SCHULTZE SPECIAL PURPOSE ACQUISITION CORP. References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are not historical facts, and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Form 10-Q including, without limitation, statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, the business strategy,
plans and objectives of management for future operations, and the impact of the
coronavirus (COVID-19) pandemic on the Company's search for a Business
Combination (as defined below), including the Company's ability to consummate
the Clever Leaves Business Combination (as defined below), are forward-looking
statements. Words such as "expect," "believe," "anticipate," "intend,"
"estimate," "seek" and variations and similar words and expressions are intended
to identify such forward-looking statements. Such forward-looking statements
relate to future events or future performance, but reflect management's current
beliefs, based on information currently available. A number of factors could
cause actual events, performance or results to differ materially from the
events, performance and results discussed in the forward-looking statements. For
information identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements,
please refer to Part II, Item 1A of this Quarterly Report and the Risk Factors
section of the Company's Annual Report on Form 10-K filed with the
Overview
We are a blank check company incorporated in
Our efforts to identify a prospective target business are not limited to a particular industry or geographic region. Although we have initially focused on businesses that have experienced and emerged from a financial restructuring, we may decide to enter into an initial Business Combination with a target business that has not experienced a financial restructuring. We intend to effectuate our initial Business Combination using cash from the proceeds of our initial public offering ("Initial Public Offering") and the sale of the private placement warrants ("Private Placement Warrants") that occurred simultaneously with the completion of our Initial Public Offering (the "Private Placement"), our securities, debt or a combination of cash, securities and debt.
The issuance of additional shares of common stock or preferred stock in a Business Combination:
? may significantly reduce the equity interest of our stockholders;
? may subordinate the rights of holders of shares of common stock if we issue
shares of preferred stock with rights senior to those afforded to our shares
of common stock;
? will likely cause a change in control if a substantial number of our shares of
common stock are issued, which may affect, among other things, our ability to
use our net operating loss carry forwards, if any, and most likely will also
result in the resignation or removal of our present officers and directors;
and
? may adversely affect prevailing market prices for our securities.
Similarly, if we issue debt securities or otherwise incur significant indebtedness, it could result in:
? default and foreclosure on our assets if our operating revenues after a
Business Combination are insufficient to pay our debt obligations;
? acceleration of our obligations to repay the indebtedness even if we have made
all principal and interest payments when due if the debt security contains
covenants that required the maintenance of certain financial ratios or
reserves and we breach any such covenant without a waiver or renegotiation of
that covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt security is payable on demand; and
? our inability to obtain additional financing, if necessary, if the debt
security contains covenants restricting our ability to obtain additional
financing while such security is outstanding.
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We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Recent Developments Extension Meetings
On
Subsequently, on
Proposed Business Combination
On
On
Clever Leaves' mission is to be an industry-leading global cannabinoid company
recognized for its principles, people and performance while fostering a
healthier global community. Clever Leaves is a multi-national operator in the
botanical cannabinoid and nutraceutical industries, with operations and
investments in
The Business Combination Agreement and each of the other transaction documents discussed below are in each case described in more detail in the registration statement on Form S-4 (File No. 333-241707) filed by Holdco in connection with the Clever Leaves Business Combination (the "Holdco Registration Statement").
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Business Combination Agreement
Pursuant to the Business Combination Agreement, each of the following
transactions will occur in the following order: (i) pursuant to a court-approved
Canadian plan of arrangement (the "Plan of Arrangement", and the arrangement
pursuant to such Plan of Arrangement, the "Arrangement") at the effective time
of the Arrangement, based on Arrangement Consideration (as defined in the
Business Combination Agreement) derived from
The consummation of the Clever Leaves Business Combination is subject to a
number of conditions set forth in the Business Combination Agreement including,
among others, receipt of the requisite approval of our stockholders, our having
at least
Shareholder Support Agreements
In connection with the execution of the Original Agreement, we entered into
