,765,000 commercial warrants by the Company as a result of entering into a firm commitment to place 100 aircraft with a prime carrier. 21Warrant liabilities (continued) A contract asset has not been recognised as the customer has the ability to terminate the contract without penalty and the aircraft subject to the purchase order has not yet been certified, therefore during the year ended December 31, 2021 an expense has been recognised as shown below:
No instruments of a similar nature were issued during the year ended December 31, 2022. |
Pension and other schemes |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| Pension and other schemes | |
| Pension and other schemes | 22Pension and other schemes Defined contribution pension scheme The Group operates a defined contribution pension scheme. The pension cost charge for the year represents contributions payable by the Group to the scheme and amounted to £1,070 thousand (2021: £471 thousand).Contributions totalling £220 thousand (2021: £9 thousand) were payable to the scheme at the end of the year and are included in trade and other payables. |
Share-based payments |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payments | 23Share-based payments EMI Scheme The movements in the number of EMI share options during the year were as follows:
The EMI share options were all granted prior to December 31, 2021, after which no new grants were made. The movements in the weighted average exercise price of share options during the year were as follows:
23Share-based payments (continued) The exercise price of share options granted during the period is based upon the modification of the scheme to reflect the revised capital structure of the Company. Details of share options outstanding at the end of the year are as follows:
The number of options which were exercisable at December 31, 2022 was 11,317,247 (2021: 7,715) with exercise prices ranging from £0.04 to £1.20. The increase in the number of options exercisable was due to the modification of the scheme during the period. The weighted average fair value per option of options granted during the period at measurement date was £0.52 (2021: £31.97). The option pricing model used was Black Scholes and the main inputs are set out in the table below:
Given the lack of share price history, volatility has been estimated with reference to other industry competitors, on a listed stock market, with a premium attached for various uncertainties The total expense recognised by the company during the year in respect of the EMI scheme was £7,858 thousand (2021: 156 thousand). 2021 Incentive Plan On 1 October 2022, employees in the Company had been granted share options in relation to shares issued by the Company. Under the scheme, the participants are granted options which only vest if the employee remains in employment with the company at the vesting date. Options are vested after the first anniversary of the grant date with 6.25% vest quarterly until the options are fully vested. The options expire at the end of the day before the tenth anniversary of the grant date. The fair value of the equity instruments granted was derived using a Black-Scholes Model and based upon actual share price on grant date ($9.36). The following inputs were used:
Expected volatility was determined by the historical volatility of the Company since the business combination. The total expense recognised by the company during the year in respect of the 2021 Incentive Plan is £14,248 thousand (2021: Nil). 23Share-based payments (continued) The movements in the number of employee share options during the year were as follows:
The number of options outstanding as at the end of the period costs of 3,411,660 nil cost options and 944,009 Company Share Option Plan (CSOP) options. The movements in the weighted average exercise price of CSOP options during the year were as follows:
Details of share options outstanding at the end of the year were as follows:
The exercise price shown above relates to CSOP options only as nil cost options have a zero exercise price. The expected average remaining vesting period for nil cost options has been determined as 2.78 years and for CSOP options has been determined as 3.62 years. |
Derivative financial liabilities |
12 Months Ended | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||
| Derivative financial liabilities | |||||||||||||||||||||||||
| Derivative financial liabilities | 24Derivative financial liabilities Convertible Senior Secured Notes consists of the following:
On December 15, 2021 Mudrick purchased Convertible Senior Secured Notes of and from the Company in an aggregate principal amount of £151,000 thousand ($200,000 thousand) for an aggregate purchase price of £145,000 thousand ($192,000 thousand) (the “Purchase Price”). The Convertible Senior Secured Notes are initially convertible into up to 18,181,820 ordinary shares at an initial conversion rate of 90.9091 ordinary shares per $1,000 principal amount. Upon the occurrence of a Fundamental Change, Mudrick has the right, at its option, to require the Company to repurchase for cash all or any portion of its Convertible Senior Secured Notes in principal amounts of $1,000, at a fundamental change repurchase price equal to the principal amount to be repurchased plus, if repurchased before the second anniversary of issuance, certain make-whole premiums, plus accrued and unpaid interest. A fundamental change consists of a change in beneficial owner of the Company; the sale of all or substantially all of the assets or share capital of the Company; dissolution or liquidation of the Company; or NYSE de-listing. The Convertible Senior Secured Notes will bear interest at the rate of 7% per annum if the Company elects to pay interest in cash or 9% per annum if the Company elects to pay interest in-kind, by way of PIK Notes. Interest will be paid semi-annually in arrears. Upon the occurrence of an event of default, an additional 2.00% will be added to the stated interest rate. The Convertible Senior Secured Notes will mature on the fifth anniversary of issuance and will be redeemable at any time by the Company, in whole but not in part, for cash, at par plus, if redeemed before the second anniversary of issuance, certain make-whole premiums. A number of covenants exist in relation to the Company’s obligations with regard to payment of notes and interest; furnishing the trustee with exchange act reports; compliance with Section 13 or 15(d) of the Exchange Act; provision of an annual compliance certificate; relinquishing of the benefit or advantage of, any stay, extension or usury law; acquisition of notes by the Company; permitting any Company subsidiaries to become liable for the notes; limitation on liens securing indebtedness; limitation on asset sales; limitation on transactions with affiliates; limitation on restricted payments; retention of $10 million cash; guarantors; and material IP. No breaches have been identified during the year.Accordingly, cash at bank includes £8,306 thousand subject to the above covenant as at December 31, 2022. In accordance with IFRS 9, this is treated as a hybrid instrument and is designated it in entirety as fair value through profit or loss. Therefore, upon initial recognition the Company has not separated the convertible note into a host liability component (accounted for at amortized cost) and the derivative liability components (accounted for at fair value through profit or loss). The valuation methods and assumptions are shown in note 25. |
Financial instruments |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial instruments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial instruments | 25Financial instruments Financial assets at amortized cost
The fair value of financial assets is based on the expectation of recovery of balances. All balances are expected to be received in full. Trade and other receivables have been categorized in level 2 of the fair value hierarchy. All other balances have been recognised in level 1 of the fair value hierarchy. Financial liabilities at amortized cost:
All balances have been recognised in level 2 of the fair value hierarchy. Financial liabilities at fair value through profit or loss:
