References to the "Company," "our," "us" or "we" refer to Churchill Capital Corp
II. The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with our audited
financial statements and the notes related thereto which are included in "Item
8. Financial Statements and Supplementary Data" of this Annual Report on Form
10-K. Certain information contained in the discussion and analysis set forth
below includes forward-looking statements. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including those set forth under "Special Note Regarding
Forward-Looking Statements," "Item 1A. Risk Factors" and elsewhere in this
Annual Report on Form 10-K.
Forward Looking Statements
All statements other than statements of historical fact included in this Form
10-K including, without limitation, statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. When used in
this Form 10-K, words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to us or the Company's
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of management, as well as assumptions made by, and
information currently available to, the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors detailed in our filings with the SEC.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Form 10-K. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Overview
We are a blank check company formed under the laws of the State of Delaware for
the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or other similar business combination with one or
more businesses. We intend to effectuate our business combination using cash
from the proceeds of the IPO and the sale of the private placement warrants, our
capital stock, debt or a combination of cash, stock and debt.
Recent Developments
Skillsoft Merger Agreement
On October 12, 2020, we entered into an Agreement and Plan of Merger (the
"Skillsoft Merger Agreement") by and between us and Skillsoft.
Pursuant to the terms of the Skillsoft Merger Agreement, a business combination
between us and Skillsoft will be effected through the merger of Skillsoft with
and into the Company, with the Company surviving as the surviving company (the
"Skillsoft Merger"). At the effective time of the Skillsoft Merger (the
"Effective Time"), (a) each Class A share of Skillsoft, with nominal value of
$0.01 per share ("Skillsoft Class A Shares"), outstanding immediately prior to
the Effective Time, will be automatically canceled and we will issue as
consideration therefor (i) such number of shares of our Class A common stock,
par value $0.0001 per share (the "Churchill Class A Common Stock") equal to the
Class A First Lien Exchange Ratio (as defined in the Skillsoft Merger
Agreement), and (ii) the Company's Class C common stock, par value $0.0001 per
share (the "Churchill Class C Common Stock"), equal to the Class C Exchange
Ratio (as defined in the Skillsoft Merger Agreement), and (b) each Class B share
of Skillsoft, with nominal value of $0.01 per share ("Skillsoft Class B
Shares"), will be automatically canceled and the Company will issue as
consideration therefor such number of shares of the Company's Class A common
stock equal to the Per Class B Share Merger Consideration (as defined in the
Skillsoft Merger Agreement). Pursuant to the terms of the Skillsoft Merger
Agreement, the Company is required to use commercially reasonable efforts to
cause the Company Class A Common Stock to be issued in connection with the
transactions contemplated by the Skillsoft Merger Agreement (the "Skillsoft
Transactions") to be listed on the New York Stock Exchange ("NYSE") prior to the
closing of the Skillsoft Merger (the "Skillsoft Closing"). Immediately following
the Effective Time, the Company will redeem all of the shares of Class C Common
Stock issued to the holders of Skillsoft Class A Shares for an aggregate
redemption price of (i) $505,000,000 in cash and (ii) indebtedness under the
Existing Second Out Credit Agreement (as defined in the Skillsoft Merger
Agreement), as amended by the Existing Second Out Credit Agreement Amendment (as
defined in the Skillsoft Merger Agreement), in the aggregate principal amount
equal to the sum of $20,000,000 to be issued by the Surviving Corporation (as
defined in the Skillsoft Merger Agreement) or one of its subsidiaries, in each
case, pro rata among the holders of Churchill Class C Common Stock issued in
connection with the Skillsoft Merger.
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The consummation of the proposed Skillsoft Transactions is subject to the
receipt of the requisite approval of (i) the stockholders of Churchill (the
"Churchill Stockholder Approval") and (ii) the shareholders of Skillsoft (the
"Skillsoft Shareholder Approval") and the fulfillment of certain other
conditions.
In October 2020, the Company was advanced $2,000,000 for expenses incurred with
with Skillsoft Merger. If the planned business combination is not completed, the
Company would be required to refund any unused amount. For the year ended
December 31, 2020 the Company had utilized the advance in connection with the
Skillsoft Merger. As of the date of these financial statements, the advance is
no longer refundable.