Shareholder Support Agreements with Holdco and certain Clever Leaves
shareholders ("Key Clever Leaves Shareholders"), pursuant to which among other
things, the Key Clever Leaves Shareholders agreed to vote their Clever Leaves
shares in favor of the Business Combination Agreement, the Plan of Arrangement,
the Arrangement, resolutions of Clever Leaves to approve the Plan of Arrangement
and the Arrangement, the Clever Leaves Business Combination and certain related
transactions. The Key Clever Leaves Shareholders include all Clever Leaves
shareholders that are executive officers, directors, affiliates, founders and
their family members, and certain holders of 5% or more of the outstanding
voting Clever Leaves shares. Additionally, the Key Clever Leaves Shareholders
are subject to a restriction on sales and transfers of their Holdco common
shares commencing on the effective date of the Holdco Registration Statement
(the "Effective Date") and ending one year following the Closing Date, with such
restriction on sales and transfers to terminate early if following the 180th day
after the Closing Date, the closing trading price of the Holdco common shares
equals or is greater than
Transaction Support Agreement
Concurrently with the execution of the Original Agreement, we entered into the
Transaction Support Agreement, as amended on
(i) we and our Sponsor agreed to take all actions necessary, at or prior to the
closing of the Clever Leaves Business Combination (the "Closing"), to amend
the Stock Escrow Agreement, dated as of December 10, 2018 (the "Stock Escrow
Agreement"), by and among our Sponsor, certain of our stockholders named
therein, Continental Stock Transfer & Trust Company ("Continental"), as
escrow agent ("Escrow Agent"), and us, pursuant to which the Founder Shares
(as defined below) are held in escrow, and we and our Sponsor agreed to use
reasonable best efforts to cause Continental and the other parties to the
Stock Escrow Agreement to establish, pursuant to an amendment to the Stock
Escrow Agreement to be entered into by our Sponsor, other initial
stockholders party thereto, the Escrow Agent and us in connection with the
Clever Leaves Business Combination, the escrow terms of certain Holdco common
shares to be held by our Sponsor and our current independent directors
following the Clever Leaves Business Combination;
(ii) our Sponsor agreed, subject to and conditioned upon the occurrence of the
Closing and effective as of immediately prior to the Merger Effective Time,
to forfeit for no consideration all warrants in its possession other than
(a) (A) a number of Holdco warrants (rounded down to the nearest whole
warrant) equal to (B) 1,245,000 plus (C) the quantity of (1) 2,905,000
multiplied by (2) the quotient obtained by dividing (I) the quantity of (x)
the aggregate amount of cash held either in or outside the Trust Account,
including the aggregate amount from the PIPEs (including for the avoidance
of doubt, the aggregate amount of the Agreed PIPE), after giving effect to
the exercise of redemption rights and payments related thereto minus (y)
$25,000,000 by (II) $20,000,000 (the "Sponsor Warrant Amount") (provided
that in no event shall the Sponsor Warrant Amount be less than 1,245,000
warrants or greater than 4,150,000 warrants) and (b) the Working Capital
Warrants (as defined in the Warrant Amendment described below), if any,
issued to our Sponsor in full satisfaction of loans made by our Sponsor to
us pursuant to a promissory note or notes; and
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(iii) certain service providers of Holdco and its subsidiaries at the direction
of the Holdco board of directors or any committee thereof (the "Earnout
Shareholders") are eligible to receive up to 1,440,000 Holdco common
shares, in the form of an earnout, and such Holdco common shares will be
issued to the Earnout Shareholders under the 2020 Earnout Award Plan of
Holdco as follows: (A) 720,000 Holdco common shares will be issued to the
Earnout Shareholders only if the closing price of the Holdco common shares
on the Nasdaq Capital Market equals or exceeds $12.50 per share (as
adjusted for stock splits, reverse splits, stock dividends,
reorganizations, recapitalizations or any similar event) for any 20 trading
days within any consecutive 30 trading day period on or before the second
anniversary of the Closing; and (B) 720,000 Holdco common shares will be
issued to the Earnout Shareholders only if the closing price of the Holdco
common shares on Nasdaq equals or exceeds $15.00 per share (as adjusted for
stock splits, reverse splits, stock dividends, reorganizations,
recapitalizations or any similar event) for any 20 trading days within any
consecutive 30 trading day period on or before the fourth anniversary of
the Closing. The Holdco board of directors intends to delegate its
authority to select the Earnout Shareholders to a committee comprised of
Kyle Detwiler and Andres Fajardo and, in consultation with such committee,
may impose additional vesting conditions on the vesting of such shares. The
Holdco common shares held by our Sponsor and our current independent
directors will be released from escrow to our Sponsor and our current
independent directors as follows: (1) the Sponsor Upfront Escrow Shares
will be released to our Sponsor (and 60,000 of such Sponsor Upfront Escrow
Shares will be released to our current independent directors) at the