Warrants are traded in an active market and are therefore categorized in level 1 of the fair value hierarchy (see note 21). Convertible Senior Secured Notes (both host contract and embedded derivative) are categorized in level 3 of the fair value hierarchy (see note 24). Valuation methods and assumptions Financial liabilities at amortized cost The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. Due to their short maturities, the fair value of the trade and other payables approximates to their book value. The total interest expense for financial liabilities not held at fair value through profit or loss is £143 thousand (2021: £747 thousand). 25Financial instruments (continued) Financial liabilities at fair value through profit or loss The fair value of the convertible senior secured notes has been estimated using an option pricing model, in accordance with the International Valuation Standards definition of “market value”. The Convertible Notes, which have a five-year term from the date of issuance, have a payment-in-kind interest rate of 9.0% (compounding semi-annually), or a cash interest rate of 7.0% (paid semi-annually). The holder of the Convertible Notes may convert them into ordinary shares in the Company at any time at a conversion ratio of 90.9091 per $1,000 principal amount (any payment-in-kind accrual converts at the same ratio). Option pricing therefore has been utilised to calculate the probability that these options will be in the money, at expiration and assign a dollar value to it. The underlying share price of the company, exercise price, volatility, interest rate, and time to expiration have been used as inputs into the model to derive the option's theoretical fair value. Company specific inputs include the expected probability and timing of future equity financing, in addition to the probability and timing of a future fundamental change. As of December 31, 2022 an estimated a fair value of £115,247 thousand (2021: £112,799 thousand) was calculated for the convertible note based on the following valuation inputs:
Credit spread was selected such that the fair value of the Convertible Notes reconciles to the total purchase price of $192.0 million based upon the arms' length transaction closing as of December 15, 2021. Risk-free rate is based on the interest rate on US government debt with a to term. Volatility is based upon a reduction on the historical ordinary share volatility rate as operations develop and mature. Historical share price volatility of comparator companies with a three-month to four-year terms have also been considered. Had the stock price traded higher, or a higher volatility been assumed then this would have resulted in a higher fair value being attributed to the instrument. An increase in interest rate, risk free rate or credit spread applied would result in a reduction in the fair value being attributed to the instrument. A 5-percentage point (or 20%) reduction in credit spread would result in an increase in the fair value of the instrument by approximately £15m. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial risk management and impairment of financial assets |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial risk management and impairment of financial assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial risk management and impairment of financial assets | 26Financial risk management and impairment of financial assets The Group’s activities expose it to a variety of financial risks: market risk, credit risk, exchange rate risk and liquidity risk. Credit risk and impairment Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from prepayments to suppliers and distributors and deposits with the Group’s bank. Restricted cash as at December 31, 2022 includes £1,700 thousand (2021: £nil) in relation to rent guarantees. Included in Cash at bank is £8,306 thousand (2021: £7,420 thousand) that is deemed to contain certain restrictions in order to satisfy certain covenants as at December 31, 2022. Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest. The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was £790 thousand (2021: £672 thousand) being the total of the carrying amount of financial assets excluding cash, which includes trade receivables and other receivables. All the receivables are with parties in the UK. The allowance account of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly. The Group provides for impairment losses based on estimated irrecoverable amounts determined by reference to specific circumstances and the experience of management of debtor default in the industry. On that basis, the loss allowance as at December 31, 2022 and December 31, 2021 was determined as £nil for trade receivables. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s financial position. The Group’s principal exposure to market risk is foreign exchange rate fluctuations. There are currently no currency forwards, options, or swaps to hedge this exposure. Foreign exchange risk The Group is exposed to foreign exchange risk arising from exposure to various currencies in the ordinary course of business. The Group received proceeds from fundraising activities in USD, and holds cash in both USD and GBP. The majority of the Group’s trading costs are in GBP,however the Group also has supply contracts denominated in USD and EUR. The Group holds sufficient cash in both USD and GBP to satisfy its trading costs in each of these currencies. In 2022 and 2021, the Group did not consider foreign exchange rate risk to have a material impact on the financial statements and therefore no sensitivity analysis is presented. The Company may be exposed to material foreign exchange risk in subsequent years as a result of the significance of the USD denominated Convertible Senior Secured Notes in particular relative to USD deposits and cash held ($30,673 thousand at December 31,2022), which are expected to decline as expenses are incurred until future funding is secured. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.The Group’s management uses short and long-term cash flow forecasts to manage liquidity risk. Forecasts are supplemented by sensitivity analysis used to assess funding adequacy for at least a 12-month period. The Company manages its cash resources to ensure it has sufficient funds to meet all expected demands as they fall due. 26Financial risk management and impairment of financial assets (continued) Maturity analysis
Capital management The Group’s objective when managing capital is to ensure the Group continues as a going concern; and grows in a sustainable manner. Given the ongoing development of eVTOL aircraft with minimal revenues, the Group relies on funding raised from the Business Combination transaction and other equity investors. Cash flow forecasting is performed on a regular basis which includes rolling forecasts of the Group’s liquidity requirements to ensure that the Group has sufficient cash to meet operational needs. |
Related party transactions |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Related party transactions | |||||||||||||||||||||||||||||||||||||||||
| Related party transactions | 27Related party transactions Key management personnel compensation Key management personnel are the members of the Board.
Aggregate gains made on the exercise of share options for the Directors during the year totalled £1,351 thousand (2021: nil) Summary of transactions with other related parties During the year, Imagination Industries Ltd, a company controlled by Stephen Fitzpatrick provided and charged the Group with services totalling £83 thousand (2021: £108 thousand), of which £14 thousand was outstanding as at December 31, 2022 (December 31, 2021: £nil). On January 1, 2022 Domhnal Slattery was appointed Chairman of the Board of Directors. Domhnal Slattery is the ultimate beneficial owner of Avolon-e. On July 18, 2022 Michael Flewitt was appointed to the Board of Directors. On October 17, 2022, Harry Holt and Marcus Waley-Cohen resigned from the Board of Directors. On January 23, 2023, Michael Cervenka resigned from the Board of Directors. |
Ultimate controlling party |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| Ultimate controlling party | |
| Ultimate controlling party | 28Ultimate controlling party The ultimate controlling party is Stephen Fitzpatrick. |
Non adjusting events after the reporting period |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| Non adjusting events after the reporting period | |
| Non adjusting events after the reporting period | 29Non adjusting events after the reporting period On February 20, 2023, John Martin was appointed as Chief Financial Officer of the Company, succeeding Vincent Casey. |
Significant accounting policies (Policies) |
12 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||
| Significant accounting policies | ||||||||||||||||
| Presentation of these financial statements | Presentation of these financial statements The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). |
|||||||||||||||
| Basis of preparation | Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, as modified by the revaluation of certain financial assets and liabilities (including derivative financial instruments) which are recognized at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The functional currency of the Company is US Dollars (‘$’ or ‘USD’) and the functional currency of VAGL is pounds sterling (‘£’ or ‘GBP’). The financial statements are presented in pounds sterling (‘£’ or ‘GBP’), which is the Group’s presentation currency. Items included in the financial statements are measured using the currency of the primary economic environment in which the entity and its subsidiaries operate (“the functional currency”). Cumulative translation adjustments resulting from translating foreign functional currency financial statements into GBP are reported within other reserves. All amounts are presented in and rounded to the nearest thousand unless otherwise indicated. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. |
