Docoh
Loading...

SPCE Virgin Galactic

Filed: 9 Oct 19, 9:03pm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

 Preliminary Proxy Statement
 Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 Definitive Proxy Statement
 Definitive Additional Materials
 Soliciting Material Pursuant to §240.14a-12

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 No fee required.
 Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 (1) 

Title of each class of securities to which transaction applies:

 

     

 (2) 

Aggregate number of securities to which transaction applies:

 

     

 (3) 

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

 (4) 

Proposed maximum aggregate value of transaction:

 

     

 (5) 

Total fee paid:

 

     

 Fee paid previously with preliminary materials.
 Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
 (1) 

Amount Previously Paid:

 

     

 (2) 

Form, Schedule or Registration Statement No.:

 

     

 (3) 

Filing Party:

 

     

 (4) 

Date Filed:

 

     

 

 

 


Table of Contents

 

PROXY STATEMENT FOR

EXTRAORDINARY GENERAL MEETING OF

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

(A CAYMAN ISLANDS EXEMPTED COMPANY)

PROSPECTUS FOR

3,078,448 UNITS (EACH UNIT COMPRISING ONE SHARE OF COMMON STOCK ANDONE-THIRD OF A REDEEMABLE WARRANT),

65,228,822 SHARES OF COMMON STOCK (INCLUDING SHARES INCLUDED IN THE UNITS) AND

22,999,980 REDEEMABLE WARRANTS (INCLUDING WARRANTS INCLUDED IN THE UNITS)

OF

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

(AFTER ITS DOMESTICATION AS A CORPORATION INCORPORATED IN THE STATE OF DELAWARE),

THE CONTINUING ENTITY FOLLOWING THE DOMESTICATION, WHICH WILL BE RENAMED “VIRGIN GALACTIC HOLDINGS, INC.” IN CONNECTION WITH THE BUSINESS COMBINATION DESCRIBED HEREIN

 

 

The board of directors of Social Capital Hedosophia Holdings Corp., a Cayman Islands exempted company (“SCH” and, after the Domestication as described below, “VGH, Inc.”), has unanimously approved (1) the domestication of SCH as a Delaware corporation (the “Domestication”); (2) the merger of: (x) Foundation Sub 1, Inc., a direct wholly owned subsidiary of SCH, with and into TSC Vehicle Holdings, Inc. (“Company A”), an indirect wholly owned subsidiary of Vieco 10 Limited (“V10”), with Company A surviving the merger as a wholly owned subsidiary of VGH, Inc., (y) Foundation Sub 2, Inc., a direct wholly owned subsidiary of SCH, with and into Virgin Galactic Vehicle Holdings, Inc. (“Company B”), an indirect wholly owned subsidiary of V10 with Company B surviving the merger as a wholly owned subsidiary of VGH, Inc. and (z) Foundation Sub LLC, a direct wholly owned subsidiary of SCH, with and into VGH, LLC, a indirect wholly owned subsidiary of V10 (“Company LLC” and, collectively with Company A and Company B, the “VG Companies” and, together with Vieco USA, Inc. (“Vieco US”), “VG”), with Company LLC surviving the merger as a wholly owned subsidiary of VGH, Inc., in each case, pursuant to the terms of the Agreement and Plan of Merger, dated as of July 9, 2019, as amended on October 2, 2019, by and among SCH, V10, Vieco US and the other parties thereto, attached to this proxy statement/prospectus as Annex A (the “Merger Agreement”), as more fully described elsewhere in this proxy statement/prospectus; and (3) the other transactions contemplated by the Merger Agreement and documents related thereto. In connection with such business combination, SCH will change its name to “Virgin Galactic Holdings, Inc.” As used in this proxy statement/prospectus, “VGH, Inc.” refers to SCH after the Domestication, including after such change of name.

As a result of and upon the effective time of the Domestication, among other things, (1) each of the then issued and outstanding Class A ordinary shares, par value $0.0001 per share, of SCH (the “SCH Class A ordinary shares”), will convert automatically, on aone-for-one basis, into a share of common stock, par value $0.0001 per share, of VGH, Inc. (the “VGH, Inc. common stock”), (2) each then issued and outstanding redeemable warrant of SCH (the “SCH warrants”) will convert automatically into a redeemable warrant to acquire one share of VGH, Inc. common stock (the “VGH, Inc. warrants”), and (3) each then issued and outstanding unit of SCH (the “SCH units”) will convert automatically into a unit of VGH, Inc. (the “VGH, Inc. units”), with each VGH, Inc. unit representing one share of VGH, Inc. common stock andone-third of one VGH, Inc. warrant.

Accordingly, this prospectus covers (1) 3,078,448 VGH, Inc. units to be issued in the Domestication, (2) 65,228,822 shares of VGH, Inc. common stock to be issued in the Domestication (including shares included in the VGH, Inc. units described above) and (3) 22,999,980 VGH, Inc. warrants to be issued in the Domestication (including redeemable warrants included in the units described above).

The SCH units, SCH Class A ordinary shares and SCH warrants are currently listed on the New York Stock Exchange (“NYSE”) under the symbols “IPOA,” “IPOA.U” and “IPOA.WS,” respectively. SCH will apply for listing, to be effective at the time of the business combination, of VGH, Inc. units, VGH, Inc. common stock and VGH, Inc. warrants on the NYSE under the proposed symbols SPCE.U, SPCE and SPCE WS, respectively. It is a condition of the consummation of the business combination described above that SCH receives confirmation from the NYSE that the securities have been conditionally approved for listing on the NYSE, but there can be no assurance such listing conditions will be met or that SCH will obtain such confirmation from the NYSE. If such listing conditions are not met or if such confirmation is not obtained, the business combination described above will not be consummated unless the NYSE condition set forth in the Merger Agreement is waived by the applicable parties.

 

 

This proxy statement/prospectus provides shareholders of SCH with detailed information about the proposed business combination and other matters to be considered at the extraordinary general meeting of SCH. We encourage you to read this entire document, including the Annexes and other documents referred to herein, carefully and in their entirety. You should also carefully consider the risk factors described in “Risk Factors” beginning on page 35 of this proxy statement/prospectus.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

This proxy statement/prospectus is dated October 9, 2019, and

is first being mailed to SCH’s shareholders on or about October 11, 2019.


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

A Cayman Islands Exempted Company

(Company Number 322408)

120 Hawthorne Avenue

Palo Alto, CA 94301

Dear Social Capital Hedosophia Holdings Corp. Shareholders:

You are cordially invited to attend the extraordinary general meeting (the “extraordinary general meeting”) of Social Capital Hedosophia Holdings Corp., a Cayman Islands exempted company (“SCH” and, after the Domestication, as described below, “VGH, Inc.”), at 12:30 p.m., Eastern Time, on October 23, 2019, at The Westin Palo Alto, located at 675 El Camino Real, Palo Alto, CA 94301, or at such other time, on such other date and at such other place to which the meeting may be adjourned.

At the extraordinary general meeting, SCH shareholders will be asked to consider and vote upon a proposal, which is referred to herein as the “BCA Proposal,” to approve and adopt the Agreement and Plan of Merger, dated as of July 9, 2019, as amended on October 2, 2019, (the “Merger Agreement”), by and among Vieco 10 Limited, a company limited by shares under the laws of the British Virgin Islands (“V10”), Vieco USA, Inc., a Delaware corporation and wholly owned subsidiary of V10 (“Vieco US”), Foundation Sub 1, Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH (“Merger Sub A”), Foundation Sub 2, Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH (“Merger Sub B”), Foundation Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of SCH (“Merger Sub LLC” and, collectively with Merger Sub A and Merger Sub B, the “Merger Subs”), TSC Vehicle Holdings, Inc., a Delaware corporation and an indirect wholly owned subsidiary of V10 (“Company A”), Virgin Galactic Vehicle Holdings, Inc., a Delaware corporation and an indirect wholly owned subsidiary of V10 (“Company B”), and VGH, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of V10 (“Company LLC” and, collectively with Company A and Company B, the “VG Companies” and, together with Vieco US, “VG”), a copy of which is attached to the accompanying proxy statement/prospectus as Annex A. The Merger Agreement provides for, among other things, following the Domestication of SCH to Delaware as described below, the merger of: (x) Merger Sub A with and into Company A, with Company A surviving the merger as a wholly owned subsidiary of VGH, Inc. (“Corp Merger A”), (y) Merger Sub B with and into Company B, with Company B surviving the merger as a wholly owned subsidiary of VGH, Inc. (“Corp Merger B”) and (z) Merger Sub LLC with and into Company LLC, with Company LLC surviving the merger as a wholly owned subsidiary of VGH, Inc. (the “LLC Merger” and, collectively with Corp Merger A and Corp Merger B, the “Mergers”), in each case in accordance with the terms and subject to the conditions of the Merger Agreement as more fully described elsewhere in the accompanying proxy statement/prospectus.

In connection with the Merger Agreement, SCH has entered into a Purchase Agreement, dated as of July 9, 2019, as further supplemented by the Assignment, Consent and Waiver Agreement, dated as of October 2, 2019, with V10, Vieco US and Chamath Palihapitiya, SCH’s Chief Executive Officer and Chairman of its board of directors, a copy of which is attached to the accompanying proxy statement/prospectus as Annex B (the “Purchase Agreement”). The Purchase Agreement provides for, among other things, concurrently with the closing of the Mergers (the “Closing”), the purchase by Mr. Palihapitiya, at the option of Vieco US, of (a) 10,000,000 newly issued shares of VGH, Inc. common stock (as defined below) from VGH, Inc. at a price of $10.00 per share in cash (“Primary Purchase”) and (b) a number of shares of VGH, Inc. common stock from Vieco US at a price of $10.00 per share in cash (“Secondary Purchase”), provided that the number of shares purchased in the Secondary Purchase will reduce, on aone-for-one basis, the number of shares purchased directly from VGH, Inc. in the Primary Purchase and provided further that the aggregate number of shares of VGH, Inc. common stock to be purchased in the Primary Purchase and Secondary Purchase will, in any event, be equal to 10,000,000, and the aggregate price paid for such shares will be equal to $100.0 million. The proceeds of such Secondary Purchase may be used by Vieco US to subsequently purchase additional newly issued shares of VGH, Inc. common stock at a price of $10.00 per share (the “Reinvestment”).

 


Table of Contents

As a condition to the consummation of the Mergers, the board of directors of SCH has unanimously approved a change of SCH’s jurisdiction of incorporation by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the “Domestication” and, together with the Mergers, the “Business Combination”). As described in this proxy statement/prospectus, you will be asked to consider and vote upon a proposal, which is referred to herein as the “Domestication Proposal,” to approve the Domestication. In connection with the consummation of the Business Combination, SCH will change its name to “Virgin Galactic Holdings, Inc.” As used in the accompanying proxy statement/prospectus, “VGH, Inc.” refers to SCH after the Domestication, including after such change of name.

As a result of and upon the effective time of the Domestication, (1) each of the then issued and outstanding Class A ordinary shares, par value $0.0001 per share, of SCH (the “SCH Class A ordinary shares”), will convert automatically, on aone-for-one basis, into a share of common stock, par value $0.0001 per share, of VGH, Inc. (the “VGH, Inc. common stock”), (2) each of the then issued and outstanding Class B ordinary shares, par value $0.0001 per share, of SCH (the “SCH Class B ordinary shares”), will convert automatically, on aone-for-one basis, into a share of VGH, Inc. common stock; provided, however, that with respect to the SCH Class B ordinary shares held by SCH Sponsor Corp., a Cayman Islands exempted company (the “Sponsor”), in connection with the Domestication the Sponsor will instead receive upon the conversion of the SCH Class B ordinary shares held by it, a number of shares of VGH, Inc. common stock equal to (x) the number of SCH Class B ordinary shares held by it as of immediately prior to the Domestication minus (y) after giving effect to the Domestication, the number of shares of VGH, Inc. common stock underlying the Director RSU Awards (as defined in the accompanying proxy statement/prospectus) that were outstanding as of immediately prior to the Domestication, (3) each then issued and outstanding warrant of SCH (the “SCH warrants”) will convert automatically into a warrant to acquire one share of VGH, Inc. common stock (the “VGH, Inc. warrants”), pursuant to the Warrant Agreement, dated September 13, 2017, between SCH and Continental Stock Transfer & Trust Company (“Continental”), as warrant agent, and (4) each then issued and outstanding unit of SCH (the “SCH units”) will convert automatically into a unit of VGH, Inc. (the “VGH, Inc. units”), with each VGH, Inc. unit representing one share of VGH, Inc. common stock andone-third of one VGH, Inc. warrant. As used herein, “public shares” shall mean the SCH Class A ordinary shares (including those that underlie the SCH units) that were registered pursuant to the Registration Statements onForm S-1(333-220130 and333-220453) and the shares of VGH, Inc. common stock (including those that underlie the VGH, Inc. units) issued as a matter of law upon the conversion thereof on the effective date of the Domestication. For further details, see “Domestication Proposal.”

You will also be asked to consider and vote upon (1) four separate proposals to approve material differences between SCH’s Amended and Restated Memorandum and Articles of Association (as amended by a special resolution of shareholders passed on September 9, 2019 (the “Extension Amendment”), and as may be further amended from time to time, the “Cayman Constitutional Documents”) and the proposed certificate of incorporation and bylaws of VGH, Inc., which are referred to herein as the “Organizational Documents Proposals,” (2) a proposal to elect eight directors who, upon consummation of the Business Combination, will be the directors of VGH, Inc., which is referred to herein as the “Director Election Proposal,” (3) a proposal to approve for purposes of complying with applicable provisions of Section 312.03 of the NYSE’s Listed Company Manual, the issuance of VGH, Inc. common stock to Vieco US and, if applicable, Mr. Palihapitiya, which is referred to herein as the “Stock Issuance Proposal,” (4) a proposal to approve and adopt the VGH, Inc. 2019 Incentive Award Plan, which is referred to as the “Incentive Award Plan Proposal,” (5) a proposal to approve the repurchase, at Vieco US’s election, of up to 20,000,000 shares of VGH, Inc. common stock from Vieco US at a price of $10.00 per share with cash in an aggregate amount equal to the lesser of $200.0 million and the amount (if any) by which SCH’s Available Cash (as defined below) exceeds $500.0 million at the Closing (“Repurchase”), which is referred to herein as the “Repurchase Proposal” and (6) a proposal to approve the adjournment of the extraordinary general meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the extraordinary general meeting, which is referred to herein as the “Adjournment Proposal.” The

 

ii


Table of Contents

Business Combination will be consummated only if the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, and the Repurchase Proposal (collectively, the “Condition Precedent Proposals”) are approved at the extraordinary general meeting. Each of the Condition Precedent Proposals is cross-conditioned on the approval of each other. The Adjournment Proposal is not conditioned upon the approval of any other proposal. Each of these proposals is more fully described in the accompanying proxy statement/prospectus, which each shareholder is encouraged to read carefully and in its entirety.

In accordance with the terms and subject to the conditions of the Merger Agreement, the aggregate merger consideration payable by SCH to Vieco US under the Merger Agreement will be 130,000,000 shares of VGH, Inc. common stock (at a deemed value of $10.00 per share) for an aggregate merger consideration of $1.3 billion (the “Aggregate Merger Consideration”). The Aggregate Merger Consideration does not take into account certain additional issuances and payments to Vieco US which may be made under the terms of the Merger Agreement and the Purchase Agreement, respectively, only to the extent certain conditions are satisfied or certain options are elected by Vieco US, in each case, as contemplated thereunder, including, if applicable: (i) the issuance of additional shares of VGH, Inc. common stock to Vieco US or an affiliate of Vieco US as part of the Additional Holder Equity Amount (as defined below) under the terms of the Merger Agreement, (ii) the cash payment received by Vieco US in any Secondary Purchase under the terms of the Purchase Agreement, (iii) the issuance of additional shares of VGH, Inc. common stock to Vieco US in any Reinvestment under the terms of the Purchase Agreement, and (iv) any cash payment received by Vieco US in any Repurchase under the terms of the Merger Agreement, in each case, as described more fully elsewhere in the accompanying proxy statement/prospectus.

In connection with the Business Combination, certain related agreements have been, or will be entered into on or prior to the date of the Closing (the “Closing Date”), including (i) the Stockholders’ Agreement, (ii) the Registration Rights Agreement, (iii) the Transition Services Agreements and (iv) the Novation Deed and Amended TMLA, in each case, as defined in the accompanying proxy statement/prospectus. For additional information, see “BCA Proposal—Related Agreements” in the accompanying proxy statement/prospectus.

Pursuant to the Cayman Constitutional Documents, a holder (a “public shareholder”) of public shares, which excludes shares held by the Sponsor, may request that SCH redeem all or a portion of such shareholder’s public shares for cash if the Business Combination is consummated. Holders of units must elect to separate the units into the underlying public shares and warrants prior to exercising redemption rights with respect to the public shares. If holders hold their units in an account at a brokerage firm or bank, holders must notify their broker or bank that they elect to separate the units into the underlying public shares and warrants, or if a holder holds units registered in its own name, the holder must contact the transfer agent directly and instruct it to do so.Public shareholders may elect to redeem their public shares even if they vote “for” the BCA Proposal or any other Condition Precedent Proposal. If the Business Combination is not consummated, the public shares will be returned to the respective holder, broker or bank. If the Business Combination is consummated, and if a public shareholder properly exercises its right to redeem all or a portion of the public shares that it holds and timely delivers its shares to Continental Stock Transfer & Trust Company, SCH’s transfer agent, VGH, Inc. will redeem such public shares for aper-share price, payable in cash, equal to the pro rata portion of the trust account established at the consummation of our initial public offering (the “trust account”), calculated as of two business days prior to the consummation of the Business Combination. For illustrative purposes, as of June 30, 2019, this would have amounted to approximately $10.33 per issued and outstanding public share. If a public shareholder exercises its redemption rights in full, then it will be electing to exchange its public shares for cash and will no longer own public shares. The redemption takes place following the Domestication and, accordingly, it is shares of VGH, Inc. common stock that will be redeemed immediately after consummation of the Business Combination. See “Extraordinary General Meeting of SCH—Redemption Rights” in the accompanying proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your public shares for cash.

Notwithstanding the foregoing, a public shareholder, together with any affiliate of such public shareholder or any other person with whom such public shareholder is acting in concert or as a “group” (as defined in

 

iii


Table of Contents

Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), will be restricted from redeeming its public shares with respect to more than an aggregate of 15% of the public shares. Accordingly, if a public shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the public shares, then any such shares in excess of that 15% limit would not be redeemed for cash.

The Sponsor, and each officer and director of SCH have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, and to waive their redemption rights in connection with the consummation of the Business Combination with respect to any ordinary shares held by them, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement, dated as of July 9, 2019, a copy of which is attached as Annex D to this proxy statement/prospectus (the “Sponsor Support Agreement”). The ordinary shares held by the Sponsor will be excluded from the pro rata calculation used to determine theper-share redemption price. As of the date of the accompanying proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

The Merger Agreement provides that the obligations of VG to consummate the Mergers are conditioned on, among other things, that as of the Closing, the amount of cash available in the trust account, after deducting the amount required to satisfy SCH’s obligations to its shareholders that exercise their rights to redeem their public shares pursuant to the Cayman Constitutional Documents (including the Extension Amendment Redemption) (“Trust Amount”), is at least equal to the sum of (x) $400.0 million plus (y) if applicable, an aggregate of approximately $24.2 million of deferred underwriting commissions being held in the trust account (the “Minimum Available Cash Amount”). However, if the Trust Amount as of the Closing is less than the Minimum Available Cash Amount, then Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00 (the “Additional Holder Equity Amount”) up to the Minimum Available Cash Amount less the amount of the aggregate purchase price paid to SCH by Mr. Palihapitiya in any Primary Purchase (the “Investment Amount”). If the Trust Amount when added to the Additional Holder Equity Amount and the Investment Amount (such aggregate amount, the “Available Cash”) is equal to or greater than the Minimum Available Cash Amount, then this condition will be deemed to have been satisfied (such condition, the “Minimum Cash Condition”). This condition is for the sole benefit of VG except that this condition may not be waived by VG if the Trust Amount is less than $200.0 million, provided that Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00 in an aggregate amount such that the Available Cash is, at or immediately prior to the Closing, equal to at least $200.0 million after giving effect to such purchases. If such condition is not met, and such condition is not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated. In addition, pursuant to the Cayman Constitutional Documents, in no event will SCH redeem public shares in an amount that would cause VGH, Inc.’s net tangible assets (as determined in accordance with Rule3a51-1(g)(1) of the Exchange Act) to be less than $5,000,001.

The Merger Agreement is also subject to the satisfaction or waiver of certain other closing conditions as described in the accompanying proxy statement/prospectus. There can be no assurance that the parties to the Merger Agreement would waive any such provision of the Merger Agreement.

SCH is providing the accompanying proxy statement/prospectus and accompanying proxy card to SCH’s shareholders in connection with the solicitation of proxies to be voted at the extraordinary general meeting and at any adjournments of the extraordinary general meeting. Information about the extraordinary general meeting, the Business Combination and other related business to be considered by SCH’s shareholders at the extraordinary general meeting is included in the accompanying proxy statement/prospectus. Whether or not you plan to attend the extraordinary general meeting, all of SCH’s shareholders are urged to read the accompanying proxy statement/prospectus, including the Annexes and other documents referred to therein, carefully and in their entirety. You should also carefully consider the risk factors described in “Risk Factors” beginning on page 35 of this proxy statement/prospectus.

 

iv


Table of Contents

After careful consideration, the board of directors of SCH has unanimously approved the Business Combination and unanimously recommends that shareholders vote “FOR” adoption of the Merger Agreement, and approval of the transactions contemplated thereby, including the Business Combination, and “FOR” all other proposals presented to SCH’s shareholders in the accompanying proxy statement/prospectus. When you consider the recommendation of these proposals by the board of directors of SCH, you should keep in mind that SCH’s directors and officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “BCA Proposal—Interests of SCH’s Directors and Executive Officers in the Business Combination” in the accompanying proxy statement/prospectus for a further discussion of these considerations.

The approval of each of the Domestication Proposal and Organizational Documents Proposals requires the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. The BCA Proposal, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the Repurchase Proposal and the Adjournment Proposal require the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

Your vote is very important.Whether or not you plan to attend the extraordinary general meeting, please vote as soon as possible by following the instructions in the accompanying proxy statement/prospectus to make sure that your shares are represented at the extraordinary general meeting. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the extraordinary general meeting. The transactions contemplated by the Merger Agreement will be consummated only if the Condition Precedent Proposals are approved at the extraordinary general meeting. Each of the Condition Precedent Proposals is cross-conditioned on the approval of each other. The Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in the accompanying proxy statement/prospectus.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted FOR each of the proposals presented at the extraordinary general meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the extraordinary general meeting in person, the effect will be, among other things, that your shares will not be counted for purposes of determining whether a quorum is present at the extraordinary general meeting and will not be voted. An abstention or brokernon-vote will be counted towards the quorum requirement but will not count as a vote cast at the extraordinary general meeting. If you are a shareholder of record and you attend the extraordinary general meeting and wish to vote in person, you may withdraw your proxy and vote in person.

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST DEMAND IN WRITING THAT YOUR PUBLIC SHARES ARE REDEEMED FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND TENDER YOUR SHARES TO SCH’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE VOTE AT THE GENERAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL BE RETURNED TO YOU OR YOUR ACCOUNT. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.

 

v


Table of Contents

On behalf of SCH’s board of directors, I would like to thank you for your support and look forward to the successful completion of the Business Combination.

Sincerely,

/s/ Chamath Palihapitiya

Chamath Palihapitiya

Chief Executive Officer and Chairman of the

Board of Directors

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

The accompanying proxy statement/prospectus is dated October 9, 2019 and is first being mailed to shareholders on or about October 11, 2019.