earlier of: (x) one year following the Closing or (y) the date on which the
closing price of the Holdco common shares on Nasdaq equals or exceeds
$12.50 per share (as adjusted for stock splits, stock dividends,
reorganizations, and recapitalizations) for any 20 trading days within any
consecutive 30 trading day period after the Closing; (2) fifty percent
(50%) of the Sponsor Earn-Out Shares will be released to our Sponsor if the
closing price of the Holdco common shares on Nasdaq equals or exceeds
$12.50 per share (as adjusted for stock splits, stock dividends,
reorganizations, and recapitalizations) for any 20 trading days within any
consecutive 30 trading day period on or before the second anniversary of
the Closing; and (3) the other fifty percent (50%) of the Sponsor Earn-Out
Shares will be released to our Sponsor if the closing price of the Holdco
common shares on Nasdaq equals or exceeds $15.00 per share (as adjusted for
stock splits, stock dividends, reorganizations, and recapitalizations) for
any 20 trading days within any consecutive 30 trading day period on or
before the fourth anniversary of the Closing. Additionally, our Sponsor is
subject to a restriction on sales and transfers of its Holdco common shares
commencing on the Effective Date, and ending one year following the Closing
Date, with such restriction on sales and transfers to terminate early if
following the 180th day after the Closing Date, the closing trading price
of the Holdco common shares equals or is greater than $12.50 for any 20 out
of any 30 consecutive trading days. For purposes of the preceding sentence,
(1) the "Sponsor Upfront Escrow Shares" means a number of Holdco common
shares (rounded down to the nearest whole share) equal to (x) (i) an
aggregate amount equal to (A) the aggregate amount of cash held either in
or outside the Trust Account, including the aggregate amount of PIPEs,
including, for the avoidance of doubt, the aggregate amount of the Agreed
PIPE (excluding the accrued and outstanding interest under the $27,750,000
aggregate principal amount of secured convertible notes of Clever Leaves
due March 30, 2022 (the "Secured Convertible Notes")) consummated prior to,
or as of, the Closing, after giving effect to the exercise of redemption
rights and payments related thereto minus (B) our good faith estimate of
our transaction expenses multiplied by (ii) twenty percent (20%) (such
amount in this subsection (x), the "Sponsor Value") divided by (y) $10.00 ;
provided that the number of Sponsor Upfront Escrow Shares shall not be less
than 460,000 Holdco common shares or more than 1,168,421 Holdco common
shares; and (2) the "Sponsor Earn-Out Shares " means a number of Holdco
common shares (rounded down to the nearest whole share) equal to (x) an
amount equal to (i) the Sponsor Value minus (ii) (A) the Sponsor Upfront
Escrow Shares multiplied by (B) $10.00 , divided by (y) $5.00 ; provided,
that the number of Sponsor Earn-Out Shares shall not be less than 0 or
greater than 1,300,000.
Investors' Rights Agreement
In connection with, and as a condition to the consummation of, the Clever Leaves Business Combination, at the Closing, Holdco and certain of our stockholders will enter into an Investors' Rights Agreement (the "Investors' Rights Agreement"), pursuant to which, among other things:
? so long as the Minimum Holding Condition is satisfied, the holders of a
majority of the Holdco common shares party to the Investors' Rights Agreement
(the "Majority Holders") will have the right to nominate one director to the
Holdco board of directors;
? if (A) at the time of the Closing, the size of the Holdco board of directors is
composed of five or fewer directors, (B) Holdco proposes for the number of
directors comprising the Holdco board of directors to be greater than five
directors and (C) at the time Holdco makes such proposal, the
Condition is satisfied, then prior to the nomination (or, if there is no
nomination, the appointment) of a sixth individual to the Holdco board of
directors, the Majority Holders will have the right to consent (such consent
not to be unreasonably withheld, conditioned or delayed) to the nomination (or,
if there is no nomination, the appointment) of such additional director. The
right to consent to such additional director will expire upon an additional
director becoming a member of the Holdco board of directors in accordance with
the requirements of the Investors' Rights Agreement; and
? certain of our stockholders will be entitled to customary registration rights
for their respective Holdco common shares.
For purposes of the Investors' Rights Agreement, the "Minimum Holding Condition" is considered satisfied for so long as the Majority Holders hold: (i) 50% of the total number of Holdco common shares held by such holders on the date of the Investors' Rights Agreement and (ii) 2% of the then-issued and outstanding Holdco common shares, as determined on a fully diluted basis, including any earn-out shares for so long as the earn-out remains capable of being satisfied; provided that if the holdings of our Sponsor and our other stockholders that are party to the Investors' Rights Agreement do not satisfy the foregoing clause (ii) at the Closing, the Minimum Holding Condition shall nevertheless be deemed satisfied until such time that such shareholders sell any Holdco common shares at which time the Minimum Holding Condition shall immediately cease to be satisfied.