|||||||||||||||
| Basis of consolidation | Basis of consolidation Vertical Aerospace Ltd is the parent of the Group and has 100% ownership interest and voting rights of Vertical Aerospace Group Limited, which is its only material subsidiary. The consolidated financial statements incorporate the financial positions and the results of operations of the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of the subsidiaries are prepared for the same reporting period as the Company using consistent accounting policies. Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated. |
|||||||||||||||
| The capital reorganization | The capital reorganization On December 15, 2021 the Company consummated the capital reorganization whereby the Company acquired all the ordinary shares of VAGL in consideration for the issuance of ordinary shares in the Company, by way of a share for share exchange. At the same time Broadstone Acquisition Corp., (“Broadstone”, a Cayman Islands exempted company), a special purpose acquisition company, was acquired by the Group. This Business Combination is accounted for as a capital reorganization in accordance with IFRS. Under this method of accounting, Broadstone is treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination is treated as the equivalent of the VAGL issuing shares at the closing of the Business Combination for the net assets of Broadstone as of the closing date, accompanied by a recapitalization. The reorganization was accounted for within the scope of IFRS 2. Accordingly, during the year ended December 31, 2021 the Company recorded a one-time non-cash expense of £84,712 thousand, recognized as a share listing expense, based on the excess of the fair value of Company shares issued considering a fair value of a share, at $10.68 per share, over the fair value of Broadstone’s identifiable net assets. |
|||||||||||||||
| Going concern | Going concern Management has prepared a cash flow forecast for the Group and has considered the ability for the Group to continue as a going concern for the foreseeable future, being at least 12 months after approving these financial statements. The Group is currently in the research and development phase of its journey to commercialisation of eVTOL technology. Commensurate with being in the development phase, the Group has invested heavily in research to support the development of its aircraft. The Group is not currently generating revenue and has incurred net losses and net cash outflows from operating activities since inception. As of December 31, 2022, the Group had £122.8 million of cash and cash equivalents on hand including Short-term deposits held by the Company. Within the next 12 months following the date of this Annual Report, management expects the funding requirements to be approximately £90 million, which will be used primarily to fund the creation and testing of the prototype aircraft, support the certification process and invest in additional personnel across both engineering and support functions. The Group will need to raise additional capital to fund its future operations and remain as a going concern, before the Group uses all of its existing resources. There can be no assurance that the Group will be able to obtain additional funding on acceptable terms and thus have sufficient funds to meet Group’s funding requirements. As a result, the timely completion of financing is important for the Group’s ability to continue as a going concern when it has exhausted its existing resources. 2Significant accounting policies (continued) The dependency on raising additional capital indicates that a material uncertainty exists that may cast significant doubt (or raise substantial doubt as contemplated by PCAOB standards) on the Group’s ability to continue as a going concern and therefore the Group may be unable to realise the assets and discharge the liabilities in the normal course of business. The consolidated financial statements have been prepared assuming that the Group will continue as a going concern, which contemplates the continuity of operations, realisation of assets and the satisfaction of liabilities in the ordinary course of business and do not include any adjustments that would result if the Group were unable to continue as a going concern. |
|||||||||||||||
| Changes in accounting policy | Changes in accounting policy The Group adopted the following amendments for the first time during the period commencing January 1, 2022:
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. No accounting standards and interpretations that have been published but not effective for periods ending December 31, 2022 have been early adopted by the Group or are expected to have a material impact on the Group. |
|||||||||||||||
| Government grants | Government grants Government grants are recognised as Other operating income and are recognised in the period when the expense to which the grant relates is incurred. Grants are only recognised when there is a signed grant offer letter or equivalent from the government body and there is reasonable assurance that the Group will be able to satisfy all conditions of the grant. |
|||||||||||||||
| Benefit from Research and Development Tax Credit | Benefit from Research and Development Tax Credit As a company that carries out extensive research and development activities, the Company benefits from the UK research and development tax credit regime. Qualifying expenditures largely comprise of R&D staff employment costs, R&D components, consumables, parts, tooling and outsourced contracting support for R&D activities and utilities costs. Due to the nature of the business, the Company has generated losses since inception. The benefit from research and development, or R&D, tax credits is recognized in the consolidated statements of comprehensive income, net, and represents the sum of the research and development tax credits recoverable in the UK. The UK research and development tax credit is fully refundable to the Company and is not dependent on current or future taxable income. As a result, the Company has recorded the entire benefit from the UK research and development tax credit as a benefit which is included in net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any UK research and development tax credits generated are needed to offset a corporate income tax liability in the UK, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other operating income. |
|||||||||||||||
| Research and development expenses | Research and development expenses Research expenditure is charged to profit or loss in the period in which it occurred. Development expenditure is recognised as an intangible asset when it is probable that the project will generate future economic benefit, considering factors such as technological, commercial and regulatory feasibility. Other development expenditure is charged to profit or loss in the period in which it occurred. Refer to note 3 Critical accounting judgements and key sources of estimation uncertainty for a discussion on the judgement of this classification. The amounts included in research and development expenses include staff costs for staff working directly on research and development projects and for expenses directly attributable to a research project, excluding software costs. |
|||||||||||||||
| Finance income and costs | Finance income and costs Finance income and costs includes the fair value movement on publicly traded warrants and convertible loan notes. Finance costs includes interest payable and is recognised in profit or loss using the effective interest method. Interest income is recognised in profit or loss as it accrues, using the effective interest method. |
|||||||||||||||
| Foreign currency transactions and balances | Foreign currency transactions and balances Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in profit or loss. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences arising from the consolidation of subsidiaries whose functional currency differs to the presentational currency of the group are recoded within other comprehensive income. The most important exchange rates that have been used in preparing the financial statements are: Closing rate as at December 31, 2022: USD $1 = GBP £0.8306 (2021: £0.7420) Average rate for the year ending December 31, 2022: USD $1 = GBP £ 0.8117 (2021: £0.7270) Non-monetary items measured in terms of historical cost in a foreign currency are not retranslated. |
|||||||||||||||
| Tax | Tax The tax expense for the period comprises current tax and deferred tax. Tax is recognised in profit or loss, except that a change attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the company operates and generates taxable income. 2Significant accounting policies (continued) Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. |
|||||||||||||||
| Property, plant and equipment | Property, plant and equipment Property, plant and equipment is stated at cost, which includes directly attributable incremental costs incurred in their acquisition and installation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Depreciation Depreciation is charged to write off the cost of assets over their estimated useful lives, as follows:
