NOTE N — STOCKHOLDERS’ EQUITY

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Common Stock

The Company’s common stock, $0.0001 par value, consists of 200,000,000 authorized shares, of which 51,774,665 and 51,673,099 shares were issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.

Earn-Out Shares

Upon consummation of the Merger and in each case on or prior to the fifth anniversary of the Closing, the pre-closing holders of AerSale Aviation’s common stock and the holders of in-the-money SARs (as defined in the Merger Agreement) received a contingent right to receive up to 3,000,000 additional shares of the Company’s common stock. Additionally, certain pre-closing holders of AerSale Aviation’s common stock received a contingent right to receive 746,876 shares of the Company’s common stock. Effective February 8, 2021, the contingent event related to the Minimum Target Earn-Out Shares (as defined by the Merger Agreement) was met and 1,855,634 shares were issued. Effective October 22, 2021, the contingent event related to the Maximum Target Earn-Out Shares was met and 1,854,169 shares were issued. The remaining shares pursuant to the contingent rights were withheld to cover employee taxes.

The Company determined the Earn-Out Shares (as defined by the Merger Agreement) to be classified as equity under ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock” as the contingent right is indexed to the Company’s stock and accordingly, the accrual of the Earn-Out Shares had no impact on the Company’s condensed consolidated financial statements for the three and nine month periods ended September 30, 2021. There are no Earn-Out Shares contingent as of September 30, 2022 and December 31, 2021.

Unvested Founder Shares

Upon the consummation of the Merger, certain pre-closing holders of AerSale Corporation’s common stock agreed to defer the vesting of an aggregate of 700,000 shares (the “Unvested Founder Shares”), half of which was to vest at such time as the Minimum Target (as defined in the Merger Agreement) and the other half of which was to vest at the Maximum Target (as defined in the Merger Agreement). The Unvested Founder Shares would also vest upon the occurrence of a Liquidity Event (as defined by the Merger Agreement) on or prior to the fifth anniversary of the date of the Amended and Restated Founder Shares Agreement, solely to the extent the Liquidity Event Consideration (as defined in the Merger Agreement) would be greater than $13.50, in which case half of the Unvested Founder Shares which would vest, or $15.00, in which case the other half of the Unvested Founder Shares would also vest. Pursuant to the Amended and Restated Founder Shares Agreement, the holders of the Unvested Founder Shares retained the right to vote such Unvested Founder Shares prior to vesting. Unvested Founder Shares that did not vest on or prior to the fifth anniversary of the Closing Date would be forfeited.

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Effective February 8, 2021, the contingency event related to the Minimum Target was met and half of the Unvested Founder Shares vested. Effective October 22, 2021, the contingent event related to the Maximum Target was met and the other half of the Unvested Founder Shares vested. There are no Unvested Founder Shares as of September 30, 2022 and December 31, 2021.

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2020 Equity Incentive Plan

The Company maintains a 2020 Equity Incentive Plan (the “2020 Plan”) and has registered 4,200,000 shares of common stock issuable under the Plan. The 2020 Plan authorizes discretionary grants of incentive stock options to employees of the Company and its qualifying subsidiaries. The 2020 Plan also authorizes discretionary grants of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents or other equity or cash-based awards to employees and consultants of the Company and its subsidiaries and to members of the Board of Directors of the Company. To the extent that an award under the 2020 Plan expires, is cancelled, forfeited, terminated, settled in cash or is otherwise settled without issuance of the full number of shares to which it relates, will become or again be available for awards under the 2020 Plan. The 2020 Plan is administered by the Company's Compensation Committee. The Compensation Committee has complete, full and final authority to: designate participants; determine the types of awards to be granted; determine the terms of awards; interpret and administer the 2020 Plan and any agreements and awards thereunder.

Restricted stock unit activity under the 2020 Plan for the nine months ended September 30, 2022 and 2021 was as follows:

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The Company’s restricted stock units include 1,595,000 performance restricted stock units (“2021 PSUs”) that performance vested at the 200% milestone as of March 31, 2022. This is the highest level of performance condition to be achieved and results in total shares to be issued of 3,190,000, subject to a time vesting schedule of one-third on December 22, 2022 and two-thirds on December 22, 2023. For the three and nine months ended September 30, 2022, the Company recognized share-based compensation expense for the 2021 PSUs of $3.6 million and $10.6 million, respectively, given the achievement of the 200% performance milestone. For the three and nine months ended September 30, 2021, the Company recognized share-based compensation expense for the 2021 PSUs of $8.5 million.

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For the restricted stock unit awards granted under the 2020 Plan containing both service and performance conditions, the Company recognizes compensation expense when the awards are considered probable of vesting.  Restricted stock units are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employee have been established.  The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

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2020 Employee Stock Purchase Plan

The Company also maintains a 2020 Employee Stock Purchase Plan (the “ESPP”) and has registered 500,000 shares of common stock issuable under the ESPP. During the nine-months ended September 30, 2022, the Company issued 30,099 shares pursuant to the ESPP. No shares were issued during the nine-month period ended September 30, 2021.