On January 22, 2021, we entered into an amendment (the "Merger Agreement
Amendment"), to which amends and restates in its entirety the definition of
"Applicable Majority" in the Skillsoft Merger Agreement. The definition of
"Applicable Majority" is used in the Skillsoft Merger Agreement.
Global Knowledge Merger Agreement
Concurrently with its entry into the Skillsoft Merger Agreement, Churchill also
entered into an Agreement and Plan of Merger (the "Global Knowledge Merger
Agreement") by and among Churchill, Magnet Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of Churchill ("Merger Sub"), and Albert
DE Holdings Inc., a Delaware corporation owned by investment funds affiliated
with Rhône Capital L.L.C.
Pursuant to the Global Knowledge Merger Agreement, Merger Sub will merge with
and into Global Knowledge, with Global Knowledge surviving the transaction as a
wholly-owned subsidiary of Churchill (the "Global Knowledge Merger"). At the
effective time (the "Global Knowledge Effective Time") of the Global Knowledge
Merger, as consideration for the Global Knowledge Merger, 100% of the issued and
outstanding equity interests of Global Knowledge will be converted, in the
aggregate, into the right to receive warrants, each of which shall entitle the
holders thereof to purchase one share of Class A Churchill Common Stock at an
exercise price of $11.50 per share. The aggregate number of warrants to be
received by the equity holders of Global Knowledge as consideration in the
Global Knowledge Merger will be 5,000,000. The warrants to be issued to the
equity holders of Global Knowledge will be non-redeemable and otherwise
substantially similar to the private placement warrants issued to the Churchill
Sponsor in connection with Churchill's initial public offering.
The consummation of the proposed Global Knowledge Merger (the "Global Knowledge
Closing") is subject to the consummation of the Skillsoft Merger, among other
conditions contained in the Global Knowledge Merger Agreement.
Restructuring Support Agreement
On October 12, 2020, Global Knowledge entered into a Restructuring Support
Agreement (the "Global Knowledge RSA") with (i) 100% of its lenders under that
certain Amended and Restated First Lien Credit and Guaranty Agreement, dated as
of January 30, 2015, as amended from time to time, by and among, inter alios, GK
Holdings, as borrower, the guarantors from time to time party thereto, the
lenders from time to time party thereto and Credit Suisse, acting in its
capacity as administrative agent and collateral agent (the "First Lien Credit
Agreement," and the lenders thereto, the "First Lien Lenders"); and (ii) 100% of
its lenders under that certain Amended and Restated Second Lien Credit and
Guaranty Agreement, dated as of January 30, 2015, as amended from time to time,
by and among, inter alios, GK Holdings, as borrower, the guarantors from time to
time party thereto, the lenders from time to time party thereto and Wilmington
Trust, acting in its capacity as administrative agent and collateral agent (the
"Second Lien Credit Agreement," and there lenders thereto, the "Second Lien
Lenders," together with the First Lien Lenders, the "Secured Lenders"). The
Global Knowledge RSA contemplates an out-of-court restructuring (the
"Restructuring") that provides meaningful recoveries, funded by Churchill, to
all Secured Lenders. Churchill is a third-party beneficiary of the Global
Knowledge RSA with respect to enforcement of certain specific provisions and its
explicit rights under the Global Knowledge RSA and not a direct party.
Subscription Agreements
Prosus Subscription Agreement
On October 12, 2020, in connection with the execution of the Skillsoft Merger
Agreement, MIH Ventures B.V. ("Prosus") entered into a subscription agreement
(the "Prosus Subscription Agreement") with Churchill and the Sponsor, pursuant
to which Prosus subscribed for 10,000,000 newly-issued shares of Churchill Class
A common stock, at a purchase price of $10.00 per share, to be issued at the
closing (the "First Step Prosus Investment"), and Churchill granted Prosus a
30-day option (the "Option") to subscribe for up to the lesser of (i) an
additional 40,000,000 newly-issued shares of Churchill Class A common stock, at
a purchase price of $10.00 per share or (ii) such additional number of shares
that would result in Prosus beneficially owning shares of Class A common stock
representing 35% of the issued and outstanding shares of Churchill Class A
common stock on a fully-diluted and as-converted basis (excluding any warrants
issued to Prosus pursuant to the Prosus Subscription Agreement) immediately
following the consummation of the Skillsoft Merger (the "Prosus Maximum
Ownership Amount") (the "Second Step Prosus Investment" and together with the
First Step Prosus Investment, the "Prosus PIPE Investment"). On November 10,
2020, Prosus exercised the Option to subscribe for an additional 40,000,000
shares of Churchill Class A common stock in the Second Step Prosus Investment
(or such number of shares as may be reduced pursuant to the Prosus Subscription
Agreement). Churchill and Prosus also agreed that following the consummation of
the Skillsoft Merger, to the extent that following the Prosus Second Step
Investment, Prosus beneficially owns less than the Prosus Maximum Ownership
Amount, Prosus will have the concurrent right to purchase a number of additional
shares of Churchill Class A common stock, at $10.00 per share, that would result
in Prosus maintaining beneficial ownership of at least, but no more than, the
Prosus Maximum Ownership Amount (the "Prosus Top-Up Right").