|
|||||||||||||||
| Intangible assets | Intangible assets Intangible assets are carried at cost, less accumulated amortization and impairment losses. Computer software licences acquired for use within the Company are capitalized as an intangible asset on the basis of the costs incurred to acquire and bring to use the specific software. 2Significant accounting policies (continued) Amortization Amortization is provided on intangible assets so as to write off the cost on a straight-line basis, less any estimated residual value, over their expected useful economic life as follows:
|
|||||||||||||||
| Business combinations and goodwill | Business combinations and goodwill The purchase method is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at their fair values on the date of acquisition. The excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets, including intangible assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of net assets of the subsidiary acquired, the difference is recognised directly in profit or loss. Goodwill is stated at cost, less any accumulated impairment losses. Goodwill is tested annually for impairment or when there are indicators of impairment. |
|||||||||||||||
| Cash at bank | Cash at bank Cash at bank is held on deposit with financial institutions located within the United Kingdom and is immediately available. Management has assessed the financial institutions that hold the Company’s cash at bank to be financially sound, with minimal credit risk in existence. Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest. The cash at bank excludes restricted cash deposits, which are subject to restrictions and are therefore not available for general use. |
|||||||||||||||
| Restricted cash | Restricted cash The Company presents restricted cash as a separate line item in the balance sheet where this is relevant to an understanding of the Group’s financial position. Restricted cash refers to cash that is held by the Company for specific reasons and is, therefore, not available for immediate ordinary business use. |
|||||||||||||||
| Short term deposits | Short term deposits Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest. |
|||||||||||||||
| Trade and other receivables | Trade and other receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is established using an expected credit loss model as per the Group’s accounting policy for the impairment of financial assets. Other receivables represent amounts due from parties who are not customers and are measured at amortized cost. |
|||||||||||||||
| Trade and other payables | Trade and other payables Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade and other payables are recognised initially at the transaction price and subsequently measured at amortized cost using the effective interest method. |
|||||||||||||||
| Borrowings | Borrowings All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are subsequently carried at amortized cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge to profit or loss over the period of the relevant borrowing using the effective interest method. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. |
|||||||||||||||
| Provisions | Provisions Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material. |
|||||||||||||||
| Leases | Leases Definition A lease is a contract, or part of a contract, that conveys the right to use an asset or a physically distinct part of an asset (‘the underlying asset’) for a period of time in exchange for consideration. Further, the contract must convey the right to the company to control the asset or a physically distinct portion thereof. A contract is deemed to convey the right to control the underlying asset, if throughout the period of use, the company has the right to:
Initial recognition and measurement The company initially recognizes a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments, purchase options at exercise price (where reasonably certain), expected amount of residual value guarantees, termination option penalties (where reasonably certain) and variable lease payments that depend on an index or rate. 2Significant accounting policies (continued) The right of use asset is initially measured at the amount of the lease liability, adjusted for lease prepayments, lease incentives received, the company’s initial direct costs and an estimate of restoration, removal and dismantling costs. Subsequent measurement After the commencement date, the company measures the lease liability by: (a)Increasing the carrying amount to reflect interest on the lease liability; (b)Reducing the carrying amount to reflect the lease payments made; and (c)Re-measuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in substance fixed lease payments or on the occurrence of other specific events. Interest on the lease liability in each period during the lease term is the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. Interest charges are included in finance costs in profit or loss, unless the costs are included in the carrying amount of another asset applying other applicable standards. Variable lease payments not included in the measurement of the lease liability, are included in operating expenses in the period in which the event or condition that triggers them arises. |
|||||||||||||||
| Right-of-use assets | Right-of-use assets The related right-of-use asset is accounted for using the cost model in IFRS 16 and depreciated and charged in accordance with the depreciation requirements of IAS 16 Property, Plant and Equipment as disclosed in the accounting policy for Property, Plant and Equipment. Adjustments are made to the carrying value of the right of use asset where the lease liability is re-measured in accordance with the above. Right of use assets are tested for impairment in accordance with IAS 36 Impairment of Assets as disclosed in the accounting policy in impairment. Short term and low value leases The company has made an accounting policy election, by class of underlying asset, not to recognize lease assets and lease liabilities for leases with a lease term of 12 months or less (short term leases). The company has made an accounting policy election on a lease-by-lease basis, not to recognize lease assets on leases for which the underlying asset is of low value. Lease payments on short term and low value leases are accounted for on a straight-line bases over the term of the lease or other systematic basis. Short term and low value lease payments are included in operating expenses. |
|||||||||||||||
| Impairment (non-financial assets) | Impairment (non-financial assets) All assets are reviewed for impairment when there is an indicator of impairment. In addition, goodwill is reviewed for impairment at least annually. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. |
|||||||||||||||
| Share capital and reserves | Share capital and reserves Ordinary shares are classified as equity and share capital is carried at par value. Share capital issued meets the definition of an equity instrument as defined in IAS 32 ‘Financial Instruments’ when the contract evidences a residual interest in the assets of the Company after deducting all of its liabilities. Incremental costs directly attributable to the issue of shares are accounted for as a deduction from consideration received, and are recorded in share premium. Share premium reflects the proceeds received (net of allowable costs) in excess of the par value. Equity instruments are measured at the fair value of the cash or other resources received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement is on a present value basis. |
|||||||||||||||
| Employee Benefits | Employee Benefits A defined contribution plan is a pension plan under which fixed contributions are paid into a separate entity and has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense when they are due. For defined contribution plans, contributions are paid into publicly or privately administered pension insurance plans on a mandatory or contractual basis. The contributions are recognized as employee benefit expense when they are due. Liabilities for wages and salaries, including non-monetary benefits and annual leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service, are recognized in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as accruals and classified as current liabilities in the balance sheet. |
|||||||||||||||
| Share based payments - Enterprise Management Incentive and 2021 Incentive Plan | Share based payments – Enterprise Management Incentive and 2021 Incentive Plan The Company operates an equity-settled, share based compensation plan, under which the entity receives services from employees as consideration for equity instruments (share options or shares). The fair value of the employee services received in exchange for the grant of the shares is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the shares granted:
Non-market performance and service conditions are included in assumptions about the number of shares that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. In addition, in some circumstances employees may provide services in advance of the grant date and therefore, the grant date fair value is estimated for the purposes of recognizing the expense during the period between service commencement period and grant date. At the end of each reporting period, the Company revises its estimates of the number of shares that are expected to vest based on the non-market vesting conditions. The Company recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. See note 23 for further details. Other non-current share-based payments were made during the prior year as detailed within the significant accounting policy for the capital reorganization. Further information is included with the critical accounting judgements and key sources of estimation uncertainty. |
|||||||||||||||
| Financial instruments | Financial instruments Financial instruments are contracts that give rise to a financial asset for one entity and to a financial liability or equity instrument for another entity. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the settlement date.The company recognizes financial assets and financial liabilities in the statement of financial position when, and only when, the company becomes party to the contractual provisions of the financial instrument. Financial assets and financial liabilities are offset, and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously. Financial assets The Group’s financial assets include cash at bank and other financial assets. Financial assets are initially measured at fair value plus, in the case of a financial asset not measured at fair value through profit or loss, transaction costs. Trade receivables are measured at their transaction price. For all financial assets the Group has the objective to hold financial assets in order to collect the contractual cash flows. The contractual terms of all the Group’s financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the outstanding amount. All financial assets are therefore measured at amortized cost. Impairment of financial assets — expected credit losses (“ECL”) All financial assets measured at amortized cost are required to be impaired at initial recognition in the amount of their expected credit loss (“ECL”), based on the difference between the contractual and expected cash flows The simplification available for financial instruments with a low credit risk (“low credit risk exemption”) is applied as of the reporting date. Factors that can contribute to a low credit risk assessment are debtor specific rating information and related outlooks. The requirement for classification with a low credit risk is regarded to be fulfilled for counterparties that have at least an investment grade rating; in this case there is no need to monitor credit risks for financial instruments with a low credit risk. 2Significant accounting policies (continued) Financial liabilities The Group’s financial liabilities include warrants, lease liabilities, convertible loans, trade and other payables, and other financial liabilities. Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (“FVTPL”). All financial liabilities are recognized initially at fair value less, in the case of a financial liability not at fair value through profit or loss, directly attributable transaction costs. Financial liabilities at FVTPL are measured at fair value and gains and losses resulting from changes in fair value are recognized in finance income/expenses. The Group only accounts for convertible loans and warrants as a financial liability at FVTPL. All other financial liabilities are subsequently measured at amortized cost. An embedded derivative in a hybrid contract, with a financial liability or a non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. The assessment whether to separate an embedded derivative is done only once at initial recognition of the hybrid contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. Convertible Loans Convertible loans are bifurcated into a debt component and a conversion right if the latter is an equity instrument. The conversion right of a convertible loan is not an equity instrument but a liability if some conversion features of the loan lead to a conversion into a variable number of shares. In this case it has to be assessed if embedded derivatives need to be separated from the host contract. If this is the case, the remaining host contract is measured at amortized cost and the separated embedded derivative is measured at fair value through profit or loss until the loan is converted into equity or becomes due for repayment. The conversion features and other repayment options provided for in the contract are identified as a combined embedded derivative if they share the same risk exposure and are interdependent. Warrant Liabilities Public warrants are recognized as liabilities in accordance with IFRS 9 at fair value. The liabilities are subject to re-measurement at each balance sheet date until exercised. Private warrants linked to sales targets are recognised within equity as these satisfy the “fix to fix” criterion within IAS 32. 2Significant accounting policies (continued) Fair value measurements IFRS 13 clarifies that fair value is a market price, representing the amount received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier hierarchy is established as follows: Level 1Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2Other than quoted prices included in level 1, inputs that are observable for the asset or liability, either directly or indirectly, for suitability for the full term of the asset or liability. Level 3Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. |
Significant accounting policies (Tables) |
12 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||
| Significant accounting policies | ||||||||||||||||
| Summary of estimated useful lives of property, plant and equipment |
|
|||||||||||||||
| Summary of estimated useful lives of intangible assets |
|
Revenue (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||
| Summary of analysis of the group's revenue for the year |
|
Other operating income (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other operating income | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of analysis of the group's other operating income for the year |
|
Expenses by nature (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expenses by nature | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of administrative, research and development expenses |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of share based payment expense |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of calculation of fair value of Z-Shares |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of capital reorganization |
|
Finance income/(costs) (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Finance income/(costs) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of finance income/(costs) |
|
Basic and diluted loss per share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic and diluted loss per share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of calculation of loss per share |
|
Income tax expense (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of tax charged/(credited) in profit or loss |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of differences between corporation tax benefit at standard rate and total tax benefit/(expense) |
|
Property, plant and equipment (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of property, plant and equipment |
|
Right of use assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Right of use assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of right of use assets |
|
Intangible assets (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of intangible assets |
|
Trade and other receivables (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Trade and other receivables | |||||||||||||||||||||||||||||||||||||||||
| Summary of trade and other receivables |
|
Share capital and other reserves (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share capital and other reserves | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of allotted, called up and fully paid shares |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of ordinary shares issued |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans from related parties (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans from related parties | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of loans from related parties |
Loans from related parties represented a loan from Imagination Industries Ltd, a company wholly owned by Stephen Fitzpatrick. Movements in the prior year were as follows:
|
Leases (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||
| Schedule of lease liabilities by current and non-current classification | The balance sheet shows the following amounts relating to lease liabilities:
|