 

vi


Table of Contents

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

A Cayman Islands Exempted Company

(Company Number 322408)

120 Hawthorne Avenue

Palo Alto, CA 94301

NOTICE OF EXTRAORDINARY GENERAL MEETING

TO BE HELD ON OCTOBER 23, 2019

TO THE SHAREHOLDERS OF SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.:

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “extraordinary general meeting”) of Social Capital Hedosophia Holdings Corp., a Cayman Islands exempted company, company number 322408 (“SCH”), will be held at 12:30 p.m., Eastern Time, on October 23, 2019, at The Westin Palo Alto, located at 675 El Camino Real, Palo Alto, CA 94301. You are cordially invited to attend the extraordinary general meeting, which will be held for the following purposes:

 

  

Proposal No. 1—The BCA Proposal—to consider and vote upon a proposal to approve by ordinary resolution and adopt the Agreement and Plan of Merger, dated as of July 9, 2019, as amended on October 2, 2019, (the “Merger Agreement”), by and among SCH, Vieco 10 Limited, a company limited by shares under the laws of the British Virgin Islands (“V10”), Vieco USA, Inc., a Delaware corporation and wholly owned subsidiary of V10 (“Vieco US”), Foundation Sub 1, Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH (“Merger Sub A”), Foundation Sub 2, Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH (“Merger Sub B”), Foundation Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of SCH (“Merger Sub LLC” and, collectively with Merger Sub A and Merger Sub B, the “Merger Subs”), TSC Vehicle Holdings, Inc., a Delaware corporation and an indirect wholly owned subsidiary of V10 (“Company A”), Virgin Galactic Vehicle Holdings, Inc., a Delaware corporation and an indirect wholly owned subsidiary of V10 (“Company B”), and VGH, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of V10 (“Company LLC” and, collectively with Company A and Company B, the “VG Companies” and, together with Vieco US, “VG”), a copy of which is attached to this proxy statement/prospectus statement as Annex A. The Merger Agreement provides for, among other things, the merger of: (x) Merger Sub A with and into Company A, with Company A surviving the merger as a wholly owned subsidiary of VGH, Inc. (“Corp Merger A”), (y) Merger Sub B with and into Company B, with Company B surviving the merger as a wholly owned subsidiary of VGH, Inc. (“Corp Merger B”) and (z) Merger Sub LLC with and into Company LLC, with Company LLC surviving the merger as a wholly owned subsidiary of VGH, Inc. (the “LLC Merger” and, collectively with Corp Merger A and Corp Merger B, the “Mergers”), in each case, in accordance with the terms and subject to the conditions of the Merger Agreement as more fully described elsewhere in this proxy statement/prospectus (we refer to this proposal as the “BCA Proposal”);

 

  

Proposal No. 2—The Domestication Proposal—to consider and vote upon a proposal to approve by special resolution, the change of SCH’s jurisdiction of incorporation by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the “Domestication” and, together with the Mergers, the “Business Combination”) (this proposal is referred to herein as the “Domestication Proposal”);

 

  

Organizational Documents Proposals—to consider and vote upon the following four separate proposals (collectively, the “Organizational Documents Proposals”) to approve by special resolution, the following material differences between SCH’s Amended and Restated Memorandum and Articles of Association (as amended by a special resolution of shareholders passed on September 9, 2019 (the “Extension Amendment”)), and as may be further amended from time to time, the “Cayman Constitutional Documents”) and the proposed new certificate of incorporation (“Proposed Certificate of Incorporation”) and the proposed new bylaws (“Proposed Bylaws”) of Social Capital Hedosophia Holdings Corp. (a corporation incorporated in the State of Delaware, and the filing with and acceptance by the Secretary of State of Delaware of the certificate of domestication in accordance with Section 388 of the Delaware

 

vii


Table of Contents
 

General Corporation Law (the “DGCL”)), which will be renamed “Virgin Galactic Holdings, Inc.” in connection with the Business Combination (SCH after the Domestication, including after such change of name, is referred to herein as “VGH, Inc.”):

 

 (A)

Proposal No. 3—Organizational Documents Proposal A—to authorize the change in the authorized capital stock of SCH from 500,000,000 Class A ordinary shares, par value $0.0001 per share (the “SCH Class A ordinary shares”), 50,000,000 Class B ordinary shares, par value $0.0001 per share (the “Class B ordinary shares” and, together with the Class A ordinary shares, the “ordinary shares”), and 5,000,000 preferred shares, par value $0.0001 per share (the “SCH preferred shares”), to 700,000,000 shares of common stock, par value $0.0001 per share, of VGH, Inc. (the “VGH, Inc. common stock”) and 10,000,000 shares of preferred stock, par value $0.0001 per share, of VGH, Inc. (the “VGH, Inc. preferred stock”) (this proposal is referred to herein as “Organizational Documents Proposal A”);

 

 (B)

Proposal No. 4—Organizational Documents Proposal B—to authorize the board of directors of VGH, Inc. (the “Board”) to issue any or all shares of VGH, Inc. preferred stock in one or more series, with such terms and conditions as may be expressly determined by the Board and as may be permitted by the DGCL (this proposal is referred to herein as “Organizational Documents Proposal B”);

 

 (C)

Proposal No. 5—Organizational Documents Proposal C—to provide that certain provisions of the certificate of incorporation of VGH, Inc. will be subject to the Stockholders’ Agreement and certain provisions of the bylaws of VGH, Inc. will be subject to the Stockholders’ Agreement and the Registration Rights Agreement (this proposal is referred to herein as “Organizational Documents Proposal C”); and

 

 (D)

Proposal No. 6—Organizational Documents Proposal D—to authorize all other changes in connection with the replacement of Cayman Constitutional Documents with the Proposed Certificate of Incorporation and Proposed Bylaws as part of the Domestication (copies of which are attached to this proxy statement/prospectus as Annex F and Annex G, respectively), including (1) changing the corporate name from “Social Capital Hedosophia Holdings Corp.” to “Virgin Galactic Holdings, Inc.,” (2) making VGH, Inc.’s corporate existence perpetual, (3) adopting Delaware as the exclusive forum for certain stockholder litigation, (4) granting an explicit waiver regarding corporate opportunities to certain “exempted persons” (including Vieco US and Mr. Palihapitiya and their respective affiliates and representatives) and (5) removing certain provisions related to our status as a blank check company that will no longer be applicable upon consummation of the Business Combination, all of which SCH’s board of directors believes is necessary to adequately address the needs of VGH, Inc. after the Business Combination (this proposal is referred to herein as “Organizational Documents Proposal D”);

 

  

Proposal No. 7—Director Election Proposal—to consider and vote upon a proposal to approve by ordinary resolution, the election of eight directors who, upon consummation of the Business Combination, will be the directors of VGH, Inc. (this proposal is referred to herein as the “Director Election Proposal”);

 

  

Proposal No. 8—The Stock Issuance Proposal—to consider and vote upon a proposal to approve by ordinary resolution, for the purposes of complying with the applicable provisions of Section 312.03 of the NYSE’s Listed Company Manual, the issuance of shares of VGH, Inc. common stock to (1) Vieco US pursuant to the Merger Agreement and (2) Chamath Palihapitiya, SCH’s Chief Executive Officer and Chairman of its board of directors, and Vieco US, in each case, if applicable, pursuant to the Purchase Agreement, dated July 9, 2019, a copy of which is attached to this proxy statement/prospectus statement as Annex B (the “Purchase Agreement”), by and among SCH, Vieco US and Mr. Palihapitiya (this proposal is referred to herein as the “Stock Issuance Proposal”);

 

  

Proposal No. 9—The Incentive Award Plan Proposal—to consider and vote upon a proposal to approve by ordinary resolution, the VGH, Inc. 2019 Incentive Award Plan (this proposal is referred to herein as the “Incentive Award Plan Proposal”);

 

  

Proposal No. 10—The Repurchase Proposal—to consider and approve by ordinary resolution, the repurchase, at Vieco US’s election, of up to 20,000,000 shares of VGH, Inc. common stock from Vieco US

 

viii


Table of Contents
 

at a price of $10.00 per share with cash in an aggregate amount equal to the lesser of $200.0 million and the amount (if any) by which the Available Cash (as defined below) exceeds $500.0 million at the Closing (the “Remaining Cash”) (this proposal is referred to herein as the “Repurchase Proposal” and, collectively with the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal, the Stock Issuance Proposal and the Incentive Award Plan Proposal, the “Condition Precedent Proposals”); and

 

  

Proposal No. 11—The Adjournment Proposal—to consider and vote upon a proposal to approve the adjournment of the extraordinary general meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the extraordinary general meeting (this proposal is referred to herein as the “Adjournment Proposal”).

Each of Proposals No. 1 through 10 is cross-conditioned on the approval of each other. The Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus.

These items of business are described in this proxy statement/prospectus, which we encourage you to read carefully and in its entirety before voting.

Only holders of record of ordinary shares at the close of business on September 16, 2019 are entitled to notice of and to vote and have their votes counted at the extraordinary general meeting and any adjournment of the extraordinary general meeting.

This proxy statement/prospectus and accompanying proxy card is being provided to SCH’s shareholders in connection with the solicitation of proxies to be voted at the extraordinary general meeting and at any adjournment of the extraordinary general meeting.Whether or not you plan to attend the extraordinary general meeting, all of SCH’s shareholders are urged to read this proxy statement/prospectus, including the Annexes and the documents referred to herein, carefully and in their entirety. You should also carefully consider the risk factors described in “Risk Factors” beginning on page 35 of this proxy statement/prospectus.

After careful consideration, the board of directors of SCH has unanimously approved the Business Combination and unanimously recommends that shareholders vote “FOR” adoption of the Merger Agreement, and approval of the transactions contemplated thereby, including the Business Combination, and “FOR” all other proposals presented to SCH’s shareholders in this proxy statement/prospectus. When you consider the recommendation of these proposals by the board of directors of SCH, you should keep in mind that SCH’s directors and officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “BCA Proposal—Interests of SCH’s Directors and Executive Officers in the Business Combination” in this proxy statement/prospectus for a further discussion of these considerations.

Pursuant to the Cayman Constitutional Documents, a holder of public shares (as defined herein) (a “public shareholder”) may request of SCH that VGH, Inc. redeem all or a portion of its public shares for cash if the Business Combination is consummated. As a holder of public shares, you will be entitled to receive cash for any public shares to be redeemed only if you:

 

 (i)

(a) hold public shares, or (b) if you hold public shares through units, you elect to separate your units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares;

 

 (ii)

submit a written request to Continental Stock Transfer & Trust Company, SCH’s transfer agent, that VGH, Inc. redeem all or a portion of your public shares for cash; and

 

 (iii)

deliver your public shares to Continental, SCH’s transfer agent, physically or electronically through The Depository Trust Company (“DTC”).

 

ix


Table of Contents

Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on October 21, 2019 (two business days before the extraordinary general meeting) in order for their shares to be redeemed.

Holders of units must elect to separate the units into the underlying public shares and warrants prior to exercising redemption rights with respect to the public shares. If holders hold their units in an account at a brokerage firm or bank, holders must notify their broker or bank that they elect to separate the units into the underlying public shares and warrants, or if a holder holds units registered in its own name, the holder must contact Continental, SCH’s transfer agent, directly and instruct them to do so. Public shareholders may elect to redeem public shares regardless of if or how they vote in respect of the BCA Proposal. If the Business Combination is not consummated, the public shares will be returned to the respective holder, broker or bank.

If the Business Combination is consummated, and if a public shareholder properly exercises its right to redeem all or a portion of the public shares that it holds and timely delivers its shares to Continental, SCH’s transfer agent, VGH, Inc. will redeem such public shares for aper-share price, payable in cash, equal to the pro rata portion of the trust account established at the consummation of our initial public offering (the “trust account”), calculated as of two business days prior to the consummation of the Business Combination. For illustrative purposes, as of June 30, 2019, this would have amounted to approximately $10.33 per issued and outstanding public share. If a public shareholder exercises its redemption rights in full, then it will be electing to exchange its public shares for cash and will no longer own public shares. The redemption takes place following the Domestication and, accordingly, it is shares of VGH, Inc. common stock that will be redeemed promptly after consummation of the Business Combination. See “Extraordinary General Meeting of SCH—Redemption Rights” in this proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your public shares for cash.

Notwithstanding the foregoing, a public shareholder, together with any affiliate of such public shareholder or any other person with whom such public shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), will be restricted from redeeming its public shares with respect to more than an aggregate of 15% of the public shares. Accordingly, if a public shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the public shares, then any such shares in excess of that 15% limit would not be redeemed for cash.

SCH Sponsor Corp., a Cayman Islands exempted company and shareholder of SCH (the “Sponsor”), and each officer and director of SCH have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, and to waive their redemption rights in connection with the consummation of the Business Combination with respect to any ordinary shares held by them, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement, dated as of July 9, 2019, a copy of which is attached to this proxy statement/prospectus statement as Annex D (the “Sponsor Support Agreement”). The ordinary shares held by the Sponsor will be excluded from the pro rata calculation used to determine theper-share redemption price. As of the date of the accompanying proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

The Merger Agreement provides that the obligations of VG to consummate the Mergers are conditioned on, among other things, that as of the Closing, the amount of cash available in the trust account, after deducting the amount required to satisfy SCH’s obligations to its shareholders that exercise their rights to redeem their public shares pursuant to the Cayman Constitutional Documents (including the Extension Amendment Redemptions) (“Trust Amount”), is at least equal to the sum of (x) $400.0 million plus (y) if applicable, an aggregate of approximately $24.2 million of deferred underwriting commissions being held in the trust account (the “Minimum Available Cash Amount”). However, if the Trust Amount as of the Closing is less than the Minimum Available Cash Amount, then Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00

 

x


Table of Contents

(the “Additional Holder Equity Amount”) up to the Minimum Available Cash Amount less the amount of the aggregate purchase price paid to SCH by Mr. Palihapitiya in any Primary Purchase (the “Investment Amount”). If the Trust Amount when added to the Additional Holder Equity Amount and the Investment Amount (such aggregate amount, the “Available Cash”) is equal to or greater than the Minimum Available Cash Amount, then this condition will be deemed to have been satisfied (such condition, the “Minimum Cash Condition”). This condition is for the sole benefit of VG except that this condition may not be waived by VG if the Trust Amount is less than $200.0 million, provided that Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00 in an aggregate amount such that the Available Cash is, at or immediately prior to the Closing, equal to at least $200.0 million after giving effect to such purchases. If such condition is not met, and such condition is not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated. In addition, pursuant to the Cayman Constitutional Documents, in no event will SCH redeem public shares in an amount that would cause VGH, Inc.’s net tangible assets (as determined in accordance with Rule3a51-1(g)(1) of the Exchange Act) to be less than $5,000,001.

The Merger Agreement is also subject to the satisfaction or waiver of certain other closing conditions as described in the accompanying proxy statement/prospectus. There can be no assurance that the parties to the Merger Agreement would waive any such provision of the Merger Agreement.

The approval of each of the Domestication Proposal and Organizational Documents Proposals requires the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. The BCA Proposal, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, Repurchase Proposal and the Adjournment Proposal require the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

Your vote is very important. Whether or not you plan to attend the extraordinary general meeting, please vote as soon as possible by following the instructions in this proxy statement/prospectus to make sure that your shares are represented at the extraordinary general meeting. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the extraordinary general meeting. The transactions contemplated by the Merger Agreement will be consummated only if the Condition Precedent Proposals are approved at the extraordinary general meeting. Each of the Condition Precedent Proposals is cross-conditioned on the approval of each other. The Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted FOR each of the proposals presented at the extraordinary general meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the extraordinary general meeting in person, the effect will be, among other things, that your shares will not be counted for purposes of determining whether a quorum is present at the extraordinary general meeting and will not be voted. An abstention or brokernon-vote will be counted towards the quorum requirement but will not count as a vote cast at the extraordinary general meeting. If you are a shareholder of record and you attend the extraordinary general meeting and wish to vote in person, you may withdraw your proxy and vote in person.

Your attention is directed to the remainder of the proxy statement/prospectus following this notice (including the Annexes and other documents referred to herein) for a more complete description of the proposed Business Combination and related transactions and each of the proposals. You are encouraged to read this proxy statement/prospectus carefully and in its entirety, including the Annexes and other documents referred to herein. If you have any questions or need assistance voting your ordinary shares, please contact Morrow Sodali LLC

 

xi


Table of Contents

(“Morrow”), our proxy solicitor, by calling (800)662-5200 or banks and brokers can call collect at (203)658-9400, or by emailing IPOA.info@morrowsodali.com.

Thank you for your participation. We look forward to your continued support.

By Order of the Board of Directors of Social Capital Hedosophia Holdings Corp.,

October 9, 2019

/s/ Chamath Palihapitiya

Chamath Palihapitiya

Chief Executive Officer and Chairman of the Board of Directors

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST DEMAND IN WRITING THAT YOUR PUBLIC SHARES ARE REDEEMED FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND TENDER YOUR SHARES TO SCH’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE VOTE AT THE GENERAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL BE RETURNED TO YOU OR YOUR ACCOUNT. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.

 

xii


Table of Contents

TABLE OF CONTENTS

 

REFERENCES TO ADDITIONAL INFORMATION

   i 

TRADEMARKS

   i 

SELECTED DEFINITIONS

   i 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

   vii 

QUESTIONS AND ANSWERS FOR SHAREHOLDERS OF SCH

   ix 

SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

   1 

SELECTED HISTORICAL FINANCIAL INFORMATION OF SCH

   25 

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE VG COMPANIES

   26 

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   28 

COMPARATIVE PER SHARE DATA

   32 

MARKET PRICE AND DIVIDEND INFORMATION

   34 

RISK FACTORS

   35 

EXTRAORDINARY GENERAL MEETING OF SCH

   80 

BCA PROPOSAL

   88 

DOMESTICATION PROPOSAL

   137 

ORGANIZATIONAL DOCUMENTS PROPOSALS

   140 

ORGANIZATIONAL DOCUMENTS PROPOSAL A—APPROVAL OF AUTHORIZATION OF CHANGE TO AUTHORIZED CAPITAL STOCK, AS SET FORTH IN THE PROPOSED ORGANIZATIONAL DOCUMENTS

   144 

ORGANIZATIONAL DOCUMENTS PROPOSAL B—APPROVAL OF PROPOSAL REGARDING ISSUANCE OF PREFERRED STOCK OF VGH, INC. AT THE BOARD OF DIRECTORS’ SOLE DISCRETION, AS SET FORTH IN THE PROPOSED ORGANIZATIONAL DOCUMENTS

   146 

ORGANIZATIONAL DOCUMENTS PROPOSAL C—APPROVAL OF PROPOSAL REGARDING CERTAIN PROVISIONS OF THE PROPOSED ORGANIZATIONAL DOCUMENTS BEING SUBJECT TO THE STOCKHOLDERS’ AGREEMENT AND REGISTRATION RIGHTS AGREEMENT

   148 

ORGANIZATIONAL DOCUMENTS PROPOSAL D—APPROVAL OF OTHER CHANGES IN CONNECTION WITH ADOPTION OF THE PROPOSED ORGANIZATIONAL DOCUMENTS

   150 

DIRECTOR ELECTION PROPOSAL

   154 

STOCK ISSUANCE PROPOSAL

   156 

INCENTIVE AWARD PLAN PROPOSAL

   158 

REPURCHASE PROPOSAL

   164 

ADJOURNMENT PROPOSAL

   165 

U.S. FEDERAL INCOME TAX CONSIDERATIONS

   166 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   177 

INFORMATION ABOUT SCH

   188 

SCH’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   197 

INFORMATION ABOUT THE VG COMPANIES

   202 

THE VG COMPANIES’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   223 

MANAGEMENT OF VGH, INC. FOLLOWING THE BUSINESS COMBINATION

   238 

EXECUTIVE COMPENSATION

   245 

BENEFICIAL OWNERSHIP OF SECURITIES

   258 

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

   262 

COMPARISON OF CORPORATE GOVERNANCE AND SHAREHOLDER RIGHTS

   269 

DESCRIPTION OF VGH, INC. SECURITIES

   272 

SECURITIES ACT RESTRICTIONS ON RESALE OF VGH, INC. SECURITIES

   277 

STOCKHOLDER PROPOSALS AND NOMINATIONS

   278 

SHAREHOLDER COMMUNICATIONS

   279 

LEGAL MATTERS

   280 

EXPERTS

   280 

DELIVERY OF DOCUMENTS TO SHAREHOLDERS

   280 

ENFORCEABILITY OF CIVIL LIABILITY

   280 

WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE

   281 

INDEX TO FINANCIAL STATEMENTS

   F-1 


Table of Contents

ANNEXES

 

Annex A:

  Merger Agreement  A-1

Annex B:

  Purchase Agreement  B-1

Annex C:

  

Form of VGH, Inc. 2019 Incentive Award Plan

  C-1

Annex D:

  Sponsor Support Agreement  

D-1

Annex E:

  Cayman Constitutional Documents of SCH  E-1

Annex F:

  Form of Proposed Certificate of Incorporation  F-1

Annex G:

  Form of Proposed Bylaws  G-1


Table of Contents

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information that is not included in or delivered with this proxy statement/prospectus. This information is available for you to review through the SEC’s website at www.sec.gov.

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference into this proxy statement/prospectus or other publicly available information concerning SCH, without charge, by written request to Secretary at Social Capital Hedosophia Holdings Corp., 120 Hawthorne Avenue, Palo Alto, CA 94301, or by telephone request at (650)521-9007; or Morrow Sodali LLC, SCH’s proxy solicitor, by calling (800)662-5200 or banks and brokers can call collect at (203)658-9400, or by emailing IPOA.info@morrowsodali.com, or from the SEC through the SEC website at the address provided above.

In order for SCH’s shareholders to receive timely delivery of the documents in advance of the extraordinary general meeting of SCH to be held on October 23, 2019, you must request the information no later than October 16, 2019, five business days prior to the date of the extraordinary general meeting.

TRADEMARKS

This document contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this proxy statement/prospectus 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. SCH does not intend its use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of it by, any other companies.

SELECTED DEFINITIONS

Unless otherwise stated in this proxy statement/prospectus or the context otherwise requires, references to:

 

  

“2019 Plan” are to the VGH, Inc. 2019 Incentive Award Plan attached to this proxy statement/prospectus as Annex C;

 

  

“Additional Holder Equity Amount” are to the issuance of additional shares of VGH, Inc. common stock which may, at Vieco US’s option and under certain circumstances, be purchased as of the Closing by Vieco US or an affiliate of Vieco US (or a third party) at a price of $10.00 per share, subject to the terms and conditions contemplated by the Merger Agreement;

 

  

“Available Cash” are to the amount as calculated by adding the Trust Amount, the Additional Holder Equity Amount and the Investment Amount;

 

  

“Business Combination” are to the Domestication together with the Mergers;

 

  

“Cayman Constitutional Documents” are to SCH’s Amended and Restated Memorandum and Articles of Association (as amended by the Extension Amendment and as may be further amended from time to time);

 

  

“Cayman Islands Companies Law” are to the Cayman Islands Companies Law (2018 Revision);

 

  

“CCPA” are to the California Consumer Privacy Act;

 

  

“Closing” are to the closing of the Business Combination;

 

i


Table of Contents
  

“Co-Investment” are to Mr. Palihapitiya’s purchases substantially concurrently with the consummation of the Mergers, at the option of Vieco US, of (a) 10,000,000 newly issued shares of VGH, Inc. common stock in the Primary Purchase and (b) a number of shares of VGH, Inc. common stock from Vieco US at a price of $10.00 per share in cash in the Secondary Purchase, provided that the number of shares purchased in the Secondary Purchase will reduce, on aone-for-one basis, the number of shares purchased directly from VGH, Inc. in the Primary Purchase and provided further that the aggregate number of shares of VGH, Inc. common stock to be purchased in the Primary Purchase and Secondary Purchase will, in any event, be equal to 10,000,000, and the aggregate price paid for such shares will be equal to $100,000,000;

 

  

“Company,” “we,” “us” and “our” are to SCH prior to its domestication as a corporation in the State of Delaware and to VGH, Inc. after its domestication as a corporation incorporated in the State of Delaware, including after its change of name to Virgin Galactic Holdings, Inc.;

 

  

“Condition Precedent Approvals” are to approval at the extraordinary general meeting of the Condition Precedent Proposals;

 

  

“Condition Precedent Proposals” are to the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal and the Repurchase Proposal, collectively;

 

  

“Corp Merger A” are to the merger of Merger Sub A with and into TSCV pursuant to which the separate corporate existence of Merger Sub A will cease and TSCV will be the surviving corporation and a wholly owned subsidiary of SCH, or, if such merger is otherwise structured pursuant to the terms of the Merger Agreement, such other structure;

 

  

“Corp Merger B” are to the merger of Merger Sub B with and into VGVH pursuant to which the separate corporate existence of Merger Sub B will cease and VGVH will be the surviving corporation and a wholly owned subsidiary of SCH, or, if such merger is otherwise structured pursuant to the terms of the Merger Agreement, such other structure;

 

  

“DGCL” are to the General Corporation Law of the State of Delaware;

 

  

“Director RSU Awards” are to the restricted stock units covering 1,500,000 shares of VGH, Inc. common stock that will be granted to certain members of the board of directors of SCH in connection with the Business Combination;

 

  

“Domestication” are to the domestication of Social Capital Hedosophia Holdings Corp. as a corporation incorporated in the State of Delaware;

 

  

“DOT” are to the U.S. Department of Transportation;

 

  

“EAR” are to the U.S. Export Administration Regulations;

 

  

“EEA” are to the European Economic Area;

 

  

“Exchange Act” are to the Securities Exchange Act of 1934, as amended;

 

  

“Extension Amendment” are to the amendment to (x) SCH’s Amended and Restated Memorandum and Articles of Association, extending the date by which SCH must consummate its initial business combination (as defined therein) from September 18, 2019 to December 18, 2019 and (y) the Trust Agreement, extending the date on which the trustee thereunder must liquidate the trust account if SCH has not completed its initial business combination from September 18, 2019 to December 18, 2019, in each case, adopted by a special resolution of the shareholders of SCH passed on September 9, 2019;

 

  

“Extension Amendment Redemptions” are to the redemptions by public shareholders of 3,771,178 public shares, in an aggregate redemption amount of $39,096,085.27 on September 9, 2019 in connection with the Extension Amendment;

 

  

“FAA” are to the Federal Aviation Administration;

 

ii


Table of Contents
  

“FCPA” are to the United States Foreign Corrupt Practices Act;

 

  

“FTC” are to the U.S. Federal Trade Commission;

 

  

“GAAP” are to accounting principles generally accepted in the United States of America;

 

  

“GDPR” are to the European Union’s General Data Protection Regulation;

 

  

“HSR Act” are to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;

 

  

“initial public offering” are to SCH’s initial public offering that was consummated on September 18, 2017;

 

  

“Investment Amount” are to the amount paid by Mr. Palihapitiya in exchange for newly issued shares of VGH, Inc. common stock in a Primary Purchase under the Purchase Agreement;

 

  

“IPO registration statement” are to the Registration Statements on FormS-1(333-220130 and333-220453) filed by SCH in connection with its initial public offering, which became effective on September 15, 2017;

 

  

“IRS” are to the U.S. Internal Revenue Service;

 

  

“ITAR” are to the International Traffic in Arms Regulations;

 

  

“JOBS Act” are to the Jumpstart Our Business Startups Act of 2012;

 

  

“LEED” are to Leadership in Energy and Environmental Design;

 

  

“LLC Merger” are to the merger of Merger Sub LLC with and into VGH, LLC pursuant to which the separate company existence of Merger Sub LLC will cease and VGH, LLC will be the surviving company and a wholly owned subsidiary of SCH;

 

  

“Merger Sub A” are to Foundation Sub 1, Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH;

 

  

“Merger Sub B” are to Foundation Sub 2, Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH;

 

  