SuRo Subscription Agreement
On October 14, 2020, in connection with the execution of the Skillsoft Merger
Agreement, Churchill entered into a subscription agreement with SuRo Capital
Corp. ("SuRo") pursuant to which SuRo subscribed for 1,000,000 newly-issued
shares of Churchill Class A common stock, at a purchase price of $10.00 per
share, to be issued at the closing of the Merger (the "SuRo Subscription
Agreement"). The obligations to consummate the transactions contemplated by the
SuRo Subscription Agreement are conditioned upon, among other things, customary
closing conditions and the consummation of the Skillsoft Merger.
Lodbrok Subscription Agreement
On October 13, 2020, in connection with the execution of the Global Knowledge
Merger Agreement, Churchill entered into a subscription agreement with Lodbrok
Capital LLP ("Lodbrok") pursuant to which Lodbrok subscribed for 2,000,000
newly-issued shares of Churchill Class A common stock, at a purchase price of
$10.00 per share, to be issued at the closing of the Global Knowledge Merger
(the "Lodbrok Subscription Agreement"). The obligations to consummate the
transactions contemplated by the Lodbrok Subscription Agreement are conditioned
upon, among other things, customary closing conditions and the consummation of
the Global Knowledge Merger.
For more information about the Skillsoft merger, Global Knowledge Merger and
other recent developments, please see "Item 1. Business - Recent Developments."
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through December 31, 2020 were organizational activities,
those necessary to prepare for the Initial Public Offering, identifying a target
for our Business Combination, and activities in connection with the proposed
acquisition of Skillsoft. We do not expect to generate any operating revenues
until after the completion of our Business Combination. We generate
non-operating income in the form of interest income on marketable securities
held in the Trust Account. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses.
For the year ended December 31, 2020, we had net income of $1,124,364, which
consists of reimbursement of transaction expenses of $2,000,000, interest income
on marketable securities held in the Trust Account of $2,516,752 and an
unrealized gain on marketable securities held in our Trust Account of $1,276
offset by operating costs of $2,906,903, and a provision for income taxes of
$486,761.
For the period from April 11, 2019 (inception) through December 31, 2019, we had
net income of $4,693,042, which consists of interest income on marketable
securities held in the Trust Account of $6,639,430 and an unrealized gain on
marketable securities held in our Trust Account of $45,988, offset by formation
and operating costs of $744,859, and a provision for income taxes of $1,247,517.
Liquidity and Capital Resources
On July 1, 2019, we consummated the Initial Public Offering of 69,000,000 Units
at a price of $10.00 per Unit, which includes the full exercise by the
underwriters of the over-allotment option, at $10.00 per Unit, generating gross
proceeds of $690,000,000. Simultaneously with the closing of the IPO, we
consummated the sale of 15,800,000 Private Placement Warrants to the Sponsor at
a price of $1.00 per warrant, generating gross proceeds of $15,800,000.
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Following the IPO, the exercise of the over-allotment option and the sale of the
Private Placement Warrants, a total of $690,000,000 was placed in the Trust
Account. We incurred $34,319,807 in transaction costs, including $12,212,000 of
underwriting fees, $21,371,000 of deferred underwriting fees and $736,807 of
other costs.