||||||||||||||||||||||||||||||||||||||||
| Schedule of maturity of lease liabilities | A maturity analysis of lease liabilities based on contractual undiscounted gross cash flow is reported below:
|
||||||||||||||||||||||||||||||||||||||||
| Summary of cash outflows related to leases | Total cash outflows related to leases are presented in the table below:
|
||||||||||||||||||||||||||||||||||||||||
| Schedule of reconciliation of lease liabilities | A reconciliation of the lease creditors is shown below:
|
Provisions (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provisions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of dilapidation provision |
|
Trade and other payables (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade and other payables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of trade and other payables | Amounts falling due within one year:
Amounts falling due after more than one year:
|
Warrant liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Warrant liabilities | |||||||||||||||||||||||||||||||||||||
| Schedule of warrants issued but not exercised |
|
||||||||||||||||||||||||||||||||||||
| Schedule of change in fair value of warrants | Recorded as a liability, the following shows the change in fair value during the year ended December 31, 2022:
|
||||||||||||||||||||||||||||||||||||
| Schedule of estimated fair value of market inputs |
|
||||||||||||||||||||||||||||||||||||
| Schedule of expense |
|
Share-based payments (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Two Thousand And Twenty One Incentive Award Plan | ||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of terms and conditions of share-based payment arrangement [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of movements in the number of share options |
|
|||||||||||||||||||||||||||||||||||||||||||||
| Schedule of movements in the weighted average exercise price of share options |
|
|||||||||||||||||||||||||||||||||||||||||||||
| Schedule of share options outstanding |
|
|||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value of options granted |
|
|||||||||||||||||||||||||||||||||||||||||||||
| Enterprise management incentive scheme (EMI) [Member] | ||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of terms and conditions of share-based payment arrangement [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of movements in the number of share options | The movements in the number of EMI share options during the year were as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||
| Schedule of movements in the weighted average exercise price of share options | The movements in the weighted average exercise price of share options during the year were as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||
| Schedule of share options outstanding | Details of share options outstanding at the end of the year are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value of options granted |
|
Derivative financial liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||
| Derivative financial liabilities | |||||||||||||||||||||||||
| Schedule of components of Convertible Senior Secured Notes |
|
Financial instruments (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial assets at amortized cost |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial liabilities at amortized cost: | Financial liabilities at amortized cost:
All balances have been recognised in level 2 of the fair value hierarchy. Financial liabilities at fair value through profit or loss:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value measurement inputs for valuation of convertible loan notes |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial risk management and impairment of financial assets (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial risk management and impairment of financial assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Maturity analysis |
|
Related party transactions (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related party transactions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Key management personnel compensation |
Loans from related parties represented a loan from Imagination Industries Ltd, a company wholly owned by Stephen Fitzpatrick. Movements in the prior year were as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Key management personnel | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related party transactions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Key management personnel compensation |
|
Significant accounting policies - The capital reorganisation (Details) £ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021
GBP (£)
|
Dec. 15, 2021
$ / shares
|
|
| Share listing expense | £ | £ 84,712 | ||
| Fair value per share over fair value of net assets acquired | $ / shares | $ 10.68 | ||
| Vertical Aerospace Group Ltd | |||
| Proportion of ownership interest and voting rights held | 100.00% | ||
Significant accounting policies - Going concern (Details) £ in Millions |
12 Months Ended |
|---|---|
|
Dec. 31, 2022
GBP (£)
| |
| Significant accounting policies | |
| Cash and cash equivalents on hand including short-term deposits | £ 122.8 |
| Expected funding requirements over next 12-month period | £ 90.0 |
Significant accounting policies - Foreign currency transactions and balances (Details) - £ / $ |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Foreign exchange rates | ||
| Closing rate | 0.8306 | 0.7420 |
| Average rate | 0.8117 | 0.7270 |
Significant accounting policies - Property, plant and equipment (Details) |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| Office equipment | |
| Significant accounting policies | |
| Estimated useful lives of property, plant and equipment | 3 years |
| Plant and machinery | |
| Significant accounting policies | |
| Estimated useful lives of property, plant and equipment | 5 years |
Significant accounting policies - Intangible assets (Details) |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| IT software | |
| Significant accounting policies | |
| Expected useful economic life | 3 years |
Operating segments (Details) |
12 Months Ended |
|---|---|
|
Dec. 31, 2022
segment
| |
| Operating segments | |
| Number of reporting segment | 1 |
Revenue (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Rendering of engineering consultancy services | ||
| Revenue | ||
| Rendering of engineering consultancy services | £ 132 | £ 87 |
Other operating income (Details) - GBP (£) £ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Other operating income | |||
| Government grants | £ 1,415 | £ 8,829 | £ 1,989 |
| R&D tax credit | 4,496 | 2,388 | 328 |
| Other | 135 | ||
| Other operating income | £ 5,911 | £ 11,352 | £ 2,317 |
Expenses by nature - Share based payment expense (Details) - GBP (£) £ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Expenses by nature | |||
| Expense from share based payment | £ 23,189 | £ 111,996 | £ 96 |
| Enterprise Management Initiative | |||
| Expenses by nature | |||
| Expense from share based payment | 7,858 | 156 | £ 96 |
| 2021 Incentive Plan | |||
| Expenses by nature | |||
| Expense from share based payment | 14,512 | ||
| Issuance of Z-Shares to American | |||
| Expenses by nature | |||
| Expense from share based payment | 16,739 | ||
| Capital reorganization | |||
| Expenses by nature | |||
| Expense from share based payment | 84,712 | 84,712 | |
| Issuance of PIPE shares to suppliers and partners | |||
| Expenses by nature | |||
| Expense from share based payment | £ 819 | £ 10,389 | |
Expenses by nature - Issuance of Z-Shares to American and Issuance of PIPE shares to suppliers and partners (Details) - Issuance of Z-Shares to American |
Jun. 10, 2021
GBP (£)
shares
|
Dec. 31, 2022
$ / shares
|
|---|---|---|
| Expenses by nature | ||
| Par value per share | $ / shares | $ 0.00001 | |
| Fair Value of Other Equity Instruments | ||
| Probability adjusted valuation | £ 16,739,000 | |
| Vertical Aerospace Group Ltd | ||
| Expenses by nature | ||
| Number of shares subscribed | 5,804 | |
| Consideration for shares subscribed | £ 0.06 | |
| Business combination does not complete | ||
| Fair Value of Other Equity Instruments | ||
| Fair value of Z-Shares as at June 10, 2021 | £ 2,558,000 | |
| Business combination completes | ||
| Expenses by nature | ||
| Percentage of Class Z shares exchanged | 100.00% | |
| Number of Class Z Shares exchanged for common shares | shares | 6,125,000 | |
| Fair Value of Other Equity Instruments | ||
| Fair value of Z-Shares as at June 10, 2021 | £ 21,984,000 |
Expenses by nature - Capital reorganization (Details) £ in Thousands |
12 Months Ended | |||
|---|---|---|---|---|
|
Dec. 16, 2021
$ / shares
shares
|
Dec. 31, 2022
GBP (£)
|
Dec. 31, 2021
GBP (£)
|
Dec. 31, 2020
GBP (£)
|
|
| Expenses by nature | ||||
| Warrants acquired (15,701,067 warrants at $1.04 per warrant) | £ (4,961) | £ (10,730) | ||
| Accounts payable acquired | (16,031) | (40,227) | ||
| Expense recognised | 23,189 | 111,996 | £ 96 | |
| Private warrants | ||||
| Expenses by nature | ||||
| Expense recognised | 1,572 | |||