“Merger Sub LLC” are to Foundation Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of SCH;

 

  

“Merger Subs” are to, collectively, Merger Sub A, Merger Sub B and Merger Sub LLC;

 

  

“Mergers” are to, collectively, Corp Merger A, Corp Merger B and the LLC Merger;

 

  

“Minimum Cash Condition” are to the Trust Amount being greater than (x) $400,000,000 plus (y) if applicable, an aggregate of approximately $24,150,000 of deferred underwriting commissions being held in the trust account;

 

  

“NASA” are to the National Aeronautics and Space Administration;

 

  

“NYSE” are to the New York Stock Exchange;

 

  

“OFAC” are to the U.S. Treasury Department’s Office of Foreign Assets Controls;

 

  

“ordinary shares” are to the SCH Class A ordinary shares and the SCH Class B ordinary shares, collectively;

 

  

“Person” are to any individual, firm, corporation, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or instrumentality or other entity of any kind;

 

  

“Pre-Closing Restructuring Plan” are to the restructuring transactions set forth in Merger Agreement, pursuant to which Company A, Company B and Company LLC will become, in each case, direct wholly owned subsidiaries of Vieco US prior to the Closing;

 

iii


Table of Contents
  

“Primary Purchase” are to the purchase by Mr. Palihapitiya, concurrently with the consummation of the Mergers of 10,000,000 shares of newly issued VGH, Inc. common stock from VGH, Inc. at a price of $10.00 per share in cash, which amount of shares will be reduced by the number of shares, if any, purchased in the Secondary Purchase;

 

  

“private placement warrants” are to the 8.0 million private placement warrants outstanding as of the date of this proxy statement/prospectus and the redeemable warrants of VGH, Inc. issued as a matter of law upon the conversion thereof at the time of the Domestication;

 

  

“pro forma” are to giving pro forma effect to events that are related and/or directly attributable to the Business Combination;

 

  

“Proposed Bylaws” are to the proposed bylaws of VGH, Inc. upon the effective date of the Domestication attached to this proxy statement/prospectus as Annex G;

 

  

“Proposed Certificate of Incorporation” are to the proposed certificate of incorporation of VGH, Inc. upon the effective date of the Domestication attached to this proxy statement/prospectus as Annex F;

 

  

“Proposed Organizational Documents” are to the Proposed Certificate of Incorporation and the Proposed Bylaws;

 

  

“public shareholders” are to holders of public shares, whether acquired in SCH’s initial public offering or acquired in the secondary market;

 

  

“public shares” are to the SCH Class A ordinary shares (including those that underlie the units) that were offered and sold by SCH in its initial public offering and registered pursuant to the IPO registration statement or the shares of VGH, Inc. common stock issued as a matter of law upon the conversion thereof at the time of the Domestication, as context requires;

 

  

“public warrants” are to the redeemable warrants (including those that underlie the units) that were offered and sold by SCH in its initial public offering and registered pursuant to the IPO registration statement or the redeemable warrants of VGH, Inc. issued as a matter of law upon the conversion thereof at the time of the Domestication, as context requires;

 

  

“Purchase Agreement” are to the Purchase Agreement, dated July 9, 2019, as supplemented by the Assignment, Consent and Waiver Agreement, dated October 2, 2019, by and among SCH, V10, Vieco US and Chamath Palihapitiya;

 

  

“redemption” are to each redemption of public shares for cash pursuant to the Cayman Constitutional Documents (including the Extension Amendment Redemptions);

 

  

“Registration Rights Agreement” are to the Amended and Restated Registration Rights Agreement to be entered into at Closing, by and among SCH, Vieco US, the Sponsor and Mr. Palihapitiya;

 

  

“Reinvestment” are to a purchase by Vieco US, using the proceeds of a Secondary Purchase, of additional newly issued shares of VGH, Inc. common stock at a price of $10.00 per share up to an amount equal to the amount of such Secondary Purchase;

 

  

“Repurchase” are to the repurchase, at Vieco US’s election, of up to 20,000,000 shares of VGH, Inc. common stock from Vieco US at a price of $10.00 per share with cash in an aggregate amount equal to the lesser of $200,000,000 and the amount (if any) by which the Available Cash exceeds $500,000,000 at the Closing;

 

  

“Sarbanes Oxley Act” are to the Sarbanes-Oxley Act of 2002;

 

  

“SCH” are to Social Capital Hedosophia Holdings Corp. prior to its domestication as a corporation in the State of Delaware;

 

  

“SEC” are to the United States Securities and Exchange Commission;

 

iv


Table of Contents
  

“Secondary Purchase” are to the purchase by Mr. Palihapitiya of a number of shares of VGH, Inc. common stock from Vieco US at a price of $10.00 per share in cash, which will reduce the number of shares purchased directly from VGH, Inc. pursuant to the Primary Purchase;

 

  

“Securities Act” are to the Securities Act of 1933, as amended;

 

  

“Sponsor” are to SCH Sponsor Corp., a Cayman Islands exempted company;

 

  

“Stockholders’ Agreement” are to the Stockholders’ Agreement to be entered into at Closing, by and among SCH, the Sponsor, Mr. Palihapitiya and Vieco US;

 

  

“trust account” are to the trust account established at the consummation of SCH’s initial public offering at JP Morgan Chase Bank, N.A. and maintained by Continental, acting as trustee;

 

  

“Trust Agreement” are to the Investment Management Trust Agreement, dated September 13, 2017, by and between SCH and Continental Stock Transfer & Trust Company, as trustee;

 

  

“Trust Amount” are to the amount of cash available in the trust account as of the Closing, after deducting the amount required to satisfy SCH’s obligations to its shareholders that exercise their redemption rights (including the Extension Amendment Redemptions);

 

  

“TSC, LLC” are to TSC, LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of V10 and a direct wholly owned subsidiary of VGH, LLC;

 

  

“TSCV” or “Company A” are to TSC Vehicle Holdings Inc., a Delaware corporation and an indirect wholly owned subsidiary of V10 (which shall become a direct wholly owned subsidiary of Vieco US pursuant to thePre-Closing Restructuring Plan);

 

  

“units” are to the units of SCH, each unit representing one SCH Class A ordinary share andone-third of one redeemable warrant to acquire one SCH Class A ordinary share, that were offered and sold by SCH in its initial public offering and registered pursuant to the IPO registration statement (less the number of units that have been separated into the underlying public shares and underlying warrants upon the request of the holder thereof), or the units of VGH, Inc. issued as a matter of law upon the conversion thereof at the time of the Domestication, each unit of VGH, Inc. representing one share of VGH, Inc. common stock andone-third of one redeemable warrant to acquire one share of VGH, Inc. common stock, as the context requires;

 

  

“V10” are to Vieco 10 Limited;

 

  

“VG” are to the VG Companies together with Vieco US;

 

  

“VG Companies” are to, collectively, (i) TSCV, (ii) VGVH and (iii) VGH, LLC;

 

  

“VG Companies and their subsidiaries” are to, collectively, (i) VGL, (ii) VG, LLC, (iii) TSC, LLC and (iv) the VG Companies;

 

  

“VGH, Inc.” are to Virgin Galactic Holdings, Inc. after its name change from Social Capital Hedosophia Corp.;

 

  

“VGH, LLC” or “Company LLC” are to VGH, LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of V10 (which shall become a direct wholly owned subsidiary of Vieco US pursuant to thePre-Closing Restructuring Plan prior to the Closing);

 

  

“VGL” are to Virgin Galactic Limited, a company limited by shares under the laws of England and Wales and an indirect wholly owned subsidiary of V10 and a direct wholly owned subsidiary of VGH, LLC;

 

  

“VG, LLC” are to Virgin Galactic, LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of V10 and a direct wholly owned subsidiary of VGH, LLC;

 

v


Table of Contents
  

“VGVH” or “Company B” are to Virgin Galactic Vehicle Holdings, Inc., a Delaware corporation and an indirect wholly owned subsidiary of V10 (which shall become a direct wholly owned subsidiary of Vieco US pursuant to thePre-Closing Restructuring Plan prior to the Closing); and

 

  

“Vieco US” are to Vieco USA, Inc., a Delaware corporation and wholly owned subsidiary of V10.

 

  

“warrants” are to the public warrants and the private placement warrants.

Unless otherwise stated in this proxy statement/prospectus or as the context otherwise requires, all references in this proxy statement/prospectus to Class A ordinary shares, shares of VGH, Inc. common stock or warrants include such securities underlying the units.

 

vi


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations, including as they relate to the potential Business Combination, of Social Capital Hedosophia Holdings Corp. (the “Company”). These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this proxy statement, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. When the Company discusses its strategies or plans, including as they relate to the potential Business Combination, it is making projections, forecasts or forward-looking statements. Such statements are based on the beliefs of, as well as assumptions made by and information currently available to, the Company’s management.

Forward-looking statements in this proxy statement/prospectus and in any document incorporated by reference in this proxy statement/prospectus may include, for example, statements about:

 

  

SCH’s ability to complete the Business Combination or, if SCH does not consummate such Business Combination, any other initial business combination;

 

  

satisfaction or waiver (if applicable) of the conditions to the Mergers, including, among other things:

 

  

the satisfaction or waiver of certain customary closing conditions, including, among others, (i) approval by SCH’s shareholders of the Business Combination and related agreements and transactions, (ii) the effectiveness of the registration statement of which this proxy statement/prospectus forms a part, (iii) the receipt of certain regulatory approvals (including, but not limited to, approval for listing on the NYSE of the shares of VGH, Inc. common stock to be issued in connection with the Mergers), (iv) that VGH, Inc. have at least $5,000,001 of net tangible assets upon Closing and (v) the absence of any injunctions;

 

  

Vieco US and certain of its subsidiaries (including the VG Companies and their subsidiaries) consummating, prior to the Closing, thePre-Closing Restructuring Plan as set forth in the Merger Agreement; and

 

  

that the amount of cash available in the trust account, after deducting the amount required to satisfy SCH’s obligations to its shareholders that exercise their rights to redeem their SCH Class A ordinary shares pursuant to the Cayman Constitutional Documents (including the Extension Amendment Redemptions), is at least equal to the Minimum Available Cash Amount;

 

  

the occurrence of any other event, change or other circumstances that could give rise to the termination of the Merger Agreement;

 

  

the projected financial information, anticipated growth rate, and market opportunity of the VG Companies;

 

  

the ability to obtain or maintain the listing of VGH, Inc. common stock, VGH, Inc. warrants and VGH, Inc. units on the NYSE following the Business Combination;

 

  

our public securities’ potential liquidity and trading;

 

  

our ability to raise financing in the future;

 

  

our success in retaining or recruiting, or changes required in, our officers, key employees or directors following the completion of the Business Combination;

 

  

SCH officers and directors allocating their time to other businesses and potentially having conflicts of interest with SCH’s business or in approving the Business Combination;

 

vii


Table of Contents
  

the use of proceeds not held in the trust account or available to us from interest income on the trust account balance;

 

  

factors relating to the business, operations and financial performance of the VG Companies and their subsidiaries, including:

 

  

their ability to achieve or maintain profitability;

 

  

their ability to effectively market and sell human spaceflights;

 

  

the development of the markets for commercial human spaceflight and commercial research and development payloads;

 

  

any delay in completing the flight test program and final development of their spaceflight system, which is comprised of their SpaceShipTwo Spaceship, VSS Unity, and their WhiteKnightTwo carrier aircraft, VMS Eve;

 

  

their ability to operate their spaceflight system after commercial launch;

 

  

the safety of their spaceflight systems;

 

  

their ability to convert their backlog or inbound inquiries into revenue;

 

  

test flights have not yet been completed at their anticipated full passenger capacity;

 

  

delay in developing or the manufacture of spaceflight systems;

 

  

their expected capital requirements and the availability of additional financing;

 

  

their ability to attract or retain highly qualified personnel, including in accounting and finance roles;

 

  

extensive and evolving government regulation that impact the way they operate;

 

  

risks associated with international expansion;

 

  

their ability to continue to use, maintain, enforce, protect and defend their owned and licensed intellectual property, including the Virgin brand and other intellectual property licensed to them under the Amended TMLA; and

 

  

other factors detailed under the section entitled “Risk Factors.”

The forward-looking statements contained in this proxy statement/prospectus and in any document incorporated by reference in this proxy statement/prospectus are based on current expectations and beliefs concerning future developments and their potential effects on us or the VG Companies. There can be no assurance that future developments affecting us or the VG Companies will be those that SCH or the VG Companies have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond SCH’s control or the control of the VG Companies) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” beginning on page 35 of this proxy statement/prospectus. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. SCH and the VG Companies undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Before any SCH shareholder grants its proxy or instructs how its vote should be cast or votes on the proposals to be put to the extraordinary general meeting, such stockholder should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement/prospectus may adversely affect us.

 

viii


Table of Contents

QUESTIONS AND ANSWERS FOR SHAREHOLDERS OF SCH

The questions and answers below highlight only selected information from this document and only briefly address some commonly asked questions about the proposals to be presented at the extraordinary general meeting, including with respect to the proposed Business Combination. The following questions and answers do not include all the information that is important to SCH’s shareholders. SCH urges shareholders to read this proxy statement/prospectus, including the Annexes and the other documents referred to herein, carefully and in their entirety to fully understand the proposed Business Combination and the voting procedures for the extraordinary general meeting, which will be held at 12:30 p.m., Eastern Time, on October 23, 2019, at The Westin Palo Alto, located at 675 El Camino Real, Palo Alto, CA 94301.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

SCH shareholders are being asked to consider and vote upon, among other proposals, a proposal to approve and adopt the Merger Agreement and approve the Business Combination. The Merger Agreement provides for, among other things, the merger of: (x) Merger Sub A with and into Company A, with Company A surviving the merger as a wholly owned subsidiary of VGH, Inc., (y) Merger Sub B with and into Company B, with Company B surviving the merger as a wholly owned subsidiary of VGH, Inc. and (z) Merger Sub LLC with and into Company LLC, with Company LLC surviving the merger as a wholly owned subsidiary of VGH, Inc., in each case, in accordance with the terms and subject to the conditions of the Merger Agreement as more fully described elsewhere in this proxy statement/prospectus. See the section entitled “BCA Proposal” for more detail.

A copy of the Merger Agreement is attached to this proxy statement/prospectus as Annex A and you are encouraged to read it in its entirety.

As a condition to the Mergers, SCH will change its jurisdiction of incorporation by effecting a deregistration under the Cayman Islands Companies Law and a domestication under Section 388 of the DGCL, pursuant to which SCH’s jurisdiction of incorporation will be changed from the Cayman Islands to the State of Delaware. As a result of and upon the effective time of the Domestication, (1) each of the then issued and outstanding SCH Class A ordinary shares will convert automatically, on aone-for-one basis, into a share of the VGH, Inc. common stock, (2) each of the then issued and outstanding SCH Class B ordinary shares will convert automatically, on aone-for-one basis, into a share of VGH, Inc. common stock; provided, however, that with respect to the SCH Class B ordinary shares held by the Sponsor, in connection with the Domestication the Sponsor will instead receive upon the conversion of the SCH Class B ordinary shares held by it, a number of shares of VGH, Inc. common stock equal to (x) the number of SCH Class B ordinary shares held by it as of immediately prior to the Domestication minus (y) after giving effect to the Domestication, the number of shares of VGH, Inc. common stock underlying the Director RSU Awards that were outstanding as of immediately prior to the Domestication, (3) each then issued and outstanding SCH warrant will convert automatically into a VGH, Inc. warrant, pursuant to the Warrant Agreement, dated September 13, 2017 (the “Warrant Agreement”), between SCH and Continental Stock Transfer & Trust Company (“Continental”), as warrant agent, and (4) each SCH unit will convert automatically into a VGH, Inc. unit, with each VGH, Inc. unit representing one share of VGH, Inc. common stock andone-third of one VGH, Inc. warrant. See “Domestication Proposal” for additional information.

The provisions of the Proposed Organizational Documents will differ materially from the Cayman Constitutional Documents. Please see “What amendments will be made to the current constitutional documents of SCH?” below.

THE VOTE OF SHAREHOLDERS IS IMPORTANT. SHAREHOLDERS ARE ENCOURAGED TO VOTE AS SOON AS POSSIBLE AFTER CAREFULLY REVIEWING THIS PROXY STATEMENT/PROSPECTUS.

 

ix


Table of Contents
Q:

What proposals are shareholders of SCH being asked to vote upon?

 

A:

At the extraordinary general meeting, SCH is asking holders of ordinary shares to consider and vote upon:

 

  

a proposal to approve by ordinary resolution and adopt the Merger Agreement;

 

  

a proposal to approve by special resolution the Domestication;

 

  

the following four separate proposals to approve by special resolution the following material differences between the Cayman Constitutional Documents and the Proposed Organizational Documents:

 

  

to authorize the change in the authorized capital stock of SCH from (i) 500,000,000 SCH Class A ordinary shares, 50,000,000 SCH Class B ordinary shares and 5,000,000 preferred shares, par value $0.0001 per share, to (ii) 700,000,000 shares of VGH, Inc. common stock and 10,000,000 shares of VGH, Inc. preferred stock;

 

  

to authorize the board of directors of VGH, Inc. (the “Board”) to issue any or all shares of VGH, Inc. preferred stock in one or more classes or series, with such terms and conditions as may be expressly determined by the Board and as may be permitted by the DGCL;

 

  

to provide that certain provisions of the certificate of incorporation of VGH, Inc. will be subject to the Stockholders’ Agreement and certain provisions of the bylaws of VGH, Inc. will be subject to the Stockholders’ Agreement and the Registration Rights Agreement;

 

  

to authorize all other changes in connection with the replacement of the Cayman Constitutional Documents with the Proposed Certificate of Incorporation and Proposed Bylaws as part of the Domestication, including, (1) changing the corporate name from “Social Capital Hedosophia Holdings Corp.” to “Virgin Galactic Holdings, Inc.,” (2) making VGH, Inc.’s corporate existence perpetual, (3) adopting Delaware as the exclusive forum for certain stockholder litigation, (4) granting an explicit waiver regarding corporate opportunities to certain “exempted persons” (including Vieco US and Mr. Palihapitiya and their respective affiliates and representatives) and (5) removing certain provisions related to SCH’s status as a blank check company that will no longer be applicable upon consummation of the Business Combination, all of which SCH’s board of directors believes is necessary to adequately address the needs of VGH, Inc. after the Business Combination;

 

  

a proposal to approve by ordinary resolution the election of eight directors who, upon consummation of the Business Combination, will be the directors of VGH, Inc.;

 

  

a proposal to approve by ordinary resolution, for the purposes of complying with the applicable provisions of Section 312.03 of the NYSE’s Listed Company Manual, the issuance of shares of VGH, Inc. common stock to (1) Vieco US pursuant to the Merger Agreement and (2) Mr. Palihapitiya and Vieco US, in each case, if applicable, pursuant to the Purchase Agreement;

 

  

a proposal to approve by ordinary resolution the 2019 Plan;

 

  

a proposal to approve by ordinary resolution the Repurchase; and

 

  

a proposal to approve the adjournment of the extraordinary general meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the extraordinary general meeting.

If SCH’s shareholders do not approve each of the Condition Precedent Proposals, then unless certain conditions in the Merger Agreement are waived by the applicable parties to the Merger Agreement, the Merger Agreement could terminate and the Business Combination may not be consummated. In addition to the foregoing proposals, the shareholders are also being asked to consider and vote upon the Adjournment Proposal. See “BCA Proposal,” “Domestication Proposal,” “Organizational Documents Proposals,” “Director Election Proposal,” “Stock Issuance Proposal,” “Incentive Award Plan Proposal,” “Repurchase Proposal” and “Adjournment Proposal.”

 

x


Table of Contents

SCH will hold the extraordinary general meeting to consider and vote upon these proposals. This proxy statement/prospectus contains important information about the Business Combination and the other matters to be acted upon at the extraordinary general meeting. Shareholders of SCH should read it carefully.

After careful consideration, SCH’s board of directors has determined that the BCA Proposal, the Domestication Proposal, each of the Organizational Documents Proposals, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the Repurchase Proposal and the Adjournment Proposal are in the best interests of SCH and its shareholders and unanimously recommends that you vote or give instruction to vote “FOR” each of those proposals.

The existence of financial and personal interests of one or more of SCH’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of SCH and its shareholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that shareholders vote for the proposals. In addition, SCH’s officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “BCA Proposal—Interests of SCH’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

 

Q:

Why is SCH proposing the Business Combination?

 

A:

SCH was organized to effect a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination, with one or more businesses or entities.

The VG Companies represent a vertically-integrated aerospace company which will specialize in commercial human spaceflight and flying payloads into space. Their operations also include the design and development, manufacturing, ground and flight testing, and post-flight maintenance of their spaceships.

Based on its due diligence investigations of the VG Companies and the industry in which they operate, including the financial and other information provided by the VG Companies in the course of SCH’s due diligence investigations, the SCH board of directors believes that the Business Combination with the VG Companies is in the best interests of SCH and its shareholders and presents an opportunity to increase shareholder value. However, there is no assurance of this. See “BCA Proposal—SCH’s Board of Directors’ Reasons for the Business Combination” for additional information.

Although SCH’s board of directors believes that the Business Combination with the VG Companies presents a unique business combination opportunity and is in the best interests of SCH and its shareholders, the board of directors did consider certain potentially material negative factors in arriving at that conclusion. These factors are discussed in greater detail in the section entitled “BCA Proposal—SCH’s Board of Director’s Reasons for the Business Combination,” as well as in the sections entitled “Risk Factors—Risks Related to VGH, Inc.’s Business.”

 

Q:

What will Vieco US receive in return for SCH’s acquisition of all of the issued and outstanding equity interests of the VG Companies?

 

A:

As a result of and upon the Closing, among other things, all outstanding shares of common stock or limited liability company interests, as applicable, of each of the VG Companies will be cancelled in exchange for the right to receive 130,000,000 shares of VGH, Inc. common stock (at a deemed value of $10.00 per share) for an aggregate merger consideration of $1.3 billion (the “Aggregate Merger Consideration”). The Aggregate Merger Consideration does not take into account certain additional issuances and payments to Vieco US which may be made under the terms of the Merger Agreement and the Purchase Agreement, respectively, only to the extent certain conditions are satisfied or certain options are elected by Vieco US, in each case, as contemplated thereunder, including, if applicable: (i) the issuance of additional shares of VGH, Inc. common stock to Vieco US or an affiliate of Vieco US as part of the Additional Holder Equity Amount, (ii) the cash payment received by Vieco US in any Secondary Purchase under the terms of the Purchase Agreement, (iii) the issuance of additional shares of VGH, Inc. common stock to Vieco US in any

 

xi


Table of Contents
 Reinvestment under the terms of the Purchase Agreement, and (iv) any cash payment received by Vieco US in any Repurchase under the terms of the Merger Agreement, in each case, as described more fully elsewhere in this proxy statement/prospectus. For further details, see “BCA Proposal—The Merger Agreement—Consideration—Aggregate Merger Consideration.”

 

Q:

What equity stake will current SCH shareholders and Vieco US hold in VGH, Inc. immediately after the consummation of the Business Combination?

 

A:

As of the date of this proxy statement/prospectus, there are 82,478,822 ordinary shares issued and outstanding, which includes the 17,250,000 founder shares held by the Sponsor and the 65,228,822 public shares. As of the date of this proxy statement/prospectus, there is outstanding an aggregate of 30,999,980 warrants, which includes the 8,000,000 private placement warrants held by the Sponsor and the 22,999,980 public warrants. Each whole warrant entitles the holder thereof to purchase one SCH Class A ordinary share and, following the Domestication, will entitle the holder thereof to purchase one share of VGH, Inc. common stock. Therefore, as of the date of this proxy statement/prospectus (without giving effect to the Business Combination), the SCH fully diluted share capital would be 113,478,822.

It is anticipated that, following the Business Combination (assuming consummation of the transactions contemplated by the Purchase Agreement), (1) SCH’s public shareholders are expected to own approximately 33.3% of the outstanding VGH, Inc. common stock, (2) Vieco US (without taking into account any public shares held by Vieco US equityholders prior to the consummation of the Business Combination) is expected to own approximately 52.5% of the outstanding VGH, Inc. common stock, and (3) the Sponsor and related parties (including Mr. Palihapitiya) are expected to collectively own approximately 13.2% of the outstanding VGH, Inc. common stock. These percentages give effect to the 3,771,178 public shares redeemed in connection with the Extension Amendment, at an assumed price approximating $10.33 per share (which price is based on trust account figures as of June 30, 2019); and assume (i) that no additional public shareholders exercise their redemption rights in connection with the Business Combination and (ii) that (x) VGH, Inc. issues 130,000,000 shares of VGH, Inc. common stock to Vieco US as the Aggregate Merger Consideration pursuant to the Merger Agreement, (y) VGH, Inc. repurchases 17,359,126 of such shares of VGH, Inc. common stock (calculated in accordance with the “no additional redemption” scenario as discussed below in “Selected Unaudited Pro Forma Condensed Combined Financial Information”) from Vieco US in the Repurchase pursuant to the Merger Agreement and (z) Vieco US elects under the Purchase Agreement to have Mr. Palihapitiya purchase 10,000,000 shares of VGH, Inc. common stock directly from Vieco US in a Secondary Purchase, in accordance with the terms and subject to the conditions of the Purchase Agreement. If the actual facts are different from these assumptions, the percentage ownership retained by the Company’s existing shareholders in the combined company will be different. Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that will be granted in connection with the Business Combination. The Director RSU Awards will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.

 

xii


Table of Contents

The following table illustrates varying ownership levels in VGH, Inc. immediately following the consummation of the Business Combination based on the assumptions above, except for varying levels of additional redemptions by the public shareholders and as a result of varying additional redemptions, the inclusion of the Repurchase, which cannot be exercised by Vieco US at the assumed additional redemption level.