As of December 31, 2020, we had cash and marketable securities held in the Trust
Account of $696,957,196 (including approximately $6,957,000 of interest income
and unrealized gains) consisting of U.S. Treasury Bills with a maturity of 185
days or less. Interest income on the balance in the Trust Account may be used by
us to pay taxes. Through December 31, 2020, we withdrew $2,246,250 of interest
earned on the Trust Account to pay our income taxes and for permitted
withdrawals, of which $856,250 was withdrawn during the year ended December 31,
2020.
For the year ended December 31, 2020, cash used in operating activities was
$720,660. Net income of $1,124,364 was affected by interest earned on marketable
securities held in the Trust Account of $2,516,752, an unrealized gain on
marketable securities held in our Trust Account of $1,276 and a deferred tax
benefit of $8,681. Changes in operating assets and liabilities provided $681,685
of cash for operating activities.
For the period from April 11, 2019 (inception) through December 31, 2019, cash
used in operating activities was $2,027,918. Net income of $4,693,042 was
affected by interest earned on marketable securities held in the Trust Account
of $6,639,430, an unrealized gain on marketable securities held in our Trust
Account of $45,988 and a deferred tax provision of $9,657. Changes in operating
assets and liabilities used $45,199 of cash for operating activities.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
deferred underwriting commissions and income taxes payable), to complete our
Business Combination. To the extent that our capital stock or debt is used, in
whole or in part, as consideration to complete our Business Combination, the
remaining proceeds held in the Trust Account will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
As of December 31, 2020, we had cash of $3,873,865. We intend to use the funds
held outside the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the initial stockholders or their
affiliates may, but are not obligated to, loan us funds as may be required. If
we complete a Business Combination, we would repay such loaned amounts. In the
event that a Business Combination does not close, we may use a portion of the
working capital held outside the Trust Account to repay such loaned amounts but
no proceeds from our Trust Account would be used for such repayment. Up to
$1,500,000 of such loans may be convertible into warrants identical to the
Private Placement Warrants, at a price of $1.00 per warrant at the option of the
lender.
On November 2, 2020, we entered into a convertible promissory note with the
Sponsor pursuant to which the Sponsor agreed to loan us up to an aggregate
principal amount of $1,500,000 (the "Convertible Promissory Note"). The
Convertible Promissory Note is non-interest bearing and payable on the earlier
of the date on which we consummate a Business Combination or the date that the
winding up of the Company is effective. If we do not consummate a Business
Combination, we may use a portion of any funds held outside the Trust Account to
repay the Promissory Note; however, no proceeds from the Trust Account may be
used for such repayment. Up to $1,500,000 of the Convertible Promissory Note may
be converted into warrants at a price of $1.00 per warrant at the option of the
Sponsor. The warrants would be identical to the Private Placement Warrants. As
of December 31, 2020, the outstanding balance under the Convertible Promissory
Note amounted to an aggregate of $1,500,000.
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2020.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of the Sponsor a monthly fee of $20,000 for office space,
administrative and support services to the Company. We began incurring these
fees on June 26, 2019 and will continue to incur these fees monthly until the
earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $21,371,000 in the aggregate.
The deferred fee will be waived by the underwriters in the event that we do not
complete a Business Combination, subject to the terms of the underwriting
agreement. On July 1, 2019, the underwriters agreed to waive the upfront and
deferred underwriting discount on 7,940,000 units, resulting in a reduction of
the upfront and deferred underwriting discount of $1,588,000 and $2,779,000,
respectively.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible conversion in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Shares of Class A common stock
subject to mandatory redemption is classified as a liability instrument and
measured at fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within our control) is classified as temporary equity. At all other
times, common stock is classified as stockholders' equity. Our Class A common
stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly,
Class A common stock subject to possible redemption is presented at redemption
value as temporary equity, outside of the stockholders' equity section of our
balance sheets.
Net Income (Loss) per Common Share
We apply the two-class method in calculating earnings per share. Net income
(loss) per common share, basic and diluted for Class A redeemable common stock
is calculated by dividing the interest income earned on the Trust Account, net
of applicable taxes, by the weighted average number of shares of Class A
redeemable common stock outstanding for the period. Net loss per common share,
basic and diluted for non-redeemable common stock is calculated by dividing net
loss less income attributable to Class A redeemable common stock, by the
weighted average number of shares of non-redeemable common stock outstanding for
the period presented.
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our financial statements.
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