| Capital reorganization | ||||
| Expenses by nature | ||||
| Market value of 9,203,984 ordinary shares ($10.68 per share) | 74,265 | |||
| Cash acquired | 4,728 | |||
| Warrants acquired (15,701,067 warrants at $1.04 per warrant) | (11,997) | |||
| Accounts payable acquired | (2,289) | |||
| Add net liabilities acquired | 9,558 | |||
| Foreign exchange differences | 671 | |||
| Charge for listing services | 83,152 | |||
| Number of ordinary shares issued | shares | 9,203,984 | |||
| Market value per ordinary share | $ / shares | $ 10.68 | |||
| Number of warrants issued | shares | 15,701,067 | |||
| Value per warrant | $ / shares | $ 1.04 | |||
| Expense recognised | £ 84,712 | £ 84,712 | ||
Finance income/(costs) (Details) - GBP (£) £ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Finance income/(costs) | |||
| In-kind interest on convertible loan notes | £ (14,897) | ||
| Interest on loans from related parties | £ (483) | £ (709) | |
| Fair value losses | (18) | ||
| Interest expense on leases | (143) | (77) | (74) |
| Foreign exchange loss | (13,338) | ||
| Other | (116) | (15) | (6) |
| Total finance costs | (28,494) | (575) | (807) |
| Interest accrued on deposits | 623 | ||
| Fair value gains | 31,603 | 32,578 | |
| Other | 12 | ||
| Total finance income | 32,226 | 32,590 | |
| Total finance income/(costs) | 3,732 | £ 32,015 | £ (807) |
| Senior convertible loan notes | |||
| Finance income/(costs) | |||
| Fair value gains | 25,723 | ||
| Warrant liabilities | |||
| Finance income/(costs) | |||
| Fair value gains | £ 5,880 | ||
Basic and diluted loss per share (Details) - GBP (£) £ / shares in Units, £ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Basic and diluted loss per share | |||
| Net loss for the period, basic | £ (94,375) | £ (245,224) | £ (12,326) |
| Net loss for the period, diluted | £ (94,375) | £ (245,224) | £ (12,326) |
| Basic loss per share | £ (0.53) | £ (1.98) | £ (0.12) |
| Diluted loss per share | £ (0.53) | £ (1.98) | £ (0.12) |
| Weighted average issued shares, basic | 179,470,377 | 124,130,921 | 99,904,427 |
| Weighted average issued shares, diluted | 179,470,377 | 124,130,921 | 99,904,427 |
Income tax expense - Current taxation (Details) - GBP (£) £ in Thousands |
1 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Income tax expense | ||||
| Standard rate of corporation tax | 25.00% | 19.00% | 19.00% | |
| UK | ||||
| Income tax expense | ||||
| UK corporation tax | £ (4) | |||
Income tax expense - Reconciliation (Details) - GBP (£) £ in Thousands |
1 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Income tax expense | ||||
| Loss before tax | £ 50 | £ (94,375) | £ (245,224) | £ (12,322) |
| Corporation tax benefit at standard rate | 17,931 | 46,593 | 2,341 | |
| Decrease in tax benefit from effect of expenses not deductible in determining taxable loss | (418) | (92) | (135) | |
| Decrease in tax benefit from tax losses for which no deferred tax asset was recognised | £ (17,513) | £ (46,501) | (841) | |
| Decrease in tax benefit arising from group relief tax reconciliation | (1,369) | |||
| Total tax expense | £ (4) | |||
Income tax expense - Tax rate (Details) |
1 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Disclosure Of Non adjusting Events After Reporting Period [Line Items] | |||
| Main rate of UK corporation tax | 25.00% | 19.00% | 19.00% |
| Change in tax rate announced | |||
| Disclosure Of Non adjusting Events After Reporting Period [Line Items] | |||
| Main rate of UK corporation tax | 19.00% | 19.00% | |
Income tax expense - Additional information (Details) - GBP (£) £ in Thousands |
1 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Income tax expense | ||||
| Accounting profit | £ 50 | £ (94,375) | £ (245,224) | £ (12,322) |
| Unused potential tax losses for which no deferred tax asset is recognized | 345,000 | £ 250,500 | ||
| Deferred tax assets or liabilities recognized | £ 0 | |||
Right of use assets (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Right of use assets | ||
| Balance at the beginning | £ 1,969 | |
| Balance at the end | 3,121 | £ 1,969 |
| Property | ||
| Right of use assets | ||
| Balance at the beginning | 1,969 | |
| Balance at the end | 3,121 | 1,969 |
| Property | Cost or valuation | ||
| Right of use assets | ||
| Balance at the beginning | 2,529 | 1,445 |
| Additions | 1,562 | 1,084 |
| Balance at the end | 4,091 | 2,529 |
| Property | Depreciation | ||
| Right of use assets | ||
| Balance at the beginning | (560) | (383) |
| Charge for the year | 410 | 177 |
| Balance at the end | £ (970) | £ (560) |
Intangible assets - Amortisation (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Administrative expenses | ||
| Intangible assets | ||
| Amortisation charge | £ 1,195 | £ 387 |
Trade and other receivables (Details) - GBP (£) £ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Trade and other receivables | ||
| Government receivables | £ 10,905 | £ 5,415 |
| Prepayments | 7,169 | 6,571 |
| Other receivables | 790 | 672 |
| Total trade and other receivables | 18,864 | 12,658 |
| R&D tax credit receivable | £ 7,212 | £ 2,716 |
Loans from related parties - Current loans and borrowings (Details) £ in Thousands |
Dec. 31, 2020
GBP (£)
|
|---|---|
| Loans from related parties | |
| Amount due to related party | £ 6,309 |
Loans from related parties - Loan from Imagination Industries Ltd (Details) £ in Thousands |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
GBP (£)
| |
| Loans from related parties | |
| As at January 1 | £ 6,309 |
| Amounts advanced | 2,945 |
| Interest charged | 483 |
| Amounts repaid | (737) |
| Conversion to equity | £ (9,000) |
Leases - Balance sheet shows the following amounts relating to lease liabilities (Details) - GBP (£) £ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|---|
| Lease liabilities [abstract] | |||
| Long term lease liabilities | £ 2,645 | £ 1,580 | |
| Current lease liabilities | 516 | 362 | |
| Total lease liabilities | £ 3,161 | £ 1,942 | £ 1,021 |
Leases - Lease liabilities maturity analysis (Details) - GBP (£) £ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Disclosure of maturity analysis of operating lease payments [line items] | ||
| Total lease liabilities (undiscounted) | £ 3,934 | £ 2,340 |
| Less than one year | ||
| Disclosure of maturity analysis of operating lease payments [line items] | ||
| Total lease liabilities (undiscounted) | 668 | 425 |
| Within 2 - 5 years | ||
| Disclosure of maturity analysis of operating lease payments [line items] | ||
| Total lease liabilities (undiscounted) | 2,371 | 1,653 |
| More than 5 years | ||
| Disclosure of maturity analysis of operating lease payments [line items] | ||
| Total lease liabilities (undiscounted) | £ 895 | £ 262 |
Leases - Cash outflows related to leases (Details) - GBP (£) £ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Leases | |||
| Right of use assets | £ 484 | £ 240 | £ 220 |
| Short term leases | 190 | 49 | |
| Total cash outflow | £ 674 | £ 289 | |
Leases - Reconciliation of the finance lease creditors (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Reconciliation of undiscounted lease payments to net investment in finance lease [abstract] | ||
| Beginning balance | £ 1,942 | £ 1,021 |
| Additions | 1,560 | 1,084 |
| Interest element of payments to finance lease creditors | (142) | (78) |
| Principal element of payments to finance lease creditors | (342) | (162) |
| Interest expense of leases | 143 | 77 |
| Ending balance | £ 3,161 | £ 1,942 |
Provisions (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Disclosure of other provisions [line items] | ||
| As at January 1 | £ 95 | £ 88 |
| Unwinding of discount | 6 | 7 |
| Additions | 264 | |
| As at December 31 | 365 | 95 |
| Dilapidation Provision | ||
| Disclosure of other provisions [line items] | ||
| As at January 1 | 95 | 88 |
| Unwinding of discount | 6 | 7 |
| As at December 31 | 101 | £ 95 |
| Tax and social security | ||
| Disclosure of other provisions [line items] | ||
| Additions | 264 | |
| As at December 31 | £ 264 | |
Trade and other payables (Details) - GBP (£) £ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Disclosure of information about terms and conditions of hedging instruments and how they affect future cash flows [line items] | ||
| Outstanding defined contribution pension costs | £ 220 | £ 9 |
| Less than one year | ||
| Disclosure of information about terms and conditions of hedging instruments and how they affect future cash flows [line items] | ||
| Trade payables | 4,454 | 6,715 |
| Accrued expenses | 10,500 | 26,358 |
| Social security and other taxes | 857 | 7,145 |
| Outstanding defined contribution pension costs | 220 | 9 |
| Total trade and other payables | 16,031 | 40,227 |
| After more than one year | ||
| Disclosure of information about terms and conditions of hedging instruments and how they affect future cash flows [line items] | ||
| Deferred fees and charges | £ 4,153 | £ 5,975 |
Warrant liabilities - warrants were issued but not exercised (Details) - shares |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Disclosure of fair value measurement of liabilities [line items] | ||