 

   Share Ownership in VGH, Inc. 
   Full Secondary Purchase
Election, Repurchase Election
  Full Secondary Purchase at
Minimum Cash Condition
($400m in trust after deferred
underwriting fee)
 
   No Additional Redemptions  Additional Redemptions(1) 
   Number of
Shares
   Percentage of
Outstanding
Shares
  Number of
Shares
   Percentage of
Outstanding
Shares
 

Vieco US

   102,640,874    52.5  120,000,000    63.6

SCH’s public shareholders

   65,228,822    33.3  41,073,581    21.8

Sponsor & related parties (including Mr. Palihapitiya)(2)

   25,750,000    13.2  25,750,000    13.6

Boeing(3)

   1,936,747    1.0  1,936,747    1.0
  

 

 

   

 

 

  

 

 

   

 

 

 

Total(2)(3)

   195,556,443    100.0  188,760,328    100.0
  

 

 

    

 

 

   

 

(1)

Assumes additional redemptions of 24,155,241 Class A public shares of SCH in connection with the Business Combination in order to satisfy the closing conditions contained in the Merger Agreement at approximately $10.33 per share based on trust account figures as of June 30, 2019.

(2)

Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that will be granted in connection with the Business Combination. The Director RSU Awards will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.

(3)

Outstanding shares of VGH, Inc. common stock includes the assumed purchase by Boeing of $20.0 million of shares of common stock of VGH, Inc. pursuant to the Boeing Agreement at an assumed purchase price approximating $10.33 per share, based on trust account figures as of June 30, 2019. The actual number of shares purchased by Boeing will depend on the per share amount in the trust account as of two business days prior to the Closing Date, which per share amount will be the same amount that a shareholder of SCH would receive upon the valid exercise of their right of redemption with respect to such share of common stock in connection with the Closing.

For further details, see “BCA Proposal—The Merger Agreement—Consideration—Aggregate Merger Consideration.”

 

Q:

Why is SCH proposing the Domestication?

 

A:

Our board of directors believes that there are significant advantages to us that will arise as a result of a change of SCH’s domicile to Delaware. Further, SCH’s board of directors believes that any direct benefit that the DGCL provides to a corporation also indirectly benefits its stockholders, who are the owners of the corporation. SCH’s board of directors believes that there are several reasons why a reincorporation in Delaware is in the best interests of the Company and its shareholders, including, (i) the prominence, predictability and flexibility of the DGCL, (ii) Delaware’s well-established principles of corporate governance and (iii) the increased ability for Delaware corporations to attract and retain qualified directors. Each of the foregoing are discussed in greater detail in the section entitled “Domestication Proposal—Reasons for the Domestication.”

To effect the Domestication, SCH will file a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and file a certificate of incorporation and

 

xiii


Table of Contents

a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which SCH will be domesticated and continue as a Delaware corporation.

The approval of the Domestication Proposal is a condition to the closing of the Mergers under the Merger Agreement. The approval of the Domestication Proposal requires a special resolution under the Cayman Islands Companies Law, being the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. Abstentions and brokernon-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the extraordinary general meeting.

 

Q:

What amendments will be made to the current constitutional documents of SCH?

 

A:

The consummation of the Business Combination is conditioned, among other things, on the Domestication. Accordingly, in addition to voting on the Business Combination, SCH’s shareholders are also being asked to consider and vote upon a proposal to approve the Domestication and replace SCH’s Cayman Constitutional Documents, in each case, under the Cayman Islands Companies Law, with the Proposed Organizational Documents, in each case, under the DGCL, which differ materially from the Cayman Constitutional Documents in the following respects:

 

   

Cayman Constitutional Documents

  

Proposed Organizational Documents

Authorized Shares

(Organizational Documents
Proposal A)

  The Cayman Constitutional Documents authorize 555,000,000 shares, consisting of 500,000,000 SCH Class A ordinary shares, 50,000,000 SCH Class B ordinary shares and 5,000,000 preferred shares.  The Proposed Organizational Documents authorize 710,000,000 shares, consisting of 700,000,000 shares of VGH, Inc. common stock and 10,000,000 shares of VGH, Inc. preferred stock.
  See paragraph 5 of the Existing Memorandum.  See Article Fourth of the Proposed Certificate of Incorporation.

Authorize the Board of Directors to Issue Preferred Stock Without Stockholder Consent

(Organizational Documents
Proposal B)

  The Cayman Constitutional Documents authorize the issuance of 5,000,000 preferred shares with such designation, rights and preferences as may be determined from time to time by SCH’s board of directors. Accordingly, SCH’s board of directors is empowered under the Cayman Constitutional Documents, without shareholder approval, to issue preferred shares with dividend, liquidation, redemption, voting or other rights which could adversely affect the voting power or other rights of the holders of ordinary shares (except to the extent it may affect the ability of SCH to carry out a conversion of SCH Class B ordinary shares on the Closing Date, as contemplated by the Existing Articles).  The Proposed Organizational Documents authorize the Board to issue all or any shares of preferred stock in one or more series and to fix for each such series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as the Board may determine.

 

xiv


Table of Contents
   

Cayman Constitutional Documents

  

Proposed Organizational Documents

  See paragraph 5 of the Existing Memorandum and Articles 3 and 17 of the Existing Articles.  See Article Fourth, subsection (1) of the Proposed Certificate of Incorporation.

Stockholders’ Agreement and Registration Rights Agreement

(Organizational Documents
Proposal C)

  The Cayman Constitutional Documents are not subject to any Stockholders’ Agreement.  The Proposed Organizational Documents provide that certain provisions therein are subject to the Stockholders’ Agreement and that in the event of any conflict between the terms and provisions of the Proposed Certificate of Incorporation and the Stockholders’ Agreement, the terms and provisions of the Stockholders’ Agreement shall govern and control. The Proposed Bylaws are also subject to the Registration Rights Agreement.
    

See Articles Fourth, Sixth and Twelfth of the Proposed Certificate of Incorporation.

See Articles 3, 4, 5 and 9 of the Proposed Bylaws.

Corporate Name

(Organizational Documents
Proposal D)

  The Cayman Constitutional Documents provide the name of the company is “Social Capital Hedosophia Holdings Corp.”  The Proposed Organizational Documents provide that the name of the corporation will be “Virgin Galactic Holdings, Inc.”
  

See paragraph 1 of the Existing Memorandum.

 

  

See Article First of the Proposed Certificate of Incorporation.

 

Perpetual Existence

(Organizational Documents
Proposal D)

  The Cayman Constitutional Documents provide that if SCH does not consummate a business combination (as defined in the Cayman Constitutional Documents) by December 18, 2019, SCH will cease all operations except for the purposes of winding up and will redeem the public shares and liquidate SCH’s trust account.  The Proposed Organizational Documents do not include any provisions relating to VGH, Inc.’s ongoing existence; the default under the DGCL will make VGH, Inc.’s existence perpetual.
  See Article 49 of the Cayman Constitutional Documents.  Default rule under the DGCL.

Exclusive Forum

(Organizational Documents
Proposal D)

  The Cayman Constitutional Documents do not contain a provision adopting an exclusive  The Proposed Organizational Documents adopt Delaware as the

 

xv


Table of Contents
   

Cayman Constitutional Documents

  

Proposed Organizational Documents

  forum for certain shareholder litigation.  exclusive forum for certain stockholder litigation.
    See Section Thirteenth, subsection (1) of the Proposed Certificate of Incorporation.

Waiver of Corporate Opportunities

(Organizational Documents
Proposal D)

  The Cayman Constitutional Documents do not provide an explicit waiver of corporate opportunities.  The Proposed Organizational Documents will grant an explicit waiver of corporate opportunities to certain “exempted persons” (including Vieco US and Mr. Palihapitiya and their respective affiliates, successors, directly or indirectly managed funds or vehicles, partners, principals, directors, officers, members, managers and employees, including any of the foregoing who shall serve as directors of VGH, Inc.).
    See Section Tenth of the Proposed Certificate of Incorporation.

Provisions Related to Status as Blank Check Company

(Organizational Documents
Proposal D)

  The Cayman Constitutional Documents include various provisions related to SCH’s status as a blank check company prior to the consummation of a business combination.  The Proposed Organizational Documents do not include such provisions related to SCH’s status as a blank check company, which no longer will apply upon consummation of the Mergers, as SCH will cease to be a blank check company at such time.
  See Article 49 of the Cayman Constitutional Documents.  

 

Q:

How will the Domestication affect my ordinary shares, warrants and units?

 

A:

As a result of and upon the effective time of the Domestication, (1) each of the then issued and outstanding SCH Class A ordinary shares will convert automatically, on aone-for-one basis, into a share of VGH, Inc. common stock, (2) each of the then issued and outstanding SCH Class B ordinary shares will convert automatically, on aone-for-one basis, into a share of VGH, Inc. common stock; provided, however, that with respect to the SCH Class B ordinary shares held by the Sponsor, in connection with the Domestication the Sponsor will instead receive upon the conversion of the SCH Class B ordinary shares held by it, a number of shares of VGH, Inc. common stock equal to (x) the number of SCH Class B ordinary shares held by it as of immediately prior to the Domestication minus (y) after giving effect to the Domestication, the number of shares of VGH, Inc. common stock underlying the Director RSU Awards that were outstanding as of immediately prior to the Domestication, (3) each then issued and outstanding SCH warrant will convert automatically into a VGH, Inc. warrant, pursuant to the Warrant Agreement and (4) each SCH unit will convert automatically into a VGH, Inc. unit, with each VGH, Inc. unit representing one share of VGH, Inc. common stock andone-third of one VGH, Inc. warrant. See “Domestication Proposal” for additional information.

 

xvi


Table of Contents
Q:

What are the U.S. federal income tax consequences of the Domestication?

 

A:

As discussed more fully under “U.S. Federal Income Tax Considerations,” it is intended that the Domestication will constitute a reorganization within the meaning of Section 368(a)(l)(F) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). Assuming that the Domestication so qualifies, U.S. Holders (as defined in “U.S. Federal Income Tax Considerations”) will be subject to Section 367(b) of the Code and, as a result:

 

  

A U.S. Holder whose SCH Class A ordinary shares have a fair market value of less than $50,000 on the date of the Domestication will not recognize any gain or loss and will not be required to include any part of SCH’s earnings in income;

 

  

A U.S. Holder whose SCH Class A ordinary shares have a fair market value of $50,000 or more and who, on the date of the Domestication, owns (actually or constructively) less than 10% of the total combined voting power of all classes of SCH stock entitled to vote and less than 10% of the total value of all classes of SCH stock will generally recognize gain (but not loss) on the exchange of SCH Class A ordinary shares for VGH, Inc. common stock pursuant to the Domestication. As an alternative to recognizing gain, such U.S. Holder may file an election to include in income as a deemed dividend the “all earnings and profits amount” (as defined in the Treasury Regulations under Section 367 of the Code) attributable to its SCH Class A ordinary shares provided certain other requirements are satisfied; and

 

  

A U.S. Holder whose SCH Class A ordinary shares have a fair market value of $50,000 or more and who, on the date of the Domestication, owns (actually or constructively) 10% or more of the total combined voting power of all classes of SCH stock entitled to vote or 10% or more of the total value of all classes of SCH stock will generally be required to include in income as a deemed dividend all earnings and profits amount attributable to its SCH Class A ordinary shares provided certain other requirements are satisfied.

SCH does not expect to have significant cumulative earnings and profits, if any, on the date of the Domestication.

As discussed more fully under “U.S. Federal Income Tax Considerations,” SCH believes that it is likely classified as a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes. In such case, notwithstanding the foregoing U.S. federal income tax consequences of the Domestication, proposed Treasury Regulations under Section 1291(f) of the Code (which have a retroactive effective date), if finalized in their current form, generally would require a U.S. Holder to recognize gain on the exchange of SCH Class A ordinary shares or warrants for VGH, Inc. common stock or warrants pursuant to the Domestication. Any such gain would be taxable income with no corresponding receipt of cash. The tax on any such gain would be imposed at the rate applicable to ordinary income and an interest charge would apply based on a complex set of rules. However, it is difficult to predict whether, in what form, and with what effective date, final Treasury Regulations under Section 1291(f) of the Code may be adopted and how any such Treasury Regulations would apply. Importantly, however, U.S. Holders that make or have made certain elections discussed further under “U.S. Federal Income Tax Considerations—PFIC Considerations—D. QEF Election andMark-to-Market Election” with respect to their SCH Class A ordinary shares are generally not subject to the same gain recognition rules under the currently proposed Treasury Regulations under Section 1291(f) of the Code. No elections are currently available with respect to SCH warrants. For a more complete discussion of the potential application of the PFIC rules to U.S. Holders as a result of the Domestication, see “U.S. Federal Income Tax Considerations.”

Each U.S. Holder of SCH Class A ordinary shares or warrants is urged to consult its own tax advisor concerning the application of the PFIC rules, including the proposed Treasury Regulations, to the exchange of SCH Class A ordinary shares and warrants for VGH, Inc. common stock and warrants pursuant to the Domestication.

 

xvii


Table of Contents

Additionally, the Domestication may causenon-U.S. Holders (as defined in “U.S. Federal Income Tax Considerations”) to become subject to U.S. federal income withholding taxes on any dividends paid in respect of suchnon-U.S. Holder’s VGH, Inc. common stock after the Domestication.

The tax consequences of the Domestication are complex and will depend on a holder’s particular circumstances. All holders are urged to consult their tax advisor regarding the tax consequences to them of the Domestication, including the applicability and effect of U.S. federal, state, local andnon-U.S. tax laws. For a more complete discussion of the U.S. federal income tax considerations of the Domestication, see “U.S. Federal Income Tax Considerations.”

 

Q:

Do I have redemption rights?

 

A:

If you are a holder of public shares, you have the right to request that we redeem all or a portion of your public shares for cash provided that you follow the procedures and deadlines described elsewhere in this proxy statement/prospectus.Public shareholders may elect to redeem all or a portion of the public shares held by them regardless of if or how they vote in respect of the BCA Proposal. If you wish to exercise your redemption rights, please see the answer to the next question: “How do I exercise my redemption rights?

Notwithstanding the foregoing, a public shareholder, together with any affiliate of such public shareholder or any other person with whom such public shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its public shares with respect to more than an aggregate of 15% of the public shares. Accordingly, if a public shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the public shares, then any such shares in excess of that 15% limit would not be redeemed for cash.

The Sponsor has agreed to waive its redemption rights with respect to all of the founder shares in connection with the consummation of the Business Combination. The founder shares will be excluded from the pro rata calculation used to determine theper-share redemption price.

 

Q:

How do I exercise my redemption rights?

 

A:

If you are a public shareholder and wish to exercise your right to redeem the public shares, you must:

 

 (i)

(a) hold public shares, or (b) if you hold public shares through units, elect to separate your units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares;

 

 (ii)

submit a written request to Continental, SCH’s transfer agent, that VGH, Inc. redeem all or a portion of your public shares for cash; and

 

 (iii)

deliver your public shares to Continental, SCH’s transfer agent, physically or electronically through The Depository Trust Company (“DTC”).

Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on October 21, 2019 (two business days before the extraordinary general meeting) in order for their shares to be redeemed.

The address of Continental, SCH’s transfer agent, is listed under the question “Who can help answer my questions?” below.

Holders of units must elect to separate the units into the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If holders hold their units in an account at a brokerage firm or bank, holders must notify their broker or bank that they elect to separate the units into the underlying public shares and public warrants, or if a holder holds units registered in its own name, the holder must contact Continental, SCH’s transfer agent, directly and instruct them to do so.

 

xviii


Table of Contents

Public shareholders will be entitled to request that their public shares be redeemed for a pro rata portion of the amount then on deposit in the trust account as of two business days prior to the consummation of the Business Combination including interest earned on the funds held in the trust account and not previously released to us (net of taxes payable). For illustrative purposes, as of June 30, 2019, this would have amounted to approximately $10.33 per issued and outstanding public share. However, the proceeds deposited in the trust account could become subject to the claims of SCH’s creditors, if any, which could have priority over the claims of the public shareholders, regardless of whether such public shareholder votes or, if they do vote, irrespective of if they vote for or against the BCA Proposal. Therefore, the per share distribution from the trust account in such a situation may be less than originally expected due to such claims. Whether you vote, and if you do vote irrespective of how you vote, on any proposal, including the BCA Proposal, will have no impact on the amount you will receive upon exercise of your redemption rights. It is expected that the funds to be distributed to public shareholders electing to redeem their public shares will be distributed promptly after the consummation of the Business Combination.

Any request for redemption, once made by a holder of public shares, may be withdrawn at any time up to the time the vote is taken with respect to the BCA Proposal at the extraordinary general meeting. If you deliver your shares for redemption to Continental, SCH’s transfer agent, and later decide prior to the extraordinary general meeting not to elect redemption, you may request that SCH’s transfer agent return the shares (physically or electronically) to you. You may make such request by contacting Continental, SCH’s transfer agent, at the phone number or address listed at the end of this section.

Any corrected or changed written exercise of redemption rights must be received by Continental, SCH’s transfer agent, prior to the vote taken on the BCA Proposal at the extraordinary general meeting.No request for redemption will be honored unless the holder’s public shares have been delivered (either physically or electronically) to Continental, SCH’s agent, at least twobusiness days prior to the vote at the extraordinary general meeting.

If a holder of public shares properly makes a request for redemption and the public shares are delivered as described above, then, if the Business Combination is consummated, VGH, Inc. will redeem the public shares for a pro rata portion of funds deposited in the trust account, calculated as of two business days prior to the consummation of the Business Combination. The redemption will take place following the Domestication and, accordingly, it is shares of VGH, Inc. common stock that will be redeemed immediately after consummation of the Business Combination.

If you are a holder of public shares and you exercise your redemption rights, such exercise will not result in the loss of any warrants that you may hold.

 

Q:

If I am a holder of units, can I exercise redemption rights with respect to my units?

 

A:

No. Holders of issued and outstanding units must elect to separate the units into the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If you hold your units in an account at a brokerage firm or bank, you must notify your broker or bank that you elect to separate the units into the underlying public shares and public warrants, or if you hold units registered in your own name, you must contact Continental, SCH’s transfer agent, directly and instruct them to do so. You are requested to cause your public shares to be separated and delivered to Continental, SCH’s transfer agent, by 5:00 p.m., Eastern Time, on October 21, 2019 (two business days before the extraordinary general meeting) in order to exercise your redemption rights with respect to your public shares.

 

Q:

What are the U.S. federal income tax consequences of exercising my redemption rights?

 

A:

It is expected that a U.S. Holder (as defined in “U.S. Federal Income Tax Considerations”) that exercises its redemption rights to receive cash from the trust account in exchange for its VGH, Inc. common stock will generally be treated as selling such VGH, Inc. common stock resulting in the recognition of capital gain or capital loss. There may be certain circumstances, however, in which the redemption may be treated as a

 

xix


Table of Contents
 distribution for U.S. federal income tax purposes depending on the amount of VGH, Inc. common stock that such U.S. Holder owns or is deemed to own (including through the ownership of warrants). For a more complete discussion of the U.S. federal income tax considerations of an exercise of redemption rights, see “U.S. Federal Income Tax Considerations.”

Additionally, because the Domestication will occur immediately prior to the redemption of any shareholder, U.S. Holders exercising redemption rights will be subject to the potential tax consequences of Section 367 of the Code as well as potential tax consequences of the U.S. federal income tax rules relating to PFICs. The tax consequences of Section 367 of the Code and the PFIC rules are discussed more fully below under “U.S. Federal Income Tax Considerations.”

All holders considering exercising redemption rights are urged to consult their tax advisor on the tax consequences to them of an exercise of redemption rights, including the applicability and effect of U.S. federal, state, local andnon-U.S. tax laws.

 

Q:

What happens to the funds deposited in the trust account after consummation of the Business Combination?

 

A:

Following the closing of SCH’s initial public offering, an amount equal to $690.0 million ($10.00 per unit) of the net proceeds from SCH’s initial public offering and the sale of the private placement warrants was placed in the trust account. As of June 30, 2019, funds in the trust account totaled $712.5 million and were comprised entirely of U.S. Treasury Bills. After giving effect to the Extension Amendment Redemptions, the funds in the trust account totaled $676.2 million as of September 9, 2019. These funds will remain in the trust account, except for the withdrawal of interest to pay taxes, if any, until the earliest of (1) the completion of a business combination (including the Closing), (2) the redemption of any public shares properly tendered in connection with a shareholder vote to amend the Cayman Constitutional Documents to modify the substance or timing of SCH’s obligation to redeem 100% of the public shares if it does not complete a business combination by December 18, 2019 and (3) the redemption of all of the public shares if SCH is unable to complete a business combination by December 18, 2019 (or if such date is further extended at a duly called extraordinary general meeting, such later date), subject to applicable law.

Upon consummation of the Business Combination, the funds deposited in the trust account will be released to pay holders of SCH public shares who properly exercise their redemption rights; to pay transaction fees and expenses associated with the Business Combination; and for working capital and general corporate purposes of VGH, Inc. following the Business Combination. See “Summary of the Proxy Statement/Prospectus—Sources and Uses of Funds for the Business Combination.”

 

Q:

What happens if a substantial number of the public shareholders vote in favor of the BCA Proposal and exercise their redemption rights?

 

A:

Our public shareholders are not required to vote in respect of the Business Combination in order to exercise their redemption rights. Accordingly, the Business Combination may be consummated even though the funds available from the trust account and the number of public shareholders are reduced as a result of redemptions by public shareholders.

The Merger Agreement provides that the obligations of VG to consummate the Mergers are conditioned on, among other things, that as of the Closing, the Trust Amount is at least equal to the Minimum Available Cash Amount. However, if the Trust Amount as of the Closing is less than the Minimum Available Cash Amount, then Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) the Additional Holder Equity Amount. If the Available Cash (the sum of the Trust Amount, the Additional Holder Equity Amount and the Investment Amount) is equal to or greater than the Minimum Available Cash Amount, then the Minimum Cash Condition will be deemed to have been satisfied. This condition is for the sole benefit of VG except that this condition may not be waived by VG if the Trust Amount is less than $200.0 million, provided that Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc.

 

xx


Table of Contents

common stock at a price per share of $10.00 in an aggregate amount such that the Available Cash is, at or immediately prior to the Closing, equal to at least $200.0 million after giving effect to such purchases. If such condition is not met, and such condition is not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated. In addition, in no event will we redeem public shares in an amount that would cause VGH, Inc.’s net tangible assets (as determined in accordance with Rule3a51-1(g)(1) of the Exchange Act) to be less than $5,000,001.

 

Q:

What conditions must be satisfied to complete the Business Combination?

 

A:

The Merger Agreement is subject to the satisfaction or waiver of certain customary closing conditions, including, among others, (i) approval by SCH’s shareholders of the Business Combination and related agreements and transactions, (ii) the effectiveness of the registration statement of which this proxy statement/prospectus forms a part, (iii) the receipt of certain regulatory approvals (including, but not limited to, approval for listing on the NYSE of the shares of VGH, Inc. common stock to be issued in connection with the Mergers), (iv) that VGH, Inc. have at least $5,000,001 of net tangible assets upon Closing and (v) the absence of any injunctions. The obligations of VG to consummate the Mergers are also conditioned on the satisfaction of the Minimum Cash Condition (as described above).

In addition, prior to the Closing, Vieco US and certain of its subsidiaries (including the VG Companies and their subsidiaries) will consummate thePre-Closing Restructuring Plan, and it is a condition to the obligations of SCH and Merger Subs to consummate the Mergers that (i) thePre-Closing Restructuring Plan has been substantially completed and (ii) the VG Companies and their subsidiaries collectively hold cash in an amount equal to or greater than $2.0 million in the aggregate, in each case, as of the Closing.

For more information about conditions to the consummation of the Business Combination, see “BCA Proposal—The Merger Agreement.”

 

Q:

When do you expect the Business Combination to be completed?

 

A:

It is currently expected that the Business Combination will be consummated in the second half of 2019. This date depends, among other things, on the approval of the proposals to be put to SCH shareholders at the extraordinary general meeting. However, such meeting could be adjourned if the Adjournment Proposal is adopted by SCH’s shareholders at the extraordinary general meeting and SCH elects to adjourn the extraordinary general meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the extraordinary general meeting. For a description of the conditions for the completion of the Business Combination, see “BCA Proposal—The Merger Agreement.”

 

Q:

What happens if the Business Combination is not consummated?

 

A:

SCH will not complete the Domestication to Delaware unless all other conditions to the consummation of the Business Combination have been satisfied or waived by the parties in accordance with the terms of the Merger Agreement. If SCH is not able to complete the Business Combination with the VG Companies by December 18, 2019 and is not able to complete another business combination by such date, in each case, as such date may be extended pursuant to the Cayman Constitutional Documents, SCH will: (1) cease all operations except for the purpose of winding up; (2) as promptly as reasonably possible, but not more than 10 business days thereafter, redeem the public shares, at aper-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (less up to $0.1 million of interest to pay dissolution expenses and which interest shall be net of taxes payable), divided by the number of then issued and outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (3) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board, dissolve and liquidate, subject in each case to our

 

xxi


Table of Contents
 obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.

 

Q:

Do I have appraisal rights in connection with the proposed Business Combination and the proposed Domestication?

 

A:

Neither SCH’s shareholders nor SCH’s warrant holders have appraisal rights in connection with the Business Combination or the Domestication under the Cayman Islands Companies Law or under the DGCL.

 

Q:

What do I need to do now?

 

A:

SCH urges you to read this proxy statement/prospectus, including the Annexes and the documents referred to herein, carefully and in their entirety and to consider how the Business Combination will affect you as a shareholder or warrant holder. SCH’s shareholders should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy card.

 

Q:

How do I vote?