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Warrant Amendment
In connection with, and as a condition to the consummation of, the Clever Leaves
Business Combination, at the Closing, we will enter into an Assignment,
Assumption and Amendment Agreement (the "Warrant Amendment") with Holdco and
Continental, as warrant agent, pursuant to which, as of the Merger Effective
Time, (a) each of our warrants that is outstanding immediately prior to the
Merger Effective Time will no longer represent a right to acquire one share of
our common stock and will instead represent the right to acquire one Holdco
common share under the same terms as set forth in the Warrant Agreement, dated
as of
Subscription Agreements
In connection with the Clever Leaves Business Combination, we have obtained
commitments from interested investors (the "Subscribers") to purchase (a) shares
of our common stock for a purchase price of
The closing of the Agreed PIPE (the "PIPE Closing") is contingent upon the substantially concurrent consummation of the Clever Leaves Business Combination. The PIPE Closing will occur on the date of, and immediately prior to, the consummation of the Clever Leaves Business Combination. The PIPE Closing will be subject to customary closing conditions.
Pursuant to the Subscription Agreements, Holdco agreed that, if the Holdco
common shares issuable to the Subscribers in exchange for their PIPE Shares are
not registered in connection with the Clever Leaves Business Combination, within
30 calendar days after the Closing, Holdco will file with the
Holdco will also be required to use its commercially reasonable efforts to cause the Resale Registration Statement to become effective and to maintain the effectiveness of the Resale Registration Statement until the earliest of (a) the date on which all of the PIPE Shares may be sold without restriction under Rule 144, (b) the date on which the Subscribers cease to hold any PIPE Shares acquired pursuant to the Clever Leaves Business Combination, and (c) the second anniversary of the Closing; provided that the period under this clause (c) may be extended by the same number of days that the Resale Registration Statement is entitled to be suspended under the Subscription Agreements.
Holdco is entitled to delay, postpone or suspend the effectiveness of the Resale Registration Statement if an event has occurred that the Holdco board of directors reasonably believes would require additional disclosure by Holdco in the Resale Registration Statement of material non-public information. However, Holdco may not delay or suspend the Resale Registration Statement on more than two occasions in any 12-month period or for more than 60 consecutive days, or more than 90 total days, in each case during any 12-month period.
Each Subscription Agreement will terminate upon the earlier to occur of (w) such
date and time as the Business Combination Agreement is terminated in accordance
with its terms, (x) upon the mutual written agreement of each of the parties to
the Subscription Agreement, (y) any of the conditions to the PIPE Closing are
not satisfied or waived on or prior to the PIPE Closing and, as a result
thereof, the transactions contemplated by the Subscription Agreement are not
consummated at the PIPE Closing or (z)
Holdco Registration Statement
In connection with the Clever Leaves Business Combination, on
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Effects of Coronavirus (COVID-19) Pandemic
The coronavirus (COVID-19) pandemic has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide. While we believe we many have experienced delays communicating with and conducting due diligence with regard to certain potential target companies because of reduced availability of personnel of such companies, we do not believe the COVID-19 has had a significant impact on our ability to identify and conduct due diligence with respect to prospective target companies. The extent to which the COVID-19 pandemic may impact our ability to consummate a Business Combination, including the Clever Leaves Business Combination, will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
Various governmental bodies and private enterprises have implemented preventative or protective measures to contain the COVID-19 pandemic, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns, and these actions may continue to expand in scope, type and impact. These measures, in addition to the disruption of economies and financial markets worldwide caused by the COVID-19 pandemic, could result in direct and indirect adverse effects on the industries in which Clever Leaves operates. The extent to which the COVID-19 pandemic may impact Clever Leaves' operations and our ability to consummate the Clever Leaves Business Combination is uncertain.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from
For the three months ended
For the nine months ended
For the three months ended
For the nine months ended
Liquidity and Capital Resources
Until the consummation of our Initial Public Offering, our only source of
liquidity was receipt of
On
Immediately following the closing of our Initial Public Offering, a total of
For the nine months ended
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For the nine months ended
As of
At
Other than as described below, in order to fund working capital deficiencies or
finance transaction costs in connection with a Business Combination, our
Sponsor, officers and directors or their affiliates may, but are not obligated
to, loan us funds, from time to time or at any time, in whatever amount they
deem reasonable in their sole discretion. Each loan would be evidenced by a
promissory note. The notes would either be paid upon consummation of our initial
Business Combination, without interest, or, at the holder's discretion, up to
On
Based on the foregoing, management believes we will have sufficient cash to meet
our needs through the earlier of consummation of a Business Combination or
Off-Balance Sheet Arrangements
As of
20
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities other
than a monthly fee of up to an aggregate of
We engaged
Critical Accounting Policies
Management's discussion and analysis of our results of operations and liquidity
and capital resources are based on our financial information. The preparation of
financial statements and related disclosures in conformity with accounting
principles generally accepted in
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification Topic 480 "Distinguishing Liabilities from Equity." Common stock subject to mandatory redemption is classified as a liability instrument and is 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 common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders' equity section of our condensed balance sheets.
Net Loss Per Common Share
We apply the two-class method in calculating earnings per share. Shares of common stock subject to possible redemption which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
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