| Outstanding, end of period | 19,264,935 | 21,265,146 |
| Public Warrants | ||
| Disclosure of fair value measurement of liabilities [line items] | ||
| Outstanding, end of period | 15,264,935 | 15,265,146 |
| Mudrick Warrants | ||
| Disclosure of fair value measurement of liabilities [line items] | ||
| Outstanding, end of period | 4,000,000 | 4,000,000 |
| MWC Options | ||
| Disclosure of fair value measurement of liabilities [line items] | ||
| Outstanding, end of period | 2,000,000 | |
Warrant liabilities - change in fair value (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Warrant liabilities | ||
| Beginning balance | £ 10,730 | |
| Additions | £ 17,801 | |
| Change in fair value recognised in profit or loss | (5,880) | (6,817) |
| Reclassification to equity | (1,010) | |
| Foreign exchange movements | 1,121 | (254) |
| Ending balance | £ 4,961 | £ 10,730 |
Warrant liabilities - Additional information (Details) |
12 Months Ended | |
|---|---|---|
|
Dec. 31, 2022
D
$ / shares
shares
|
Dec. 15, 2021
$ / shares
shares
|
|
| Mudrick | ||
| Disclosure of fair value measurement of liabilities [line items] | ||
| Number of shares entitled per public warrant | shares | 1 | |
| Exercise price of warrants | $ 11.50 | |
| Number of warrants issued | shares | 4,000,000 | |
| Public Warrants | ||
| Disclosure of fair value measurement of liabilities [line items] | ||
| Warrants expiration period | 5 years | |
| Redemption price | $ 0.01 | |
| Trigger price | $ 18.00 | |
| Threshold trading days for redemption of warrants | D | 20 | |
| Threshold consecutive trading days for redemption of warrants | D | 30 | |
| Number of shares entitled per public warrant | shares | 1 | |
| Exercise price of warrants | $ 11.50 |
Pension and other schemes (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Pension and other schemes | ||
| Pension cost, contributions payable | £ 1,070 | £ 471 |
| Outstanding defined contribution pension costs | £ 220 | £ 9 |
Share-based payments - Movements in the number of share options (Details) - Options |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Two Thousand And Twenty One Incentive Award Plan | ||
| Disclosure of terms and conditions of share-based payment arrangement [Line Items] | ||
| Granted during the period | 5,012,495 | |
| Forfeited during the period | (656,826) | |
| Outstanding, end of period | 4,355,669 | |
| Enterprise management incentive scheme (EMI) [Member] | ||
| Disclosure of terms and conditions of share-based payment arrangement [Line Items] | ||
| Outstanding, start of period | 19,670 | 16,817 |
| Granted during the period | 3,147 | |
| Grant arising due to scheme modification | 23,213,933 | |
| Forfeited during the period | (1,576,948) | (294) |
| Exercised during the period | (645,571) | |
| Outstanding, end of period | 21,011,084 | 19,670 |
Share-based payments - Movements in the weighted average exercise price of share options (Details) - £ / shares |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Two Thousand And Twenty One Incentive Award Plan | ||
| Disclosure of terms and conditions of share-based payment arrangement [Line Items] | ||
| Granted during the period | £ 6.63 | |
| Forfeited during the period | 6.63 | |
| Outstanding, end of period | 6.63 | |
| Enterprise management incentive scheme (EMI) [Member] | ||
| Disclosure of terms and conditions of share-based payment arrangement [Line Items] | ||
| Outstanding, start of period | 308.06 | £ 143.28 |
| Granted during the period | 1,178.94 | |
| Granted due to scheme modification | 0.23 | |
| Forfeited during the period | 0.83 | 204.00 |
| Outstanding, end of period | £ 0.19 | £ 308.06 |
Share-based payments - Additional information (Details) - Two Thousand And Twenty One Incentive Award Plan |
12 Months Ended |
|---|---|
|
Dec. 31, 2022
£ / shares
| |
| Disclosure of terms and conditions of share-based payment arrangement [Line Items] | |
| Quarterly vesting percentage | 6.25% |
| Share price | £ 9.36 |
Derivative financial liabilities - Convertible Senior Secured Notes (Details) £ in Thousands |
12 Months Ended |
|---|---|
|
Dec. 31, 2022
GBP (£)
| |
| Disclosure of financial liabilities [line items] | |
| Beginning balance | £ 171,768 |
| Ending balance | 143,918 |
| Financial liabilities at fair value through profit and loss category | Convertible Senior Secured Notes [Member] | |
| Disclosure of financial liabilities [line items] | |
| Beginning balance | 112,799 |
| Fair value movements | (25,723) |
| In-kind interest paid | 14,897 |
| Foreign exchange movements | 13,274 |
| Ending balance | £ 115,247 |
Financial instruments - Financial assets at amortized cost (Details) - Financial assets at amortized cost - GBP (£) £ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Financial assets | ||
| Carrying value | £ 143,377 | £ 213,332 |
| Fair value | 143,377 | 213,332 |
| Cash at bank | ||
| Financial assets | ||
| Carrying value | 62,927 | 212,660 |
| Fair value | 62,927 | 212,660 |
| Trade and other receivables | ||
| Financial assets | ||
| Carrying value | 18,864 | 672 |
| Fair value | 18,864 | £ 672 |
| Short term deposits | ||
| Financial assets | ||
| Carrying value | 59,886 | |
| Fair value | 59,886 | |
| Restricted cash | ||
| Financial assets | ||
| Carrying value | 1,700 | |
| Fair value | £ 1,700 |
Financial instruments - Financial liabilities at amortized cost (Details) - GBP (£) £ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Financial liabilities | ||
| Carrying Value | £ 138,592 | £ 160,943 |
| Trade and other payables | ||
| Financial liabilities | ||
| Carrying Value | 20,184 | 46,202 |
| Lease liabilities | ||
| Financial liabilities | ||
| Carrying Value | 3,161 | 1,942 |
| Financial liabilities at amortized cost | ||
| Financial liabilities | ||
| Carrying Value | 23,345 | 47,659 |
| Fair Value | 23,345 | 47,659 |
| Financial liabilities at amortized cost | Trade and other payables | ||
| Financial liabilities | ||
| Carrying Value | 20,184 | 45,717 |
| Fair Value | 20,184 | 45,717 |
| Financial liabilities at amortized cost | Lease liabilities | ||
| Financial liabilities | ||
| Carrying Value | 3,161 | 1,942 |
| Fair Value | £ 3,161 | £ 1,942 |
Financial instruments - Financial liabilities at fair value through profit or loss (Details) - GBP (£) £ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Financial instruments | ||
| Carrying Value | £ 138,592 | £ 160,943 |
| Financial liabilities at fair value through profit and loss category | ||
| Financial instruments | ||
| Carrying Value | 120,208 | 123,529 |
| Fair Value | 120,208 | 123,529 |
| Convertible Senior Secured Notes | ||
| Financial instruments | ||
| Carrying Value | 115,247 | 112,799 |
| Convertible Senior Secured Notes | Financial liabilities at fair value through profit and loss category | ||
| Financial instruments | ||
| Carrying Value | 115,247 | 112,799 |
| Fair Value | 115,247 | 112,799 |
| Warrant liabilities | Financial liabilities at fair value through profit and loss category | ||
| Financial instruments | ||
| Carrying Value | 4,961 | 10,730 |
| Fair Value | £ 4,961 | £ 10,730 |
Financial risk management and impairment of financial assets - Credit risk and impairment (Details) £ in Thousands, $ in Thousands |
Dec. 31, 2022
GBP (£)
|
Dec. 31, 2022
USD ($)
|
Dec. 31, 2021
GBP (£)
|
|---|---|---|---|
| Financial risk management and impairment of financial assets | |||
| Restricted cash | £ 8,306 | ||
| Balances with banks | 62,927 | £ 212,660 | |
| Restricted cash in relation to rent guarantees | |||
| Financial risk management and impairment of financial assets | |||
| Restricted cash | 1,700 | 0 | |
| Restricted cash included in cash at bank in order to satisfy certain covenants | |||
| Financial risk management and impairment of financial assets | |||
| Restricted cash | 8,306 | 7,420 | |
| USD | |||
| Financial risk management and impairment of financial assets | |||
| Balances with banks | $ | $ 30,673 | ||
| Credit risk | |||
| Financial risk management and impairment of financial assets | |||
| Maximum exposure to credit risk | 790 | 672 | |
| Credit risk | Trade receivables | |||
| Financial risk management and impairment of financial assets | |||
| Allowance account for credit losses of financial assets | £ 0 | £ 0 |
Related party transactions - Key management personnel compensation (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Related party transactions | ||
| Salaries and other short term employee benefits | £ 1,266 | £ 244 |
| Payments to defined contribution pension schemes | 12 | 14 |
| Share-based payments | 144 | 156 |
| Termination benefits | 368 | |
| Key management compensation | £ 1,790 | £ 414 |
Related party transactions - Summary of transactions with other related parties (Details) - GBP (£) £ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Related party transactions | ||
| Aggregate gain on directors' exercise of share options | £ 1,351 | £ 0 |
| Imagination Industries Ltd | ||
| Related party transactions | ||
| Services received, related party transactions | 83 | 108 |
| Trade and other payables. | £ 14 | £ 0 |