 

A:

If you are a holder of record of ordinary shares on the record date for the extraordinary general meeting, you may vote in person at the extraordinary general meeting or by submitting a proxy for the extraordinary general meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanyingpre-addressed postage-paid envelope.If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the broker, bank or nominee with instructions on how to vote your shares or, if you wish to attend the extraordinary general meeting and vote in person, obtain a valid proxy from your broker, bank or nominee.

 

Q:

If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A:

No. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” If this is the case, this proxy statement/prospectus may have been forwarded to you by your brokerage firm, bank or other nominee, or its agent, and you may need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker, bank or nominee as to how to vote your shares. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect tonon-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. We believe all the proposals presented to the shareholders will be considerednon-discretionary and therefore your broker, bank, or nominee cannot vote your shares without your instruction. Your bank, broker, or other nominee can vote your shares only if you provide instructions on how to vote. As the beneficial holder, you have the right to direct your broker, bank or other nominee as to how to vote your shares and you should instruct your broker to vote your shares in accordance with directions you provide. If you do not provide voting instructions to your broker on a particular proposal on which your broker does not have discretionary authority to vote, your shares will not be voted on that proposal. This is called a “brokernon-vote.” Abstentions and brokernon-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the extraordinary general meeting, and otherwise will have no effect on a particular proposal.

 

Q:

When and where will the extraordinary general meeting be held?

 

A:

The extraordinary general meeting will be held at 12:30 p.m., Eastern Time, on October 23, 2019, at The Westin Palo Alto, located at 675 El Camino Real, Palo Alto, CA 94301, unless the extraordinary general meeting is adjourned.

 

xxii


Table of Contents
Q:

Who is entitled to vote at the extraordinary general meeting?

 

A:

SCH has fixed September 16, 2019 as the record date for the extraordinary general meeting. If you were a shareholder of SCH at the close of business on the record date, you are entitled to vote on matters that come before the extraordinary general meeting. However, a shareholder may only vote his or her shares if he or she is present in person or is represented by proxy at the extraordinary general meeting.

 

Q:

How many votes do I have?

 

A:

SCH shareholders are entitled to one vote at the extraordinary general meeting for each ordinary share held of record as of the record date. As of the close of business on the record date for the extraordinary general meeting, there were 82,478,822 ordinary shares issued and outstanding, of which 65,228,822 were issued and outstanding public shares.

 

Q:

What constitutes a quorum?

 

A:

A quorum of SCH shareholders is necessary to hold a valid meeting. A quorum will be present at the extraordinary general meeting if the holders of a majority of the issued and outstanding ordinary shares entitled to vote at the extraordinary general meeting are represented in person or by proxy. As of the record date for the extraordinary general meeting, 41,239,412 ordinary shares would be required to achieve a quorum.

 

Q:

What vote is required to approve each proposal at the extraordinary general meeting?

 

A:

The following votes are required for each proposal at the extraordinary general meeting:

 

 (i)

BCA Proposal:The approval of the BCA Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (ii)

Domestication Proposal: The approval of the Domestication Proposal requires a special resolution under Cayman Islands Companies Law, being the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (iii)

Organizational Documents Proposals: The separate approval of each of the Organizational Documents Proposals requires a special resolution under Cayman Islands Companies Law, being the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (iv)

Director Election Proposal:The approval of the Director Election Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (v)

Stock Issuance Proposal:The approval of the Stock Issuance Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (vi)

Incentive Award Plan Proposal:The approval of the Incentive Award Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (vii)

Repurchase Proposal:The approval of the Repurchase Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

xxiii


Table of Contents
 (viii)

Adjournment Proposal:The approval of the Adjournment Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

Q:

What are the recommendations of SCH’s board of directors?

 

A:

SCH’s board of directors believes that the BCA Proposal and the other proposals to be presented at the extraordinary general meeting are in the best interest of SCH’s shareholders and unanimously recommends that its shareholders vote “FOR” the BCA Proposal, “FOR” the Domestication Proposal, “FOR” each of the separate Organizational Documents Proposals, “FOR” the Director Election Proposal, “FOR” the Stock Issuance Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the Repurchase Proposal and “FOR” the Adjournment Proposal, in each case, if presented to the extraordinary general meeting.

The existence of financial and personal interests of one or more of SCH’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of SCH and its shareholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that shareholders vote for the proposals. In addition, SCH’s officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “BCA Proposal—Interests of SCH’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

 

Q:

How does the Sponsor intend to vote their shares?

 

A:

Unlike some other blank check companies in which the initial shareholders agree to vote their shares in accordance with the majority of the votes cast by the public shareholders in connection with an initial business combination, the Sponsor has agreed to vote all the founder shares and any other public shares they may hold in favor of all the proposals being presented at the extraordinary general meeting. As of the date of this proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

At any time at or prior to the Business Combination, during a period when they are not then aware of any material nonpublic information regarding us or our securities, the Sponsor, the VG Companies or our or their respective directors, officers, advisors or respective affiliates may purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire public shares or vote their public shares in favor of the Condition Precedent Proposals. Such a purchase may include a contractual acknowledgement that such shareholder, although still the record holder of SCH’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, the VG Companies or our or their respective directors, officers, advisors or respective affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholder would be required to revoke their prior elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood of (1) satisfaction of the requirement that holders of a majority of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the BCA Proposal, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the Repurchase Proposal and the Adjournment Proposal, (2) satisfaction of the requirement that holders of at leasttwo-thirds of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the Domestication Proposal and the Organizational Documents Proposals, (3) satisfaction of the requirement that the Minimum Available Cash Amount condition is satisfied, (4) otherwise limiting the number of public shares electing to redeem and (5) VGH, Inc.’s net tangible assets (as determined in accordance with Rule 3a51(g)(1) of the Exchange Act) being at least $5,000,001.

Entering into any such arrangements may have a depressive effect on the ordinary shares (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or

 

xxiv


Table of Contents

holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination).

If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the extraordinary general meeting and would likely increase the chances that such proposals would be approved. We will file or submit a Current Report on Form8-K to disclose any material arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals to be put to the extraordinary general meeting or the redemption threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

 

Q:

What happens if I sell my SCH ordinary shares before the extraordinary general meeting?

 

A:

The record date for the extraordinary general meeting is earlier than the date of the extraordinary general meeting and earlier than the date that the Business Combination is expected to be completed. If you transfer your public shares after the applicable record date, but before the extraordinary general meeting, unless you grant a proxy to the transferee, you will retain your right to vote at such general meeting but the transferee, and not you, will have the ability to redeem such shares (if time permits).

 

Q:

May I change my vote after I have mailed my signed proxy card?

 

A:

Yes. Shareholders may send a later-dated, signed proxy card to SCH’s Secretary at SCH’s address set forth below so that it is received by SCH’s Secretary prior to the vote at the extraordinary general meeting (which is scheduled to take place on October 23, 2019) or attend the extraordinary general meeting in person and vote. Shareholders also may revoke their proxy by sending a notice of revocation to SCH’s Secretary, which must be received by SCH’s Secretary prior to the vote at the extraordinary general meeting. However, if your shares are held in “street name” by your broker, bank or another nominee, you must contact your broker, bank or other nominee to change your vote.

 

Q:

What happens if I fail to take any action with respect to the extraordinary general meeting?

 

A:

If you fail to take any action with respect to the extraordinary general meeting and the Business Combination is approved by shareholders and the Business Combination is consummated, you will become a stockholder or warrant holder of VGH, Inc. If you fail to take any action with respect to the extraordinary general meeting and the Business Combination is not approved, you will remain a shareholder or warrant holder of SCH. However, if you fail to vote with respect to the extraordinary general meeting, you will nonetheless be able to elect to redeem your public shares in connection with the Business Combination (if time permits).

 

Q:

What should I do with my share certificates, warrant certificates or unit certificates?

 

A:

Our shareholders who exercise their redemption rights must deliver (either physically or electronically) their share certificates to Continental, SCH’s transfer agent, prior to the extraordinary general meeting.

Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on October 21, 2019 (two business days before the extraordinary general meeting) in order for their shares to be redeemed.

Our warrant holders should not submit the certificates relating to their warrants. Public shareholders who do not elect to have their public shares redeemed for the pro rata share of the trust account should not submit the certificates relating to their public shares.

Upon the Domestication, holders of SCH units, Class A ordinary shares, Class B ordinary shares and warrants will receive VGH, Inc. units, shares of VGH, Inc. common stock and warrants, as the case may be,

 

xxv


Table of Contents

without needing to take any action and, accordingly, such holders should not submit any certificates relating to their units, Class A ordinary shares (unless such holder elects to redeem the public shares in accordance with the procedures set forth above), Class B ordinary shares or warrants.

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

Shareholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your ordinary shares.

 

Q:

Who will solicit and pay the cost of soliciting proxies for the extraordinary general meeting?

 

A:

SCH will pay the cost of soliciting proxies for the extraordinary general meeting. SCH has engaged Morrow Sodali LLC (“Morrow”) to assist in the solicitation of proxies for the extraordinary general meeting. SCH has agreed to pay Morrow a fee of $35,000, plus disbursements (to be paid withnon-trust account funds). SCH will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of SCH Class A ordinary shares for their expenses in forwarding soliciting materials to beneficial owners of SCH Class A ordinary shares and in obtaining voting instructions from those owners. SCH’s directors and officers may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

Q:

Where can I find the voting results of the extraordinary general meeting?

 

A:

The preliminary voting results will be expected to be announced at the extraordinary general meeting. SCH will publish final voting results of the extraordinary general meeting in a Current Report on Form8-K within four business days after the extraordinary general meeting.

 

Q:

Who can help answer my questions?

 

A:

If you have questions about the Business Combination or if you need additional copies of the proxy statement/prospectus, any document incorporated by reference in this proxy statement/prospectus or the enclosed proxy card, you should contact:

Morrow Sodali LLC

470 West Avenue, 3rd Floor

Stamford, Connecticut 06902

Individuals call toll-free: (800)662-5200

Banks and Brokerage Firms, please call (203)658-9400

Email: IPOA.info@morrowsodali.com

 

xxvi


Table of Contents

You also may obtain additional information about SCH from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information; Incorporation by Reference.” If you are a holder of public shares and you intend to seek redemption of your public shares, you will need to deliver your public shares (either physically or electronically) to Continental, SCH’s transfer agent, at the address below prior to the extraordinary general meeting.Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on October 21, 2019 (two business days before the extraordinary general meeting) in order for their shares to be redeemed. If you have questions regarding the certification of your position or delivery of your stock, please contact:

Continental Stock Transfer & Trust Company

1 State Street, 30th floor

New York, NY 10004

Attention: Mark Zimkind

E-mail: mzimkind@continentalstock.com

 

xxvii


Table of Contents

SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a vote at the extraordinary general meeting, including the Business Combination, you should read this proxy statement/prospectus, including the Annexes and other documents referred to herein, carefully and in their entirety. The Merger Agreement is the primary legal document that governs the Business Combination and the other transactions that will be undertaken in connection with the Business Combination. The Merger Agreement is also described in detail in this proxy statement/prospectus in the section entitled “BCA Proposal—The Merger Agreement.”

Unless otherwise specified, all share calculations (1) assume no additional exercise of redemption rights by the public shareholders in connection with the Business Combination and (2) do not include any shares issuable upon the exercise of the warrants.

Combined Business Summary

We are a vertically-integrated aerospace company pioneering human spaceflight for private individuals and researchers. We believe the commercial exploration of space represents one of the most exciting and significant technology initiatives of our time. We are embarking on this commercial exploration journey with a mission to put humans into space and return them safely to earth on a routine, consistent and affordable basis. Using our proprietary and reusable technologies, and supported by a distinctive, Virgin–branded customer experience, we are developing a spaceflight system designed to offer customers, whom we also refer to as “Future Astronauts,” a unique,multi-day experience culminating in a spaceflight that includes several minutes of weightlessness and views of Earth from space. We are in the final stages of development, having already completed two crewed flights of our vehicle into space, and anticipate our initial commercial launch in 2020.

Over the past decade, several trends have converged to invigorate the commercial space industry. Rapidly advancing technologies, decreasing costs, open innovation models with improved access to technology and greater availability of capital have driven significant growth in the commercial space market. According to an October 2018 article from the U.S. Chamber of Commerce, the commercial space market is expected to grow 6% per year, from $385.0 billion in 2017 to at least $1.5 trillion by 2040, reaching 5% of U.S. gross domestic product. As a result of these trends, we believe the exploration of space and the cultivation and monetization of space-related capabilities offer immense potential for the creation of economic value and future growth. Further, we believe we are at the center of these industry trends and well-positioned to capitalize on them by bringing human spaceflight to a broad global population that dreams of traveling to space.

The market for commercial human spaceflight for private individuals is new and untapped. As of August 1, 2019, only 573 humans have ever traveled above the Earth’s atmosphere into space to become officially recognized as astronauts, cosmonauts or taikonauts. Overwhelmingly, these men and women have been government employees handpicked by government space agencies such as NASA and trained over many years at significant expense. Private commercial space travel has been limited to a select group of individuals who were able to reach space, generally only at great personal expense, risk and discomfort. We are planning to change that. We believe a significant market opportunity exists to provide high net worth individuals with a dynamic spaceflight experience at a fraction of the expense incurred by other private individuals to date. We believe this market opportunity is supported by the 603 reservations and approximately $80.0 million of deposits we had booked as of June 30, 2019, and also by the more than 3,000 flight reservation inquiries we have received since SpaceShipTwo’s first spaceflight in December 2018.



 

1


Table of Contents

Over the last 14 years, we have developed an extensive portfolio of proprietary technologies that are embodied in the highly specialized assets that we have developed or leased to enable commercial spaceflight and address these industry trends. These assets include:

 

  

Our carrier aircraft, WhiteKnightTwo—WhiteKnightTwo is a twin-fuselage, custom-built aircraft designed to carry our spaceship, SpaceShipTwo, up to an altitude of approximately 45,000 feet, where the spaceship is released for its flight into space. Our carrier aircraft is designed to launch thousands of SpaceShipTwo flights over its lifetime. This reusable launch platform design provides a flight experience and economics similar to commercial airplanes, and offers a considerable economic advantage over other potential launch architectures. Additionally, our carrier aircraft has a rapid turnaround time, enabling it to provide frequent spaceflight launch services for multiple spaceships.

 

  

Our spaceship, SpaceShipTwo—SpaceShipTwo is a reusable spaceship with the capacity to carry two pilots and up to six Future Astronauts into space before returning them safely to the Earth’s surface. SpaceShipTwo is a rocket-powered winged vehicle designed to achieve a maximum speed of over Mach 3 and has a flight duration, measured from the takeoff of our carrier aircraft to the landing of SpaceShipTwo, of up to approximately 90 minutes. SpaceShipTwo’s cabin has been designed to optimize the Future Astronaut’s safety, experience and comfort. For example, the sides and ceiling of the spaceship’s cabin are lined by more than a dozen windows, offering Future Astronauts the ability to view the blackness of space as well as stunning views of the Earth below. With the exception of the rocket motor’s fuel and oxidizer, which must be replenished after each flight, SpaceShipTwo is designed as a wholly reusable spaceship.

 

  

Our hybrid rocket motor, RocketMotorTwo—SpaceShipTwo is powered by a hybrid rocket propulsion system, RocketMotorTwo, that propels it on a trajectory into space. The term “hybrid” rocket refers to the fact that the rocket uses a solid fuel grain cartridge and a liquid oxidizer. The fuel cartridge is consumed over the course of a flight and replaced in between flights. RocketMotorTwo has been designed to provide performance capabilities necessary for spaceflight with a focus on safety, reliability and economy. Its design incorporates comprehensive critical safety features, including the ability to be safely shut down at any time, and its limited number of moving parts increases reliability and robustness for human spaceflight. Furthermore, the motor is made from a benign substance that needs no special or hazardous storage.

 

  

Spaceport America—The Future Astronaut flight preparation and experience will take place at our operational headquarters at Spaceport America. Spaceport America is the first purpose-built commercial spaceport in the world and serves as the home of our terminal hangar building, officially designated the “Virgin Galactic Gateway to Space.” Spaceport America is located in New Mexico on 27 square miles of desert landscape with access to 6,000 square miles of restricted airspace running from the ground to space. The restricted airspace will facilitate frequent and consistent flight scheduling by preventing general commercial air traffic from entering the area. Additionally, the desert climate and its relatively predictable weather provide favorable launch conditions year-round. Our license from the FAA includes Spaceport America as a location from which we can launch and land our spaceflight system on a routine basis.

We have designed our spaceflight system with a fundamental focus on safety. Important elements of our safety design include horizontal takeoff and landing, highly reliable and rigorously tested jet engines on our carrier aircraft, two pilots in our carrier aircraft and the spaceship to provide important redundancy, a proprietary feathering system that allows the spaceship to properly align forre-entry with limited pilot input, extensive screening and training of our pilots, and the ability to safely abort at any time during the mission. In 2016, the FAA granted us our commercial space launch license with a limited number of verification and validation steps that must be completed before the FAA will clear us to include customers on our spaceflights. Specifically, we are required by the FAA to submit final integrated vehicle performance results conducted in an operational flight



 

2


Table of Contents

environment, including final configuration of critical systems and aspects of the environmental control system and human factors performance. We expect to be able to submit these results to the FAA during the first half of 2020.

Our goal is to offer our Future Astronauts an unmatched, safe and affordable journey to space without the need for any special prior experience or significant prior training and preparation. We have worked diligently for over a decade to plan every aspect of the Future Astronaut’s journey to become an astronaut, drawing on a world-class team with extensive experience with human spaceflight,high-end customer experiences, and reliable transportation system operations and safety. Each Future Astronaut will spend four days at Spaceport America, with the first three days spent onpre-flight training and the spaceflight itself occurring on the fourth day. In space, they will be able to exit their seats and experience weightlessness, floating about the cabin and positioning themselves at one of the many windows around the cabin sides and top. After enjoying several minutes of weightlessness, customers will maneuver back to their own seats to prepare forre-entry and the journey back into the Earth’s atmosphere. Upon landing, astronauts will disembark and join family and friends to celebrate their achievements and receive their astronaut wings.

We have historically sold spaceflight tickets at a price point of up to $250,000 per ticket. Given demand for human spaceflight experiences and the limited available capacity, however, we expect the price of our tickets to increase for a period of time. We also anticipate offering premium pricing options for customers with an interest in further customizing or enhancing their astronaut journey. As of June 30, 2019, we had reservations for 603 spaceflight tickets and approximately $80.0 million in deposits. We believe these sales are largely attributable to the strength and prominence of the Virgin Galactic brand, which has driven many of our customers directly to us with inbound requests. As we transition to full commercialization, we intend to take a more active role in marketing and selling our spaceflight experience. Given that sales of spaceflights are consultative and generally require aone-on-one sales approach, we intend to go to market using our direct sales organization and may expand the reach of that organization using a global network ofhigh-end travel professionals that we refer to as Accredited Space Agents.

Our senior management team has extensive experience in the aerospace industry and includes the former Chief of Staff for NASA as well as NASA’s Space Shuttle Launch Integration Manager. Our team of pilots is similarly experienced, with over 216 years of collective flight experience, and includes former test pilots for NASA, the Royal Air Force, the U.S. Air Force, the Italian Air Force and the U.S. Marine Corps. Our commercial team is managed and supported by individuals with significant experience and success in building and growing a commercial spaceflight brand, selling spaceflight reservations and managing thepre-flight Future Astronaut community.

The Parties to the Business Combination

SCH

Social Capital Hedosophia Holdings Corp. is a blank check company incorporated on May 5, 2017 as a Cayman Islands exempted company and incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. SCH has neither engaged in any operations nor generated any revenue to date. Based on SCH’s business activities, it is a “shell company” as defined under the Exchange Act because it has no operations and nominal assets consisting almost entirely of cash.

On September 18, 2017, SCH consummated its initial public offering of its units, with each unit consisting of one SCH Class A ordinary share andone-third of one public warrant. Simultaneously with the closing of the initial public offering, SCH completed the private sale of 8,000,000 private placement warrants at a purchase



 

3


Table of Contents

price of $1.50 per private placement warrant, to the Sponsor generating gross proceeds to us of $12.0 million. The private placement warrants are identical to the warrants sold as part of the units in SCH’s initial public offering except that, so long as they are held by the Sponsor or its permitted transferees: (1) they will not be redeemable by the Company; (2) they (including the shares issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the Sponsor until 30 days after the completion of SCH’s initial business combination; (3) they may be exercised by the holders on a cashless basis; and (4) they (including the shares issuable upon exercise of these warrants) are entitled to registration rights.

Following the closing of SCH’s initial public offering, a total of $690.0 million ($10.00 per unit) of the net proceeds from its initial public offering and the sale of the private placement warrants was placed in the trust account. The proceeds held in the trust account may be invested by the trustee only in U.S. government treasury bills with a maturity of 180 days or less or in money market funds investing solely in U.S. Treasury securities and meeting certain conditions under Rule2a-7 under the Investment Company Act of 1940, as amended. As of June 30, 2019, funds in the trust account totaled $712.5 million and were comprised entirely of U.S. Treasury Bills. After giving effect to the Extension Amendment Redemptions, the funds in the trust account totaled $676.2 million as of September 9, 2019. These funds will remain in the trust account, except for the withdrawal of interest to pay taxes, if any, until the earliest of (1) the completion of a business combination (including the Closing), (2) the redemption of any public shares properly tendered in connection with a shareholder vote to amend SCH’s Cayman Constitutional Documents to modify the substance or timing of SCH’s obligation to redeem 100% of the public shares if it does not complete a business combination by December 18, 2019 and (3) the redemption of all of the public shares if SCH is unable to complete a business combination by December 18, 2019 (or if such date is further extended at a duly called extraordinary general meeting, such later date), subject to applicable law.

SCH units, public shares and public warrants are listed on the NYSE under the symbols “IPOA.U,” “IPOA,” and “IPOA.WS,” respectively.

SCH’s principal executive office is located at 120 Hawthorne Avenue, Palo Alto, California, 94301. Its telephone number is (650)521-9007. SCH’s corporate website address is www.SocialCapitalHedosophiaHoldings.com. SCH’s website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this proxy statement/prospectus.

Merger Subs

The merger subsidiaries are all direct wholly owned subsidiaries of SCH. Foundation Sub 1, Inc. is a Delaware corporation and was incorporated on July 8, 2019. Foundation Sub 2, Inc. is a Delaware corporation and was incorporated on July 8, 2019. Foundation Sub, LLC is a Delaware limited liability company and was formed on July 8, 2019. None of the Merger Subs owns any material assets or operates any business.

The VG Companies and Their Subsidiaries

The VG Companies and their subsidiaries comprise a vertically-integrated aerospace company pioneering human spaceflight for private individuals and researchers. The VG Companies and their subsidiaries consist of VGH, LLC, a Delaware limited liability company formed June 26, 2019, TSC Vehicle Holdings Inc., a Delaware corporation incorporated June 26, 2014, Virgin Galactic Vehicle Holdings, Inc., a Delaware corporation formed December 18, 2017, Virgin Galactic Ltd., a company limited by shares under the laws of England and Wales on May 2, 2006, Virgin Galactic, LLC, a Delaware limited liability company formed July 27, 2004, and TSC, LLC, a Delaware limited liability company formed February 3, 2006. The VG Companies’ principal executive office is located at 166 North Roadrunner Parkway, Suite 1C, Las Cruces, NM 88011. Their telephone number is (575) 522-3102.



 

4


Table of Contents

Proposals to be Put to the Shareholders of SCH at the Extraordinary General Meeting

The following is a summary of the proposals to be put to the extraordinary general meeting of SCH and certain transactions contemplated by the Merger Agreement. Each of the proposals below, except the Adjournment Proposal, is cross-conditioned on the approval of each other. The Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus. The transactions contemplated by the Merger Agreement will be consummated only if the Condition Precedent Proposals are approved at the extraordinary general meeting.

BCA Proposal

As discussed in this proxy statement/prospectus, SCH is asking its shareholders to approve by ordinary resolution and adopt the Merger Agreement, dated as of July 9, 2019, as amended on October 2, 2019, by and among SCH, V10, Vieco US, Merger Sub A, Merger Sub B, Merger Sub LLC, Company A, Company B and Company LLC, a copy of which is attached to the accompanying proxy statement/prospectus as Annex A. The Merger Agreement provides for, among other things, (1) following the Domestication of SCH to Delaware as described below, the merger of: (x) Merger Sub A with and into Company A, with Company A surviving the merger as a wholly owned subsidiary of VGH, Inc. (“Corp Merger A”), (y) Merger Sub B with and into Company B, with Company B surviving the merger as a wholly owned subsidiary of VGH, Inc. (“Corp Merger B”) and (z) Merger Sub LLC with and into Company LLC, with Company LLC surviving the merger as a wholly owned subsidiary of VGH, Inc. (the “LLC Merger” and, collectively with Corp Merger A and Corp Merger B, the “Mergers”), in each case in accordance with the terms and subject to the conditions of the Merger Agreement as more fully described elsewhere in this proxy statement/prospectus. Pursuant to the terms of the Merger Agreement, under certain limited circumstances, Vieco US, SCH and the VG Companies will work together in good faith to restructure Corp Merger A or Corp Merger B, including by changing the direction of the applicable merger, if it is determined to be in the best interests of the parties. After consideration of the factors identified and discussed in the section entitled “BCA Proposal—SCH’s Board of Directors’ Reasons for the Business Combination,” SCH’s board of directors concluded that the Business Combination met all of the requirements disclosed in the prospectus for SCH’s initial public offering, including that the business of the VG Companies and their subsidiaries had a fair market value equal to at least 80% of the net assets held in trust (net of amounts disbursed to management for working capital purposes and excluding the amount of any deferred underwriting discount held in trust). For more information about the transactions contemplated by the Merger Agreement, see “BCA Proposal.”

Aggregate Merger Consideration

As a result of and upon the closing of the Mergers (the “Closing”), among other things, all outstanding shares of common stock or limited liability company interests, as applicable, of each of the VG Companies will be cancelled in exchange for the right to receive 130,000,000 shares of VGH, Inc. common stock, which shares shall be at a deemed value of $10.00 per share for an aggregate merger consideration of $1.3 billion (the “Aggregate Merger Consideration”). The Aggregate Merger Consideration does not take into account certain additional issuances and payments to Vieco US which may be made under the terms of the Merger Agreement and the Purchase Agreement, respectively, only to the extent certain conditions are satisfied or certain options are elected by Vieco US, in each case, as contemplated thereunder, including, if applicable: (i) the issuance of additional shares of VGH, Inc. common stock to Vieco US or an affiliate of Vieco US as part of the Additional Holder Equity Amount under the terms of the Merger Agreement, (ii) the cash payment received by Vieco US in any Secondary Purchase under the terms of the Purchase Agreement, (iii) the issuance of additional shares of VGH, Inc. common stock to Vieco US in any Reinvestment under the terms of the Purchase Agreement, and (iv) any cash payment received by Vieco US in any Repurchase under the terms of the Merger Agreement, in each case, as described more fully elsewhere in this proxy statement/prospectus. Prior to the effective time of the



 

5


Table of Contents

Mergers, V10 will take all necessary and appropriate action so that, as of the effective time of the Mergers, all outstanding options to purchase common shares of V10 will be cancelled without consideration therefor. For further details, see “BCA Proposal—The Merger Agreement—Consideration—Aggregate Merger Consideration.”

Closing Conditions

The Merger Agreement is subject to the satisfaction or waiver of certain customary closing conditions, including, among others, (i) approval by SCH’s shareholders of the Business Combination and related agreements and transactions, (ii) the effectiveness of the registration statement of which this proxy statement/prospectus forms a part, (iii) the receipt of certain regulatory approvals (including, but not limited to, approval for listing on the NYSE of the shares of VGH, Inc. common stock to be issued in connection with the Mergers), (iv) that VGH, Inc. has at least $5,000,001 of net tangible assets upon Closing and (v) the absence of any injunctions.

In addition, prior to the Closing, Vieco US and certain of its subsidiaries (including the VG Companies) will consummate thePre-Closing Restructuring Plan, pursuant to which Company A, Company B and Company LLC will become, in each case, direct wholly owned subsidiaries of Vieco US, and it is a condition to the obligations of SCH and Merger Subs to consummate the Mergers that (i) thePre-Closing Restructuring Plan has been substantially completed and (ii) the VG Companies collectively hold cash in an amount equal to or greater than $2.0 million, in the aggregate, in each case, as of the Closing.

Other conditions to VG’s obligations to consummate the Mergers include, among others, that as of the Closing, (i) the Domestication has been completed, and (ii) the amount of cash available in the trust account, after deducting the amount required to satisfy SCH’s obligations to its shareholders that exercise their redemption rights pursuant to the Cayman Constitutional Documents including the Extension Amendment Redemptions, or the Trust Amount, is at least equal to the sum of (x) $400.0 millionplus (y) if applicable, an aggregate of approximately $24.2 million of deferred underwriting commissions being held in the trust account, which we refer to as the Minimum Available Cash Amount.

However, if the Trust Amount as of the Closing is less than the Minimum Available Cash Amount, then Vieco US and its affiliates will have the right to purchase (or seek a third party to purchase) the Additional Holder Equity Amount, or additional shares of VGH, Inc. common stock at a price per share of $10.00, up to the Minimum Available Cash Amount less the Investment Amount, or the aggregate purchase price paid to SCH by Mr. Palihapitiya in a Primary Purchase. If the Available Cash (which is the sum of the Trust Amount, the Additional Holder Equity Amount and the Investment Amount) is equal to or greater than the Minimum Available Cash Amount, then this condition, which we refer to as the Minimum Cash Condition, will be deemed to have been satisfied.

The Minimum Cash Condition is for the sole benefit of VG except that this condition may not be waived by VG if the Trust Amount is less than $200.0 million, provided that Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00 in an aggregate amount such that the Available Cash is, at or immediately prior to the Closing, equal to at least $200.0 million after giving effect to such purchases. Therefore, if such conditions are not met, and such conditions are not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated.

For further details, see “BCA Proposal—The Merger Agreement.”



 

6


Table of Contents

Domestication Proposal

As discussed in this proxy statement/prospectus, if the BCA Proposal is approved, then SCH will ask its shareholders to approve by special resolution the Domestication Proposal. As a condition to closing the Business Combination pursuant to the terms of the Merger Agreement, the board of directors of SCH has unanimously approved the Domestication Proposal. The Domestication Proposal, if approved, will authorize a change of SCH’s jurisdiction of incorporation from the Cayman Islands to the State of Delaware. Accordingly, while SCH is currently governed by the Cayman Islands Companies Law, upon the Domestication, VGH, Inc. will be governed by the DGCL. There are differences between Cayman Islands corporate law and Delaware corporate law as well as the Cayman Constitutional Documents and the Proposed Organizational Documents. Accordingly, SCH encourages shareholders to carefully review the information in “Comparison of Corporate Governance and Shareholder Rights.”

As a result of and upon the effective time of the Domestication, (1) each of the then issued and outstanding SCH Class A ordinary shares will convert automatically, on aone-for-one basis, into a share of VGH, Inc. common stock, (2) each of the then issued and outstanding SCH Class B ordinary shares will convert automatically, on aone-for-one basis, into a share of VGH, Inc. common stock; provided, however, that with respect to the SCH Class B ordinary shares held by the Sponsor, in connection with the Domestication the Sponsor will instead receive upon the conversion of the SCH Class B ordinary shares held by it, a number of shares of VGH, Inc. common stock equal to (x) the number of SCH Class B ordinary shares held by it as of immediately prior to the Domestication minus (y) after giving effect to the Domestication, the number of shares of VGH, Inc. common stock underlying the restricted stock units to be granted to certain members of the board of directors of SCH in connection with the Business Combination (“Director RSU Awards”) that are outstanding as of immediately prior to the Domestication, (3) each then issued and outstanding SCH warrant will convert automatically into a VGH, Inc. warrant, pursuant to the Warrant Agreement and (4) each SCH unit will convert automatically into a VGH, Inc. unit, with each VGH, Inc. unit representing one share of VGH, Inc. common stock andone-third of one VGH, Inc. warrant.

For further details, see “Domestication Proposal.”

Organizational Documents Proposals

If the BCA Proposal and the Domestication Proposal are approved, SCH will ask its shareholders to approve by special resolution four separate proposals (collectively, the “Organizational Documents Proposals”) in connection with the replacement of the Cayman Constitutional Documents, under the Cayman Islands Companies Law, with the Proposed Organizational Documents, under the DGCL. SCH’s board has unanimously approved each of the Organizational Documents Proposals and believes such proposals are necessary to adequately address the needs of VGH, Inc. after the Business Combination. Approval of each of the Organizational Documents Proposals is a condition to the consummation of the Business Combination. A brief summary of each of the Organizational Documents Proposals is set forth below. These summaries are qualified in their entirety by reference to the complete text of the Proposed Organizational Documents.

 

 A.

Proposal No. 3—Organizational Documents Proposal A— to authorize the change in the authorized capital stock of SCH from (i) 500,000,000 SCH Class A ordinary shares, 50,000,000 SCH Class B ordinary shares and 5,000,000 preferred shares, par value $0.0001 per share, to (ii) 700,000,000 shares of VGH, Inc. common stock and 10,000,000 shares of VGH, Inc. preferred stock.

 

 B.

Proposal No. 4—Organizational Documents Proposal B— to authorize the board of directors of VGH, Inc. (the “Board”) to issue any or all shares of VGH, Inc. preferred stock in one or more classes or series, with such terms and conditions as may be expressly determined by the Board and as may be permitted by the DGCL.



 

7


Table of Contents
 C.

Proposal No. 5—Organizational Documents Proposal C— to provide that certain provisions of the certificate of incorporation of VGH, Inc. will be subject to the Stockholders’ Agreement and certain provisions of the bylaws of VGH, Inc. will be subject to the Stockholders’ Agreement and the Registration Rights Agreement.

 

 D.

Proposal No. 6—Organizational Documents Proposal D—to authorize all other changes in connection with the replacement of Cayman Constitutional Documents with the Proposed Certificate of Incorporation and Proposed Bylaws as part of the Domestication, including (1) changing the corporate name from “Social Capital Hedosophia Holdings Corp.” to “Virgin Galactic Holdings, Inc.,” (2) making VGH, Inc.’s corporate existence perpetual, (3) adopting Delaware as the exclusive forum for certain stockholder litigation, (4) granting an explicit waiver regarding corporate opportunities to certain “exempted persons” (including Vieco US and Mr. Palihapitiya and their respective affiliates and representatives), and (5) removing certain provisions related to SCH’s status as a blank check company that will no longer be applicable upon consummation of the Business Combination, all of which SCH’s board of directors believes is necessary to adequately address the needs of VGH, Inc. after the Business Combination.

The Proposed Organizational Documents differ in certain material respects from the Cayman Constitutional Documents and SCH encourages shareholders to carefully review the information set out in the section entitled “Organizational Documents Proposals” and the full text of the Proposed Organizational Documents of VGH, Inc., attached hereto as Annexes F and G.

Director Election Proposal

Assuming the BCA Proposal, the Domestication Proposal and each of the Organizational Documents Proposals are approved, SCH’s shareholders are also being asked to approve by ordinary resolution the Director Election Proposal. Upon the consummation of the Business Combination, the Board will consist of eight directors. For additional information on the proposed directors, see “Director Election Proposal.”

Stock Issuance Proposal

Assuming the BCA Proposal, the Domestication Proposal, each of the Organizational Documents Proposals and the Director Election Proposal are approved, SCH’s shareholders are also being asked to approve by ordinary resolution the Stock Issuance Proposal.

SCH’s public shares are listed on the NYSE and, as such, SCH is seeking shareholder approval of the issuance of VGH, Inc. common stock to (1) Vieco US pursuant to the Merger Agreement and (2) Mr. Palihapitiya and Vieco US, in each case, if applicable, pursuant to the Purchase Agreement, in order to comply with Section 312.03 of the NYSE’s Listed Company Manual. For additional information, see “Stock Issuance Proposal.”

Incentive Award Plan Proposal

Assuming the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal and the Stock Issuance Proposal are approved, SCH’s shareholders are also being asked to approve by ordinary resolution the 2019 Plan, in order to comply with Section 312.03(a) of the NYSE’s Listed Company Manual and the Internal Revenue Code. For additional information, see “Incentive Award Plan Proposal.”

Repurchase Proposal

Assuming the BCA Proposal, the Domestication Proposal, each of the Organizational Documents Proposals, the Director Election Proposal, the Stock Issuance Proposal and the Incentive Award Plan Proposal are approved,



 

8


Table of Contents

SCH’s shareholders are also being asked to approve, by ordinary resolution, the Repurchase Proposal pursuant to which we may be required to repurchase, at Vieco US’s election, up to 20,000,000 shares of VGH, Inc. common stock from Vieco US at a price of $10.00 per share with cash in an aggregate amount equal to the lesser of $200.0 million and the amount (if any) by which the Available Cash exceeds $500.0 million at the Closing. For additional information, see “Repurchase Proposal.”

Adjournment Proposal

If, based on the tabulated vote, there are not sufficient votes at the time of the extraordinary general meeting to authorize SCH to consummate the Business Combination (because any of the Condition Precedent Proposals have not been approved (including as a result of the failure of any other cross-conditioned Condition Precedent Proposals to be approved)), SCH’s board of directors may submit a proposal to adjourn the extraordinary general meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies. For additional information, see “Adjournment Proposal.”

SCH’s Board of Directors’ Reasons for the Business Combination

SCH was organized for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

In evaluating the Business Combination, the SCH board of directors consulted with SCH’s management and considered a number of factors. In particular, the SCH board of directors considered, among other things, the following factors, although not weighted or in any order of significance:

 

  

Potential Public Investor Enthusiasm for Spaceflight. Since the advent of space exploration, there has been limited means for public investors to invest in the economic and strategic value of human spaceflight. Against this backdrop, the Business Combination with the VG Companies will create the world’s first and only publicly traded commercial human spaceflight company. VGH, Inc. will provide investors the opportunity to invest in commercial space travel and the potential value related to opening space to many tens of thousands of new astronauts.

 

  

Experienced and Proven Management Team. The VG Companies’ management team has extensive experience in key aspects of the aerospace industry. The senior management team represents some of the most experienced and recognized leaders in flight operations, technical manufacturing and general management. Led by their Chief Executive Officer, George Whitesides, a former Chief of Staff for the National Aeronautics and Space Agency, the VG Companies became the first commercial space company to put a human into space. We expect that the VG Companies’ executives will continue with the combined company following the Business Combination. For additional information regarding VGH, Inc.’s executive officers, see the section entitled “Management of VGH, Inc. Following the Business Combination—Executive Officers.”

 

  

Attractive Entry Valuation. VGH, Inc. will have an anticipated initial enterprise value of $1.5 billion implying a 2.5x multiple of 2023 projected revenue and a 5.5x multiple of 2023 projected EBITDA as VGH, Inc.’s commercial operations are expected to achieve scale. This represents approximately a 1.5x multiple of invested capital based on over $1 billion of capital investment to date. After the completion of the Business Combination, the majority of the net cash from SCH’s trust account is expected to be held on VGH, Inc.’s balance sheet to fund operations and support continued growth.

 

  

Valuable Proprietary Intellectual Property. Over the course of the last 14 years, the VG Companies have developed an extensive portfolio of proprietary technologies that are embodied in the highly specialized vehicles that they have developed to enable commercial spaceflight. These technologies are largely embodied in proprietaryknow-how and trade secrets. In addition, the VG Companies seek to further protect their technologies with patents and patent applications when possible and consistent with its overall strategy to safeguard intellectual property.



 

9


Table of Contents
  

Vertically Integrated Go To Market Strategy. The VG Companies are vertically integrated, meaning they design, develop, manufacture, test and operate the critical components of their mission, including the spaceships and carrier aircraft themselves. These internal capabilities enable the VG Companies to build and optimize their spaceflight systems for a dynamic customer experience and with other critical capabilities, such as reusability and efficiency, are expected to facilitate a go to market strategy and drive the long-term profitability and value of the VG Companies.

 

  

Robust Manufacturing Pipeline. The VG Companies have two additional SpaceShipTwo vehicles under construction and expect to expand the fleet to a total of five SpaceShipTwo vehicles in service by the end of 2023, which will enable an increase in the flight rate to meet customer demand.

 

  

Attractive Business Model. The VG Companies have several capabilities that will allow them to scale rapidly to meet customer demand—among these are the design and implementation of reusable vehicles. For example, a single spaceship is designed to be reused for hundreds of cycles, with primarily only its rocket motor fuel cartridge and oxidizer being changed in between flights. These design features meaningfully reduce the operational cost of each spaceflight over time and allow for short turnaround times between flights. Over time, the VG Companies expect to have the ability to leverage their suite of proprietary technologies and reusable design to lower costs and allow lower ticket prices, while preserving profitability and meeting the demand for human spaceflight in a market where most other alternatives are extremely expensive.

 

  

First Purpose-Built Commercial Spaceport.The VG Companies will operate from Spaceport America in New Mexico. Spaceport America is a more than $200.0 million facility built by the New Mexico government and leased to the VG Companies at an attractive annual rate. The spaceport is located on 27 square miles of desert landscape, with access to 6,000 square miles of restricted airspace running from the ground to space. The restricted airspace facilitates frequent and consistent flight scheduling and the desert climate and its relatively predictable weather provides favorable launch conditions year-round. The facilities were built with the operational requirements and customers of the VG Companies in mind, with comprehensive consideration of its practical function, while also providing the basis for the Virgin Galactic experience. The VG Companies believe that this model will allow them to achieve high operational flight rates and can be used to scale to meet demand without significant additional capital outlays for physical plant and ground infrastructure. Similar models could also be used to facilitate international expansion in the future.

 

  

High Growth Industry. The space race is shifting quickly from public-sector financing to private-sector financing. With this shift comes a more bottom-line focus on costs and utilization that creates the opportunity for an entirely new ecosystem of disruptive and profitable companies. According to an October 2018 article from the U.S. Chamber of Commerce, the commercial space market will grow 6% per year from $385.0 billion in 2017 to at least $1.5 trillion by 2040, reaching 5% of U.S. gross domestic product. Commercial spaceflight is expected to capture an important portion of this market as it will also allow for applications beyond initial use, including scientific research.

 

  

Strong Competitive Position. The VG Companies’ differentiated technology and capabilities, its horizontaltake-off and landing design, experienced management team, iconic brand, vertically-integrated design and manufacturing capabilities and extensive customer base separate them from the competition. VSS Unity, the VG Companies’ spaceship, was the first, and as of July 2019 remains the only, vehicle built for recurring commercial spaceflight service to have put humans into space. The VG Companies’ inaugural spaceflight in December 2018 was also the first and only space launch from U.S. soil since 2011 that carried human crew members. During its second spaceflight in February 2019, VSS Unity became the first vehicle built for commercial service to not only carry pilots but a third crew member, as well. We believe that the additional capital provided by the Business Combination will provide VGH, Inc. with the support needed to reach broad commercialization. Additionally, the VG



 

10


Table of Contents
 

Companies have the licenses they need from the FAA to begin commercial operations once they have completed a validation and testing process to the FAA’s satisfaction.

 

  

Competitive Dynamics. The VG Companies’ position within the emerging commercial human spaceflight market is reinforced by significant barriers to entry for potential competitors as well as key differences in safety and customer experience. The VG Companies are the only commercial space company to date to take a horizontaltake-off and landing approach, which mimics traditional aircraft in how the spaceship leaves the ground and returns to earth. The VG Companies provide a piloted experience where two highly trained pilots will take passengers to space. Because their spaceship’s rocket motor can be shut off at any time during flight, the VG Companies can conduct a safe abort at various phases of the flight mission. We are aware of only one competitor with a similar investment of time and money in suborbital commercial human spaceflight, which is taking a different approach to its launch architecture.

 

  

Iconic, Widely Recognized Brand. Virgin is an iconic, widely recognized brand with significant brand strength and high awareness and a track record of creating memorable experiences.

 

  

Demonstrated Willingness to Pay. Individuals, including those of high net worth, increasingly value experiences and the VG Companies offer a unique value proposition relative to comparably priced ultra-luxury travel and transportation experiences. As of June 30, 2019, the VG Companies had reservations for 603 spaceflights and approximately $80.0 million in deposits. Additionally, there have been more than 3,000 flight reservation inquiries since SpaceShipTwo’s first spaceflight in December 2018. The VG Companies have had high retention rates despite deposits being refundable during the development program. We believe that the market for exclusive, experiential products will continue to expand quickly and represents a significant opportunity for future growth.

 

  

Expansive Future Opportunities.The VG Companies have developed an extensive set of vertically integrated aerospace development capabilities and technologies. In the future, they expect to explore the application of those proprietary technologies and capabilities in areas such as design, engineering, composites manufacturing, high-speed vehicles and production for other commercial and government uses. Among other potential opportunities, the VG Companies believe their technology could be used to develop supersonic and hypersonic vehicles that drastically reduce travel time forpoint-to-point international travel.

For a more complete description of the SCH board of directors’ reasons for approving the Business Combination, including other factors and risks considered by the SCH board of directors, see the section entitled “BCA Proposal—SCH’s Board of Directors’ Reasons for the Business Combination.”

Related Agreements

This section describes certain additional agreements entered into or to be entered into pursuant to the Merger Agreement. For additional information, see “BCA Proposal—Related Agreements.”

The Purchase Agreement

In connection with the Merger Agreement, SCH has entered into the Purchase Agreement, dated as of July 9, 2019, as supplemented by the Assignment, Consent and Waiver Agreement, dated as of October 2, 2019, by and among SCH, V10, Vieco US and Chamath Palihapitiya, a copy of which is attached to the accompanying proxy statement/prospectus as Annex B (the “Purchase Agreement”). The Purchase Agreement contemplates, among other things, concurrently with the Closing and at the option of Vieco US, the purchase by Mr. Palihapitiya of (a) 10,000,000 newly issued shares of VGH, Inc. common stock in the Primary Purchase from VGH, Inc. at a price of $10.00 per share in cash and (b) a number of shares of VGH, Inc. common stock in



 

11


Table of Contents

the Secondary Purchase from Vieco US at a price of $10.00 per share in cash, which will reduce, on aone-for-one basis, the number of shares purchased directly from VGH, Inc. in the Primary Purchase (“Secondary Purchase” and, together with the Primary Purchase, the“Co-Investment”) and provided further that the aggregate number of shares of VGH, Inc. common stock to be purchased in the Primary Purchase and Secondary Purchase will, in any event, be equal to 10,000,000 and the aggregate price paid for such shares will be equal to $100.0 million. The proceeds of such Secondary Purchase may be used by Vieco US to subsequently purchase additional newly issued shares of VGH, Inc. common stock at a price of $10.00 per share (the “Reinvestment”). For additional information, see “BCA Proposal—Related Agreements—The Purchase Agreement.”

Stockholders’ Agreement

The Merger Agreement contemplates that, at the Closing, VGH, Inc. will enter into a Stockholders’ Agreement with Vieco US, the Sponsor and Mr. Palihapitiya (collectively with any individuals or entities that are signatories thereto or hereafter become party to the agreement, the “Voting Parties”), pursuant to which, among other things, (i) Vieco US and Mr. Palihapitiya will be granted rights to designate directors for election to the Board (and the Voting Parties will vote in favor of such designees), (ii) Vieco US will agree not to take action to remove the members of the Board designated by Mr. Palihapitiya pursuant thereto, (iii) Mr. Palihapitiya will agree not to take action to remove the members of the Board designated by Vieco US pursuant thereto and (iv) Vieco US will, under certain circumstances, have the right to approve certain matters as set forth therein.

From and after the Closing, the Stockholders’ Agreement contemplates that, the Board will consist of eight directors with the Chairperson of the Board initially being Chamath Palihapitiya and also contains (i) certain provisions intended to maintain, following the consummation of the Merger, the Company’s qualification as a “controlled company” within the meaning of Rule 303A of the NYSE corporate governance requirements and (ii) certain procedures for transactions with Vieco US and its affiliates. “BCA Proposal—Related Agreements—Stockholders’ Agreement.”

Sponsor Support Agreement

In connection with the execution of the Merger Agreement, SCH entered into a sponsor support agreement, with the Sponsor, each officer and director of SCH, V10, Company A, Company B and Company LLC, a copy of which is attached to the accompanying proxy statement/prospectus as Annex D (the “Sponsor Support Agreement”). Pursuant to the Sponsor Support Agreement, the Sponsor and each officer and director of SCH agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement. “BCA Proposal—Related Agreements—Sponsor Support Agreement.”

Transfer Restrictions and Registration Rights

The Merger Agreement contemplates that, at the Closing, VGH, Inc., Vieco US, the Sponsor and Mr. Palihapitiya will enter into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which VGH, Inc. will agree to register for resale, pursuant to Rule 415 under the Securities Act, certain shares of VGH, Inc. common stock and other equity securities of VGH, Inc. that are held by the parties thereto from time to time.

Additionally, the Registration Rights Agreement contains certain restrictions on transfer with respect to the shares of VGH, Inc. common stock held by the Sponsor immediately following the Closing and the shares of VGH, Inc. common stock received by Vieco US in connection with the Business Combination, including atwo-yearlock-up of such shares in each case, subject to limited exceptions as contemplated thereby (including that Vieco US may transfer up to 50% of the shares of VGH, Inc. common stock received by it pursuant to the Merger Agreement after giving effect to the related transactions).



 

12


Table of Contents

For additional information, see “BCA Proposal—Related Agreements—Transfer Restrictions and Registration Rights.”

Trademark License Agreement

In connection with the execution of the Merger Agreement, on July 9, 2019, as amended on October 2, 2019, Virgin Enterprises Limited (“VEL”), VGH, LLC and SCH entered into a deed of novation, amendment and restatement (the “Novation Deed”), pursuant to which an existing trade mark license agreement (granting VG, LLC certain rights to use certain VIRGIN marks that are legally and beneficially owned by VEL) will be novated to SCH and amended and restated in full in the form attached as an annex to the Novation Deed with effect on and from the Closing (the “Closing Date”) (the “Amended TMLA”). For additional information, see “BCA Proposal—Related Agreements—Trademark License Agreement.”

Transition Services Agreements

The Merger Agreement contemplates that, at the Closing, TSC, LLC, Virgin Galactic, LLC (“VG, LLC”), Galactic Ventures LLC (“GV LLC”) and Virgin Orbit, LLC, a Delaware limited liability company (“VO, LLC”) will enter into the Transition Services Agreement (the “U.S. Transition Services Agreement”), pursuant to which the parties will establish a service schedule to control the provision of services among the parties, as GV LLC and VO, LLC on the one hand and TSC, LLC and VG, LLC on the other hand, will no longer be members of the same consolidated corporate group following the Business Combination. For additional information, see “BCA Proposal—Related Agreements—U.S. Transition Services Agreement.”

The Merger Agreement contemplates that, at the Closing, VGL and Virgin Management Limited (“VML”) will enter into the U.K. Transition Services Agreement (the “U.K. Transition Services Agreement” and, together with the U.S. Transition Services Agreement, the “Transition Services Agreements”), pursuant to which the parties will establish a service schedule to control the provision of certain services provided by VML to VGL. The proposed U.K. Transition Services Agreement is necessary in order for VGL to continue to operate its business on and after the Closing. For additional information, see “BCA Proposal—Related Agreements—U.K. Transition Services Agreement.”

Boeing Subscription Agreement

On October 7, 2019, SCH and an entity affiliated with The Boeing Company (“Boeing”) entered into a subscription agreement (the “Boeing Agreement”) pursuant to which Boeing has agreed to purchase $20.0 million of shares of common stock of VGH, Inc. immediately following the Closing, at a price per share equal to the dollar amount per share of common stock that a shareholder of SCH would receive upon the valid exercise of their right of redemption with respect to such share of common stock in connection with the Closing, which amount shall be calculated as of two business days prior to the Closing Date. For illustrative purposes, based on an assumed price of approximately $10.33 per share, which price is based on trust account figures as of June 30, 2019, Boeing would purchase 1,936,747 shares of VGH, Inc. common stock pursuant to the Boeing Agreement. In connection with the Boeing Agreement, VGH, Inc. will provide Boeing with a right to have a representative attend all meetings of the board of directors of VGH, Inc. and receive all materials provided to the board, subject to exceptions for VGH, Inc. to preserve attorney-client privilege, avoid disclosure of trade secrets or prevent material competitive harm. This right will expire on October 7, 2023, subject to automatic two-year renewals unless VGH, Inc. provides prior written notice, or such other time as when Boeing owns less than all of the shares of common stock purchased by it pursuant to the Boeing Agreement. The investment contemplated by the Boeing Agreement is contingent on the Business Combination, but the Business Combination is not contingent on the investment contemplated by the Boeing Agreement.



 

13


Table of Contents

Ownership of VGH, Inc. following Business Combination

As of the date of this proxy statement/prospectus, there are 82,478,822 ordinary shares issued and outstanding, which includes the 17,250,000 founder shares held by the Sponsor and the 65,228,822 public shares. As of the date of this proxy statement/prospectus, there is outstanding an aggregate of 30,999,980 warrants, which includes the 8,000,000 private placement warrants held by the Sponsor and the 22,999,980 public warrants. Each whole warrant entitles the holder thereof to purchase one SCH Class A ordinary share and, following the Domestication, will entitle the holder thereof to purchase one share of VGH, Inc. common stock. Therefore, as of the date of this proxy statement/prospectus (without giving effect to the Business Combination) the SCH fully diluted share capital would be 113,478,822.

It is anticipated that, following the Business Combination (assuming consummation of the transactions contemplated by the Purchase Agreement), (1) SCH’s public shareholders are expected to own approximately 33.3% of the outstanding VGH, Inc. common stock, (2) Vieco US (without taking into account any public shares held by Vieco US equityholders prior to the consummation of the Business Combination) is expected to own approximately 52.5% of the outstanding VGH, Inc. common stock and (3) the Sponsor and related parties (including Mr. Palihapitiya) are expected to collectively own approximately 13.2% of the outstanding VGH, Inc. common stock. These percentages give effect to the 3,771,178 public shares redeemed in connection with the Extension Amendment, at an assumed price approximating $10.33 per share (which price is based on trust account figures as of June 30, 2019), and assume (i) that no additional public shareholders exercise their redemption rights in connection with the Business Combination and (ii) that (x) VGH, Inc. issues 130,000,000 shares of VGH, Inc. common stock to Vieco US as the Aggregate Merger Consideration pursuant to the Merger Agreement, (y) VGH, Inc. repurchases 17,359,126 of such shares of VGH, Inc. common stock from Vieco US in the Repurchase pursuant to the Merger Agreement and (z) Vieco US elects under the Purchase Agreement to have Mr. Palihapitiya purchase 10,000,000 shares of VGH, Inc. common stock directly from Vieco US in a Secondary Purchase, in accordance with the terms and subject to the conditions of the Purchase Agreement. If the actual facts are different from these assumptions, the percentage ownership retained by SCH’s existing shareholders in VGH, Inc. (following the consummation of the Business Combination) will be different. Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that will be granted in connection with the Business Combination. The Director RSU Awards will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.



 

14


Table of Contents

The following table illustrates varying ownership levels in VGH, Inc. immediately following the consummation of the Business Combination based on the assumptions above, except for (i) varying levels of additional redemptions by the public shareholders and (ii) as a result of varying additional redemptions, the inclusion of the Repurchase, which cannot be exercised by Vieco US at the assumed additional redemption level.

 

   Share Ownership in VGH, Inc. 
   Full Secondary
Purchase Election,
Repurchase Election
  Full Secondary Purchase at
Minimum Cash Condition
($400m in trust after deferred
underwriting fee)
 
   No Additional Redemptions  Additional Redemptions(1) 
   
Number of
Shares
   Percentage
of
Outstanding
Shares
  
Number of
Shares
   Percentage
of
Outstanding
Shares
 

Vieco US

   102,640,874    52.5  120,000,000    63.6

SCH’s public shareholders

   65,228,822    33.3  41,073,581    21.8

Sponsor & related parties (including Mr. Palihapitiya)(2)

   25,750,000    13.2  25,750,000    13.6

Boeing(3)

   1,936,747    1.0  1,936,747    1.0
  

 

 

   

 

 

  

 

 

   

 

 

 

Total(2)(3)

   195,556,443    100.0  188,760,328    100.0
  

 

 

    

 

 

   

 

(1)

Assumes additional redemptions of 24,155,241 Class A public shares of SCH in connection with the Business Combination in order to satisfy the closing conditions contained in the Merger Agreement at approximately $10.33 per share based on trust account figures as of June 30, 2019.

(2)

Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that will be granted in connection with the Business Combination. The Director RSU Awards will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.

(3)

Outstanding shares of VGH, Inc. common stock includes the assumed purchase by Boeing of $20.0 million of shares of common stock of VGH, Inc. pursuant to the Boeing Agreement at an assumed purchase price approximating $10.33 per share, based on trust account figures as of June 30, 2019. The actual number of shares purchased by Boeing will depend on the per share amount in the trust account as of two business days prior to the Closing Date, which per share amount will be the same amount that a shareholder of SCH would receive upon the valid exercise of their right of redemption with respect to such share of common stock in connection with the Closing.

Date, Time and Place of Extraordinary General Meeting of SCH’s Shareholders

The extraordinary general meeting of the shareholders of SCH will be held at 12:30 p.m., Eastern Time, on October 23, 2019, at The Westin Palo Alto, located at 675 El Camino Real, Palo Alto, CA 94301, to consider and vote upon the proposals to be put to the extraordinary general meeting, including if necessary, the Adjournment Proposal, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the extraordinary general meeting, each of the Condition Precedent Proposals have not been approved.

Voting Power; Record Date

SCH shareholders will be entitled to vote or direct votes to be cast at the extraordinary general meeting if they owned ordinary shares at the close of business on September 16, 2019, which is the “record date” for the extraordinary general meeting. Shareholders will have one vote for each ordinary share owned at the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you



 

15


Table of Contents

should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. SCH warrants do not have voting rights. As of the close of business on the record date, there were 82,478,822 ordinary shares issued and outstanding, of which 65,228,822 were issued and outstanding public shares.

Quorum and Vote of SCH Shareholders

A quorum of SCH shareholders is necessary to hold a valid meeting. A quorum will be present at the SCH extraordinary general meeting if a majority of the issued and outstanding ordinary shares entitled to vote at the extraordinary general meeting are represented in person or by proxy. Abstentions and brokernon-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the extraordinary general meeting. As of the record date for the extraordinary general meeting, 41,239,412 ordinary shares would be required to achieve a quorum.

The Sponsor has agreed to vote all of its ordinary shares in favor of the proposals being presented at the extraordinary general meeting. As of the date of this proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

The proposals presented at the extraordinary general meeting require the following votes:

 

 (i)

BCA Proposal: The approval of the BCA Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (ii)

Domestication Proposal:The approval of the Domestication Proposal requires a special resolution under Cayman Islands Companies Law, being the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (iii)

Organizational Documents Proposals:The separate approval of each of the Organizational Documents Proposals requires a special resolution under Cayman Islands Companies Law, being the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (iv)

Director Election Proposal:The approval of the Director Election Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (v)

Stock Issuance Proposal:The approval of the Stock Issuance Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (vi)

Incentive Award Plan Proposal:The approval of the Incentive Award Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (vii)

Repurchase Proposal:The approval of the Repurchase Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

 

 (viii)

Adjournment Proposal:The approval of the Adjournment Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.



 

16


Table of Contents

Redemption Rights

Pursuant to the Cayman Constitutional Documents, a public shareholder may request of SCH that VGH, Inc. redeem all or a portion of its public shares for cash if the Business Combination is consummated. As a holder of public shares, you will be entitled to receive cash for any public shares to be redeemed only if you:

 

 (i)

(a) hold public shares or (b) if you hold public shares through units, you elect to separate your units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares;

 

 (ii)

submit a written request to Continental Stock Transfer & Trust Company (“Continental”), SCH’s transfer agent, that VGH, Inc. redeem all or a portion of your public shares for cash; and

 

 (iii)

deliver your public shares to Continental, SCH’s transfer agent, physically or electronically through DTC.

Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on October 21, 2019 (two business days before the extraordinary general meeting) in order for their shares to be redeemed.

Holders of units must elect to separate the units into the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If holders hold their units in an account at a brokerage firm or bank, holders must notify their broker or bank that they elect to separate the units into the underlying public shares and public warrants, or if a holder holds units registered in its own name, the holder must contact Continental, SCH’s transfer agent, directly and instruct them to do so. Public shareholders may elect to redeem all or a portion of the public shares held by them regardless of if or how they vote in respect of the BCA Proposal.If the Business Combination is not consummated, the public shares will be returned to the respective holder, broker or bank. If the Business Combination is consummated, and if a public shareholder properly exercises its right to redeem all or a portion of the public shares that it holds and timely delivers its shares to Continental, SCH’s transfer agent, VGH, Inc. will redeem such public shares for aper-share price, payable in cash, equal to the pro rata portion of the trust account, calculated as of two business daysprior to the consummation of the Business Combination. For illustrative purposes, as of June 30, 2019, this would have amounted to approximately $10.33 per issued and outstanding public share. If a public shareholder exercises its redemption rights in full, then it will be electing to exchange its public shares for cash and will no longer own public shares. The redemption takes place following the Domestication and, accordingly, it is shares of VGH, Inc. common stock that will be redeemed immediately after consummation of the Business Combination. See “Extraordinary General Meeting of SCH—Redemption Rights” in this proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your public shares for cash.

Notwithstanding the foregoing, a public shareholder, together with any affiliate of such public shareholder or any other person with whom such public shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its public shares with respect to more than an aggregate of 15% of the public shares. Accordingly, if a public shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the public shares, then any such shares in excess of that 15% limit would not be redeemed for cash.

The Sponsor has agreed to vote in favor of the Business Combination, regardless of how our public shareholders vote. Unlike some other blank check companies in which the initial shareholders agree to vote their shares in accordance with the majority of the votes cast by the public shareholders in connection with an initial business combination, the Sponsor and each officer and director of SCH have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms



 

17


Table of Contents

and conditions contemplated by the Sponsor Support Agreement. As of the date of this proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

Holders of the warrants will not have redemption rights with respect to the warrants.

Appraisal Rights

Neither SCH shareholders nor SCH warrant holders have appraisal rights in connection with the Business Combination or the Domestication under the Cayman Islands Companies Law or under the DGCL.

Proxy Solicitation

Proxies may be solicited by mail, telephone or in person. SCH has engaged Morrow Sodali LLC to assist in the solicitation of proxies.

If a shareholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the extraordinary general meeting. A shareholder also may change its vote by submitting a later-dated proxy as described in the section entitled “Extraordinary General Meeting of SCH—Revoking Your Proxy.”

Interests of SCH’s Directors and Executive Officers in the Business Combination

When you consider the recommendation of SCH’s board of directors in favor of approval of the BCA Proposal, you should keep in mind that the Sponsor and SCH’s directors and executive officers have interests in such proposal that are different from, or in addition to, those of SCH shareholders and warrant holders generally. These interests include, among other things, the interests listed below:

 

  

If SCH does not consummate a business combination by December 18, 2019 (or if such date is further extended at a duly called extraordinary general meeting, such later date), it would cease all operations except for the purpose of winding up, redeeming all of the outstanding public shares for cash and, subject to the approval of its remaining shareholders and its board of directors, dissolving and liquidating, subject in each case to its obligations under the Cayman Islands Companies Law to provide for claims of creditors and the requirements of other applicable law. In such event, the 17,250,000 SCH Class B ordinary shares owned by the Sponsor would be worthless because following the redemption of the public shares, SCH would likely have few, if any, net assets and because the Sponsor has agreed to waive its rights to liquidating distributions from the trust account with respect to the Sponsor if SCH fails to complete a business combination within the required period. The Sponsor purchased the SCH Class B ordinary shares prior to SCH’s initial public offering for approximately $0.0001 per share and certain of SCH’s directors and executive officers, including Chamath Palihapitiya and Ian Osborne, have an economic interest in such shares. The 15,750,000 shares of VGH, Inc. common stock that the Sponsor will hold following the Mergers (including after giving effect to the Domestication), if unrestricted and freely tradable, would have had aggregate market value of $172.0 million based upon the closing price of $10.92 per share of public share on the NYSE on October 8, 2019, the most recent practicable date prior to the date of this proxy statement/prospectus. Given such shares of VGH, Inc. common stock will be subject to certain restrictions, including those described above, SCH believes such shares have less value.

 

  

Chamath Palihapitiya, SCH’s Chief Executive Officer and Chairman of SCH’s board of directors, is expected to be the Chairperson of the board of directors of VGH, Inc. after the consummation of the Business Combination. As such, in the future, Mr. Palihapitiya will receive any cash fees, stock options, stock awards or other remuneration that VGH, Inc.’s board of directors determines to pay to him.



 

18


Table of Contents
  

Adam Bain and James Ryans, current directors of SCH, are expected to be directors of VGH, Inc. after the consummation of the Business Combination (it is also anticipated that Dr. Ryans will serve as the chairperson of the audit committee of the Board). As such, in the future, Mr. Bain and Dr. Ryans will receive any cash fees, stock options, stock awards or other remuneration that VGH, Inc.’s board of directors determines to pay to them.

 

  

In connection with the execution of the Merger Agreement, the board of directors of SCH approved the grant of the Director RSU Awards to select members of the board of directors of SCH that, at the Closing, will vest and be converted into the right to receive an aggregate of 1,500,000 shares of VGH, Inc. common stock. The Director RSU Awards will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1st and December 31st of the year following the Closing. The grant and vesting of the Director RSU Awards are contingent upon, among other things, the consummation of the Business Combination, the approval of the 2019 Plan by SCH’s shareholders at the extraordinary general meeting and the continued service of the respective participants on the board of directors of SCH through the Closing Date.

 

  

SCH’s existing directors and officers will be eligible for continued indemnification and continued coverage under a directors’ and officers’ liability insurance policy after the Mergers and pursuant to the Merger Agreement.

 

  

In the event that SCH fails to consummate a business combination within the prescribed time frame (pursuant to the Cayman Constitutional Documents), or upon the exercise of a redemption right in connection with the Business Combination, SCH will be required to provide for payment of claims of creditors that were not waived that may be brought against SCH within the 10 years following such redemption. In order to protect the amounts held in the trust account, the Sponsor has agreed that it will be liable to SCH if and to the extent any claims by a third party (other than SCH’s independent auditors) for services rendered or products sold to SCH, or a prospective target business with which SCH has discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $10.00 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case, net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under the indemnity of the underwriters of SCH’s initial public offering against certain liabilities, including liabilities under the Securities Act.

 

  

A party related to our Sponsor and certain of our officers and directors has advanced funds to us for working capital purposes, including $0.8 million as of June 30, 2019. These outstanding advances have been documented in a promissory note, dated as of October 2, 2019 (the “Promissory Note”), issued by SCH to the Sponsor, pursuant to which SCH may borrow up to $3.5 million from the Sponsor (including those amounts which are currently outstanding). The Promissory Note is non-interest bearing, unsecured and due and payable in full on the earlier of December 18, 2019 and the date SCH consummates its initial business combination. If we do not complete our initial business combination within the required period, we may use a portion of our working capital held outside the trust account to repay such advances and any other working capital advances made to us, but no proceeds held in the trust account would be used to repay such advances and any other working capital advances made to us, and such related party may not be able to recover the value it has loaned us and any other working capital advances it may make.

 

  

In connection with the Public Offering, the underwriters of the Public Offering agreed to reimburse the Company for amounts paid by the Company to Connaught (UK) Limited for financial advisory services in an amount equal to 10% of the discount paid to the underwriters, of which $1.0 million was paid at the closing of the Public Offering and up to $2.4 million will be payable at the time of the



 

19


Table of Contents
 

closing of the initial Business Combination. Connaught (UK) Limited is an affiliate of us, our Sponsor and certain of our officers and directors.

 

  

Following consummation of the Business Combination, the Sponsor, SCH’s officers and directors and their respective affiliates would be entitled to reimbursement for certainout-of-pocket expenses related to identifying, investigating and consummating an initial business combination or repayment of loans, if any, and on such terms as to be determined by SCH from time to time, made by the Sponsor or any of SCH’s officers or directors to finance transaction costs in connection with an intended initial business combination. However, if SCH fails to consummate a business combination within the required period, Sponsor and SCH’s officers and directors and their respective affiliates will not have any claim against the trust account for reimbursement.

 

  

In connection with the Purchase Agreement, if Vieco US elects to have Mr. Palihapitiya purchase shares of VGH, Inc. common stock (i) in a Primary Purchase, Mr. Palihapitiya will be issued up to 10,000,000 newly issued shares of VGH, Inc. common stock (depending on the size of the Primary Purchase as elected by Vieco US) or (ii) in a Secondary Purchase, Mr. Palihapitiya will be purchasing up to 10,000,000 shares of VGH, Inc. common stock from Vieco US (depending on the size of the Secondary Purchase as elected by Vieco US), in each case, at a price of $10.00 per share. It is anticipated that, following the Business Combination, if Vieco US elects that Mr. Palihapitiya purchase the maximum number of shares in a Secondary Purchase (after giving effect to the 3,771,178 public shares redeemed in connection with the Extension Amendment, at an assumed price approximating $10.33 per share (which price is based on trust account figures as of June 30, 2019)) and also assuming that (x) no additional public shareholders exercise their redemption rights in connection with the Business Combination assuming consummation of the transactions contemplated by the Purchase Agreement and (y) VGH, Inc. will repurchase 17,359,126 shares of VGH, Inc. common stock from Vieco US in a Repurchase pursuant to the Merger Agreement), the Sponsor and related parties (including Mr. Palihapitiya) are expected to collectively own approximately 13.2% of outstanding VGH, Inc. common stock. Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that will be granted in connection with the Business Combination. The restricted stock units will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.

 

  

Pursuant to the Stockholders’ Agreement, Mr. Palihapitiya will have the right to designate two directors to the Board of VGH, Inc. and such directors may have the power collectively to withhold approval in respect of future transactions between VGH, Inc. and its subsidiaries, on the one hand and Vieco US or its affiliates, on the other.

 

  

Pursuant to the Registration Rights Agreement, the Sponsor, Mr. Palihapitiya and Vieco US will have customary registration rights, including demand and piggy-back rights, subject to cooperation andcut-back provisions with respect to the shares of VGH, Inc. common stock and warrants held by such parties.

 

  

The Proposed Certificate of Incorporation will contain a provision that expressly elects not to be governed by Section 203 (Delaware’s “interested stockholder” statute) of the Delaware General Corporation Law.

The Sponsor has agreed to vote in favor of the Business Combination, regardless of how our public shareholders vote. Unlike some other blank check companies in which the initial shareholders agree to vote their shares in accordance with the majority of the votes cast by the public shareholders in connection with an initial business combination, the Sponsor and each officer and director of SCH have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms



 

20


Table of Contents

and conditions contemplated by the Sponsor Support Agreement. As of the date of this proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

At any time at or prior to the Business Combination, during a period when they are not then aware of any material nonpublic information regarding us or SCH’s securities, the Sponsor, Mr. Palihapitiya, Vieco US, the VG Companies or their directors, officers, advisors or respective affiliates may purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire public shares or vote their public shares in favor of the Condition Precedent Proposals. Such a purchase may include a contractual acknowledgement that such shareholder, although still the record holder of SCH’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, Mr. Palihapitiya, Vieco US, the VG Companies or their directors, officers, advisors or respective affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholder would be required to revoke their prior elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood of (1) satisfaction of the requirement that holders of a majority of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the BCA Proposal, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the Repurchase Proposal and the Adjournment Proposal, (2) satisfaction of the requirement that holders of at leasttwo-thirds of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the Domestication Proposal and the Organizational Documents Proposals, (3) satisfaction of the Minimum Cash Condition, (4) otherwise limiting the number of public shares electing to redeem and (5) SCH’s net tangible assets (as determined in accordance with Rule 3a51(g)(1) of the Exchange Act) being at least $5,000,001.

Entering into any such arrangements may have a depressive effect on the ordinary shares (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination). If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the extraordinary general meeting and would likely increase the chances that such proposals would be approved. SCH will file or submit a Current Report on Form8-K to disclose any material arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals to be put to the extraordinary general meeting or the redemption threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

The existence of financial and personal interests of one or more of SCH’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of SCH and its shareholders and what he, she or they may believe is best for himself or themselves in determining to recommend that shareholders vote for the proposals. In addition, SCH’s officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “BCA Proposal—Interests of SCH’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

Recommendation to Shareholders of SCH

SCH’s board of directors believes that the BCA Proposal and the other proposals to be presented at the extraordinary general meeting are in the best interest of SCH’s shareholders and unanimously recommends that



 

21


Table of Contents

its shareholders vote “FOR” the BCA Proposal, “FOR” the Domestication Proposal, “FOR” each of the separate Organizational Documents Proposals, “FOR” the Director Election Proposal, “FOR” the Stock Issuance Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the Repurchase Proposal and “FOR” the Adjournment Proposal, in each case, if presented to the extraordinary general meeting.

The existence of financial and personal interests of one or more of SCH’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of SCH and its shareholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that shareholders vote for the proposals. In addition, SCH’s officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “BCA Proposal—Interests of SCH’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

Sources and Uses of Funds for the Business Combination

The following table summarizes the sources and uses for funding the Business Combination. These figures give effect to the 3,771,178 public shares redeemed in connection with the Extension Amendment, at an assumed price approximating $10.33 per share (which price is based on trust account figures as of June 30, 2019), and assume (i) that no additional public shareholders exercise their redemption rights in connection with the Business Combination and (ii) that (x) VGH, Inc. issues 130,000,000 shares of VGH, Inc. common stock to Vieco US as the Aggregate Merger Consideration pursuant to the Merger Agreement, (y) VGH, Inc. repurchases 17,359,126 of such shares of VGH, Inc. common stock from Vieco US in the Repurchase pursuant to the Merger Agreement and (z) Vieco US elects under the Purchase Agreement to have Mr. Palihapitiya purchase 10,000,000 shares of VGH, Inc. common stock directly from Vieco US in a Secondary Purchase, in accordance with the terms and subject to the conditions of the Purchase Agreement. If the actual facts are different from these assumptions, the below figures will be different.

 

Sources of Funds
(in millions)

   

Uses of Funds
(in millions)

    

Existing cash in trust account(1)

  $674   Cash on balance sheet  $452 

Shares of VGH, Inc. issued to Vieco US(2)

   1,026   Repurchase of shares issued to Vieco US   274 

Shares of VGH, Inc. issued to Mr. Palihapitiya(3)

   100   Shares of VGH, Inc. issued to Vieco US   1,026 
    Transaction fees and expenses(4)   48 
  

 

 

     

 

 

 

Total Sources(5)

  $1,800   Total Uses(5)  $1,800 
  

 

 

     

 

 

 

 

(1)

Calculated as of June 30, 2019, after giving effect to the 3,771,178 public shares redeemed in connection with the Extension Amendment, at an assumed price approximating $10.33 per share (which price is based on trust account figures as of June 30, 2019).

(2)

Shares issued to Vieco US are at a deemed value of $10.00 per share; after giving effect to the Secondary Purchase and Repurchase.

(3)

After giving effect to the Secondary Purchase.

(4)

Includes deferred underwriting commission of $24.0 million and estimated transaction expenses.

(5)

Excludes the $20.0 million cash investment by Boeing in exchange for the issuance of new shares of VGH, Inc. common stock. The Business Combination is not contingent on the investment by Boeing.

U.S. Federal Income Tax Considerations

For a discussion summarizing the U.S. federal income tax considerations of the Domestication and exercise of redemption rights, please see “U.S. Federal Income Tax Considerations.”



 

22


Table of Contents

Expected Accounting Treatment

The Domestication

There will be no accounting effect or change in the carrying amount of the consolidated assets and liabilities of the Company as a result of the Domestication. The business, capitalization, assets and liabilities and financial statements of VGH, Inc. immediately following the Domestication will be the same as those of SCH immediately prior to the Domestication.

The Business Combination

The Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, SCH has been treated as the “acquired” company for financial reporting purposes. This determination was primarily based on current shareholders of the VG Companies having a relative majority of the voting power of the combined entity, the operations of the VG Companies prior to the acquisition comprising the only ongoing operations of the combined entity, and senior management of the VG Companies comprising the majority of the senior management of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements of the VG Companies with the acquisition being treated as the equivalent of the VG Companies issuing stock for the net assets of SCH, accompanied by a recapitalization. The net assets of SCH will be stated at historical cost, with no goodwill or other intangible assets recorded.

Regulatory Matters

Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain transactions may not be consummated unless information has been furnished to the Antitrust Division of the Department of Justice (“Antitrust Division”) and the FTC and certain waiting period requirements have been satisfied. Each of (x) the Business Combination and (y) the transactions contemplated by the Purchase Agreement are subject to these requirements and may not be completed until the expiration of a30-day waiting period following the two filings of the required Notification and Report Forms with the Antitrust Division and the FTC or until early termination is granted. On July 23, 2019, SCH and the VG Companies filed the required forms under the HSR Act with respect to the Business Combination with the Antitrust Division and the FTC and requested early termination. On August 9, 2019, both SCH and the VG Companies received notice that early termination had been granted.

At any time before or after consummation of the Business Combination (or the transactions contemplated by the Purchase Agreement), notwithstanding termination of the respective waiting periods under the HSR Act, the applicable competition authorities in the United States or any other applicable jurisdiction could take such action under applicable antitrust laws as such authority deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Business Combination (or the transactions contemplated by the Purchase Agreement, as applicable), conditionally approving the Business Combination (or the transactions contemplated by the Purchase Agreement, as applicable) upon divestiture of VGH, Inc.’s assets, subjecting the completion of the Business Combination (or the transactions contemplated by the Purchase Agreement, as applicable) to regulatory conditions or seeking other remedies. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. SCH cannot assure you that the Antitrust Division, the FTC, any state attorney general or any other government authority will not attempt to challenge the Business Combination (or the transactions contemplated by the Purchase Agreement, as applicable) on antitrust grounds, and, if such a challenge is made, SCH cannot assure you as to its result.

Although no approvals of the FAA are required prior to closing, the FAA may engage in a policy review with other U.S. Government agencies, with regard to foreign ownership in particular, to ensure the validity and continuation of all existing government licenses, registrations, permits, and pending applications post-closing.



 

23


Table of Contents

None of SCH nor the VG Companies are aware of any material regulatory approvals or actions that are required for completion of the Business Combination other than the expiration or early termination of the waiting period under the HSR Act and registration under ITAR. It is presently contemplated that if any such additional regulatory approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Emerging Growth Company

SCH is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in SCH’s periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply tonon-emerging growth companies but any such election to opt out is irrevocable. SCH has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, SCH, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of SCH’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.

We will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of SCH’s initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held bynon-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1.00 billion innon-convertible debt securities during the prior three-year period. We currently anticipate that we will lose our “emerging growth company” status as of the end of the year ended December 31, 2019 based on our unaffiliated market capitalization as of June 30, 2019. References herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

Risk Factors

In evaluating the proposals to be presented at the SCH extraordinary general meeting, a shareholder should carefully read this proxy statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors.”



 

24


Table of Contents

SELECTED HISTORICAL FINANCIAL INFORMATION OF SCH

SCH is providing the following selected historical financial information to assist you in your analysis of the financial aspects of the Business Combination.

SCH’s balance sheet data as of December 31, 2018 and 2017 and statement of operations data for the fiscal year ended December 31, 2018 and for the period from May 5, 2017 (inception) through December 31, 2017 are derived from SCH’s audited financial statements included elsewhere in this proxy statement/prospectus. SCH’s balance sheet data as of June 30, 2019 and statement of operations data for six months ended June 30, 2019 and 2018 are derived from SCH’s unaudited financial statements included elsewhere in this proxy statement/prospectus.

The information is only a summary and should be read in conjunction with SCH’s consolidated financial statements and related notes and “SCH’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this proxy statement/prospectus. SCH’s historical results are not necessarily indicative of future results, and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year.

 

   Six Months
Ended
June 30,

2019
  Six Months
Ended
June 30,

2018
  Year Ended
December 31,
2018
  For the Period from
May 5, 2017
(inception) through
December 31, 2017
 

Statement of Operations Data:

   

Interest income

  $8,554,415  $5,355,748  $12,579,571  $2,082,636 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating costs

  $2,797,205  $991,317  $1,343,909  $610,631 

Net income

  $5,487,188  $4,199,140  $10,965,012  $1,330,720 

Basic and diluted net income/(loss) per ordinary share:

  $(0.12 $(0.04 $(0.04 $(0.04

 

   Six Months
Ended

June 30, 2019
  Year Ended
December 31, 2018
  Year Ended
December 31, 2017
 

Balance Sheet Data:

    

Total assets

  $712,888,772  $704,757,773  $693,567,088 

Total current liabilities

   3,226,015   582,204   356,531 

Deferred underwriting compensation

   24,150,000   24,150,000   24,150,000 
  

 

 

  

 

 

  

 

 

 

Total Liabilities

   27,376,015   24,732,204   24,506,531 
  

 

 

  

 

 

  

 

 

 

Working capital (deficit)

   (2,871,908  (74,703  1,269,206 

Class A ordinary shares subject to possible redemption, 65,889,081, 66,136,664 and 66,219,742 shares at redemption value as of June 30, 2019, December 31, 2018 and 2017, respectively

   680,512,756   675,025,568   664,060,556 

Total Shareholders’ Equity

   5,000,001   5,000,001   5,000,001 


 

25


Table of Contents

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE VG COMPANIES

The VG Companies are providing the following selected historical financial information to assist you in your analysis of the financial aspects of the Business Combination.

The VG Companies’ combined balance sheet data as of June 30, 2019 and combined statement of operations data for the six months ended June 30, 2019 and 2018 are derived from the VG Companies’ unaudited combined financial statements included elsewhere in this proxy statement/prospectus. The VG Companies’ combined balance sheet data and combined statement of operations data as of December 31, 2018 and 2017 are derived from the VG Companies’ audited combined financial statements included elsewhere in this proxy statement/prospectus.

The information is only a summary and should be read in conjunction with the VG Companies’ combined financial statements and related notes and “The VG Companies’ Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this proxy statement/prospectus. The VG Companies’ historical results are not necessarily indicative of future results, and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year.

The VG Companies’ historical combined financial statements include certain expenses of V10 and VO Holdings, Inc. that were allocated to the VG Companies for corporate-related and operating functions based on an allocation methodology that considers the VG Companies’ headcount, unless directly attributable to the business. General corporate overhead expense allocations include tax, accounting and auditing professional fees, and certain employee benefits. Operating expense allocations include use of machinery and equipment and other general administrative expense. The allocations may not, however, reflect the expense the VG Companies would have incurred as an independent company for the periods presented. Actual costs that may have been incurred if the VG Companies had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. Following the Business Combination, VGH, Inc. will perform these functions using its own resources or purchased services.

 

   Six Months
Ended
June 30,
2019
  Six Months
Ended
June 30,
2018
  Year Ended
December 31,
2018
  Year Ended
December 31,
2017
 
   (in thousands) 

Combined Statement of Operations Data:

     

Revenue

  $2,420  $1,176  $2,849  $1,754 

Cost of revenue

   1,284   319   1,201   488 
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   1,136   857   1,648   1,266 

Selling, general and administrative expenses

   26,905   23,753   50,902   46,886 

Research and development expenses

   61,591   58,515   117,932   93,085 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating loss

   (87,360  (81,411  (167,186  (138,705

Interest income

   750   180   633   241 

Interest expense

   2   6   10   21 

Other income

   37   28,079   28,571   453 
  

 

 

  

 

 

  

 

 

  

 

 

 

Loss before income taxes

   (86,575  (53,158  (137,992  (138,032

Income tax expense

   86   80   147   155 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

  $(86,661 $(53,238 $(138,139 $(138,187
  

 

 

  

 

 

  

 

 

  

 

 

 


 

26


Table of Contents
   Six Months
Ended
June 30,
2019
  Six Months
Ended
June 30,
2018
  Year Ended
December 31,
2018
  Year Ended
December 31,
2017
 
   (in thousands) 

Combined Statements of Cash Flow Data:

     

Net cash provided by (used in):

     

Operating activities

  $(88,872 $(55,257 $(145,703 $(136,675

Investing activities

   (8,300  (3,746  (10,590  (5,597

Financing activities.

   101,128   59,298   156,595   137,870 

 

   As of
June 30,
2019
   As of
December 31,
2018
   As of
December 31,
2017
 
   (in thousands) 

Combined Statement of Balance Sheet Data:

      

Total assets

  $170,004   $156,039   $134,391 

Total current liabilities

   106,040    106,322    102,563 

Total liabilities

   113,952    114,480    111,324 

Working capital

   19,803    12,775    832 

Net parent investment

   55,991    41,477    22,933 

Total equity

   56,052    41,559    23,067 


 

27


Table of Contents

SELECTED UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL INFORMATION

The unaudited pro forma condensed combined balance sheet as of June 30, 2019 combines the unaudited condensed balance sheet of SCH as of June 30, 2019 with the unaudited condensed combined balance sheet of the VG Companies as of June 30, 2019, giving effect to the Business Combination as if it had been consummated on that date.

The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2019 combines the unaudited condensed statement of operations of SCH for the six months ended June 30, 2019 with the unaudited condensed combined statement of operations of the VG Companies for the six months ended June 30, 2019. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2018 combines the audited statement of operations of SCH for the year ended December 31, 2018 with the audited combined statement of operations of the VG Companies for the year ended December 31, 2018.

The unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the following historical financial statements and the accompanying notes, which are included elsewhere in this proxy statement/prospectus:

 

  

The historical unaudited condensed financial statements of SCH as of and for the six months ended June 30, 2019 and the historical audited financial statements of SCH as of and for the year ended December 31, 2018; and

 

  

The historical unaudited condensed combined financial statements of the VG Companies as of and for the six months ended June 30, 2019 and the historical audited combined financial statements of the VG Companies as of and for the year ended December 31, 2018.

The foregoing historical financial statements have been prepared in accordance with GAAP.

The unaudited pro forma condensed combined financial information should also be read together with “SCH’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “The VG Companies’ Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial information included elsewhere in this proxy statement/prospectus.

The historical financial information has been adjusted to give pro forma effect to events that are (i) related and/or directly attributable to the Business Combination, (ii) factually supportable, and (iii) with respect to the pro forma statement of operations, are expected to have a continuing impact on the results of the combined entity. The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the combined entity upon consummation of the Business Combination.

The unaudited pro forma condensed combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined entity will experience. SCH and the VG Companieshave not had any historical relationship prior to the transactions. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.



 

28


Table of Contents

After giving effect to the redemption of 3,771,178 Class A public shares of SCH in connection with the Extension Amendment, at an assumed redemption price approximating $10.33 per share based on the trust account figures as of June 30, 2019, the unaudited pro forma condensed combined financial information has been prepared assuming two alternative levels of additional redemptions of SCH Class A public shares into cash:

 

  

Assuming No Additional Redemptions. This presentation assumes:

 

  

No additional Class A shareholders of SCH exercise their redemption rights with respect to their redeemable Class A public shares upon consummation of the Business Combination.

 

  

Vieco US elects for VGH, Inc. to repurchase 17,359,126 shares of VGH, Inc. common stock held by Vieco US at a price of $10.00 per share in cash. The assumed Repurchase is derived from the remaining $173.6 million cash available for the Repurchase in excess of the $500.0 million balance required to be held by VGH, Inc. in cash and cash equivalents subsequent to the Repurchase.

 

  

Vieco US elects for Mr. Palihapitiya to purchase 10,000,000 shares of VGH, Inc. common stock held by Vieco US at a price of $10.00 per share in cash, exercising the Secondary Purchase in full with no Reinvestment. The Secondary Purchase has no impact to the cash and cash equivalents balance or total shares of VGH, Inc. common stock outstanding as presented in the unaudited pro forma condensed combined financial information. The Primary Purchase cannot be exercised by Vieco US as a result of the exercise of the Secondary Purchase in full.

 

  

Assuming Additional Redemptions. This presentation assumes:

 

  

The additional redemption of 24,155,241 Class A public shares of SCH, which is derived from the number of additional shares that could be redeemed in connection with the Business Combination at an assumed redemption price approximating $10.33 per share based on the trust account figures as of June 30, 2019 in order for the trust account to meet the Minimum Cash Condition of $400.0 million and payments to settle the $24.2 million of deferred underwriting commissions and before giving effect to the payment for estimated transaction costs of $24.0 million incurred in connection with the Business Combination. The Repurchase cannot be exercised by Vieco US as a result of this level of redemption.

 

  

Vieco US elects for Mr. Palihapitiya to purchase 10,000,000 shares of VGH, Inc. common stock held by Vieco US at a price of $10.00 per share in cash, exercising the Secondary Purchase in full with no Reinvestment. The Secondary Purchase has no impact to the cash and cash equivalents balance or total shares of VGH, Inc. common stock outstanding as presented in the unaudited pro forma condensed combined financial information. The Primary Purchase cannot be exercised by Vieco US as a result of the exercise of the Secondary Purchase in full.



 

29


Table of Contents

Assuming no additional redemptions of any Class A public shares of SCH in connection with the Business Combination, Vieco US will hold 102,640,874 shares of VGH, Inc. common stock immediately after the Closing, which approximates a 52.5% ownership level. Assuming additional redemptions of 24,155,241 Class A public shares of SCH in connection with the Closing, Vieco US will hold 120,000,000 shares of VGH, Inc. common stock immediately after the Business Combination, which approximates a 63.6% ownership level.

 

   No Additional Redemptions  Additional Redemptions 

Shareholder

  No. of Shares   % Ownership  No. of Shares   % Ownership 

Vieco US

   102,640,874    52.5  120,000,000    63.6

SCH’s public shareholders

   65,228,822    33.3  41,073,581    21.8

Sponsor & related parties (including Mr. Palihapitiya)(1)

   25,750,000    13.2  25,750,000    13.6

Boeing(2)

   1,936,747    1.0  1,936,747    1.0
  

 

 

   

 

 

  

 

 

   

 

 

 

Total(1)(2)

   195,556,443    100.0  188,760,328    100.0
  

 

 

    

 

 

   

 

(1)

Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that will be granted in connection with the Business Combination. The Director RSU Awards will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.

(2)

Outstanding shares of VGH, Inc. common stock includes the assumed purchase by Boeing of $20.0 million of shares of common stock of VGH, Inc. pursuant to the Boeing Agreement at an assumed purchase price approximating $10.33 per share, based on trust account figures as of June 30, 2019. The actual number of shares purchased by Boeing will depend on the per share amount in the trust account as of two business days prior to the Closing Date, which per share amount will be the same amount that a shareholder of SCH would receive upon the valid exercise of their right of redemption with respect to such share of common stock in connection with the Closing.

The two alternative levels of additional redemptions assumed in the unaudited pro forma condensed combined balance sheet and statement of operations are based on the assumption that there are no adjustments for the outstanding public or private placement warrants issued by SCH as such securities are not exercisable until 30 days after the Closing.

If the actual facts are different than these assumptions, then the amounts and shares outstanding in the unaudited pro forma condensed combined financial information will be different.



 

30


Table of Contents

Selected Unaudited Pro Forma Financial Information

 

   SCH  The VG Companies (1)  Pro Forma
Combined

(No Additional
Redemptions)
  Pro Forma
Combined
(Additional
Redemptions)
 
   (in thousands except per share amounts) 

Statement of Operations Data—Six Months Ended June 30, 2019

     

Revenues

  $—    $2,420  $2,420  $2,420 

Operating expenses

   2,797   89,780   93,067   93,067 

Operating loss

   (2,797  (87,360  (90,647  (90,647

Net income (loss)

   5,487   (86,661  (89,948  (89,948

Earnings (loss) per share—basic and diluted(2)

   (0.12   (0.46  (0.47

Statement of Operations Data—Year Ended December 31, 2018

     

Revenues

   —     2,849   2,849   2,849 

Operating expenses

   1,344   170,035   172,359   172,359 

Operating loss

   (1,344  (167,186  (169,510  (169,510

Net income (loss)

   10,965   (138,139  (140,463  (140,463

Earnings (loss) per share—basic and diluted(2)(3)

   (0.04   (0.71  (0.74

Balance Sheet Data—As of June 30, 2019

     

Total current assets

   354   125,843   588,101   512,251 

Total assets

   712,889   170,004   631,045   555,195 

Total current liabilities

   3,226   106,040   108,049   108,049 

Total liabilities

   27,376   113,952   115,961   115,961 

Total equity

   5,000   56,052   515,084   439,234 

 

(1)

Historical financial information of the VG Companies does not include earnings per share or share capital as it has been prepared on a combined basis of presentation. Please refer to Note 1 in the combined financial statements of the VG Companies included elsewhere in this proxy statement/prospectus.

(2)

The unaudited pro forma share amounts included in the weighted average shares outstanding used in basic and diluted loss per share includes vested and unsettled RSU awards, including the 1,500,000 shares of common stock underlying the Director RSU Awards that will be fully vested upon the Closing, but which will not be settled until the year after the Closing.

(3)

The unaudited pro forma basic and diluted loss per share excludes thenon-recurring $15.7 million stock-based compensation expense associated with the Director RSU Awards.



 

31


Table of Contents

COMPARATIVE PER SHARE DATA

The following table sets forth:

 

  

Historical per share information of SCH for the six months ended June 30, 2019; and

 

  

Unaudited pro forma per share information of the combined entity for the six months ended June 30, 2019 after giving effect to the Business Combination, including the redemption of 3,771,178 Class A ordinary shares of SCH in connection with the Extension Amendment, at an assumed redemption price approximating $10.33 per share based on the trust account figures as of June 30, 2019, and assuming two additional redemption scenarios as follows:

 

  

Assuming No Additional Redemptions. This presentation assumes:

 

  

No additional Class A shareholders of SCH exercise their redemption rights with respect to their redeemable Class A public shares upon consummation of the Business Combination.

 

  

Vieco US elects for VGH, Inc. to repurchase 17,359,126 shares of VGH, Inc. common stock held by Vieco US at a price of $10.00 per share in cash. The assumed Repurchase is derived from the remaining $173.6 million cash available for the Repurchase in excess of the $500.0 million balance required to be held by VGH, Inc. in cash and cash equivalents subsequent to the Repurchase.

 

  

Vieco US elects for Mr. Palihapitiya to purchase 10,000,000 shares of VGH, Inc. common stock held by Vieco US at a price of $10.00 per share in cash, exercising the Secondary Purchase in full with no Reinvestment. The Secondary Purchase has no impact to the cash and cash equivalents balance or total shares of VGH, Inc. common stock outstanding as presented in the unaudited pro forma condensed combined financial information. The Primary Purchase cannot be exercised by Vieco US as a result of the exercise of the Secondary Purchase in full.

 

  

Assuming Additional Redemptions. This presentation assumes:

 

  

The additional redemption of 24,155,241 Class A public shares of SCH, which is derived from the number of additional shares that could be redeemed in connection with the Business Combination at an assumed redemption price approximating $10.33 per share based on the trust account figures as of June 30, 2019 in order for the trust account to meet the Minimum Cash Condition of $400.0 million and payments to settle the $24.2 million of deferred underwriting commissions and before giving effect to the payment for estimated transaction costs of $24.0 million incurred in connection with the Business Combination. The Repurchase cannot be exercised by Vieco US as a result of this level of redemption.

 

  

Vieco US elects for Mr. Palihapitiya to purchase 10,000,000 shares of VGH, Inc. common stock held by Vieco US at a price of $10.00 per share in cash, exercising the Secondary Purchase in full with no Reinvestment. The Secondary Purchase has no impact to the cash and cash equivalents balance or total shares of VGH, Inc. common stock outstanding as presented in the unaudited pro forma condensed combined financial information. The Primary Purchase cannot be exercised by Vieco US as a result of the exercise of the Secondary Purchase in full.

Net loss per share information reflects the Business Combination contemplated by the Merger Agreement as if it had occurred on January 1, 2018.

The following table is also based on the assumption that there are no adjustments for the outstanding public or private placement warrants issued by SCH as such securities are not exercisable until 30 days after the Closing.



 

32


Table of Contents

The historical information should be read in conjunction with “Selected Historical Financial Information of The VGCompanies,”Selected Historical Financial Information of SCH,” “The VG Companies’ Management’sDiscussion and Analysis of FinancialCondition and Results of Operations” and “SCH’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this proxy statement/prospectus and the audited historical financial statements and the related notes of the VG Companies and SCH contained elsewhere in this proxy statement/prospectus. The unaudited pro forma condensed combined share information is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial information and related notes included elsewhere in this proxy statement/prospectus. The unaudited pro forma condensed combined net income per share information below does not purport to represent what the actual results of operations of VGH, Inc. would have been had the Business Combination been completed or to project VGH, Inc.’s results of operations that may be achieved after the Business Combination. The unaudited pro forma book value per share information below does not purport to represent what the book value of VGH, Inc. would have been had the Business Combination been completed nor the book value per share for any future date or period.

 

   SCH  The VG
Companies
  Pro Forma
Combined
(No Additional
Redemptions)
  Pro Forma
Combined
(Additional
Redemptions)
 
   (in thousands except share and per share amounts) 

Six Months Ended June 30, 2019

     

Net income (loss)

  $5,487  $(86,661 $(89,948 $(89,948

Equity or stockholders’ equity at June 30, 2019

  $5,000  $56,052  $515,084  $439,234 

Weighted average shares outstanding—basic and diluted(1)(2)

   20,111,365    197,096,165   190,300,050 

Basic and diluted net income (loss) per share(2)

  $(0.12  $(0.46 $(0.47

Stockholders’ equity per share—basic and diluted—at June 30, 2019

  $0.25   $2.61  $2.31 

Year Ended December 31, 2018

     

Net income (loss)

  $10,965   (138,139 $(140,463 $(140,463

Weighted average shares outstanding—basic and diluted(1)(2)

   20,080,848    197,056,443   190,260,328 

Basic and diluted net income (loss) per share(3)(4)

  $(0.04  $(0.71 $(0.74

 

(1)

SCH’s historical weighted average shares outstanding—basic and diluted excludes an aggregate of up to 65,899,081 and 66,136,664 shares subject to redemption at June 30, 2019 and December 31, 2018, respectively.

(2)

The unaudited pro forma share amounts included in the weighted average shares outstanding used in basic and diluted loss per share includes vested and unsettled RSU awards, including the 1,500,000 shares of common stock underlying the Director RSU Awards that will be fully vested upon the Closing, but which will not be settled until the year after the Closing.

(3)

SCH’s historical net loss per ordinary share—basic and diluted excludes income attributable to ordinary shares subject to redemption of $7,912,424 and $11,798,101 for the six months ended June 30, 2019, and for the year ended December 31, 2018, respectively.

(4)

The unaudited pro forma basic and diluted loss per share excludes thenon-recurring $15.7 million stock-based compensation expense associated with the Director RSU Awards.



 

33


Table of Contents

MARKET PRICE AND DIVIDEND INFORMATION

SCH units, Class A ordinary shares and public warrants are currently listed on the New York Stock Exchange under the symbols “IPOA.U” and “IPOA” and “IPOA.WS,” respectively.

The most recent closing price of the units, common stock and redeemable warrants as of July 8, 2019, the last trading day before announcement of the execution of the Merger Agreement, was $10.83, $10.43 and $1.27, respectively. As of September 16, 2019, the record date for the extraordinary general meeting, the most recent closing price for each unit, common stock and redeemable warrant was $11.01, $10.47 and $1.77, respectively.

Holders of the units, public shares and public warrants should obtain current market quotations for their securities. The market price of SCH’s securities could vary at any time before the Business Combination.

Holders

As of September 23, 2019, there was oneholder of record of SCH’s Class A ordinary shares, oneholder of record of SCH’s Class B ordinary shares, oneholder of record of SCH units and twoholders of SCH warrants. See “Beneficial Ownership of Securities.”

Dividend Policy

SCH has not paid any cash dividends on its Class A ordinary shares to date and does not intend to pay cash dividends prior to the completion of the Business Combination. The payment of cash dividends in the future will be dependent upon the revenues and earnings, if any, capital requirements and general financial condition of VGH, Inc. subsequent to completion of the Business Combination. The payment of any cash dividends subsequent to the Business Combination will be within the discretion of VGH, Inc.’s board of directors. SCH’s board of directors is not currently contemplating and does not anticipate declaring stock dividends nor is it currently expected that VGH, Inc.’s board of directors will declare any dividends in the foreseeable future. Further, the ability of VGH, Inc. to declare dividends may be limited by the terms of financing or other agreements entered into by VGH, Inc. or its subsidiaries from time to time.

Price Range of The VG Companies’ Securities

Historical market price information regarding the VG Companies is not provided because there is no public market for the VG Companies’ securities. For information regarding the VG Companies’ liquidity and capital resources, see “The VG Companies’ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”



 

34


Table of Contents

RISK FACTORS

SCH shareholders should carefully consider the following risk factors, together with all of the other information included in this proxy statement/prospectus, before they decide whether to vote or instruct their vote to be cast to approve the relevant proposals described in this proxy statement/prospectus.

Risks Related to VGH, Inc.’s Business

Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to the business of the VG Companies and their subsidiaries prior to the consummation of the Business Combination, which will be the business of VGH, Inc. and its subsidiaries following the consummation of the Business Combination.

We have incurred significant losses since inception, we expect to incur losses in the future and we may not be able to achieve or maintain profitability.

We have incurred significant losses since inception. We incurred net losses of $86.7 million, $138.1 million and $138.2 million for the six months ended June 30, 2019 and the years ended December 31, 2018 and 2017, respectively. While we have generated limited revenue from flying payloads into space, we have not yet started commercial human spaceflight operations, and it is difficult for us to predict our future operating results. As a result, our losses may be larger than anticipated, and we may not achieve profitability when expected, or at all, and even if we do, we may not be able to maintain or increase profitability.

We expect our operating expenses to increase over the next several years as we move towards commercial launch of our human spaceflight operations, continue to attempt to streamline our manufacturing process, increase our flight cadence, hire more employees and continue research and development efforts relating to new products and technologies. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow. Furthermore, if our future growth and operating performance fail to meet investor or analyst expectations, or if we have future negative cash flow or losses resulting from our investment in acquiring customers or expanding our operations, this could have a material adverse effect on our business, financial condition and results of operations.

The success of our business will be highly dependent on our ability to effectively market and sell human spaceflights.

We have generated only limited revenue from spaceflight, and we expect that our success will be highly dependent, especially in the foreseeable future, on our ability to effectively market and sell human spaceflight experiences. We have limited experience in marketing and selling human spaceflights, which we refer to as our astronaut experience, and if we are unable to utilize our current sales organization effectively, or to expand our sales organization as needed, in order to adequately target and engage our potential customers, our business may be adversely affected. To date, we have primarily sold the reservations for our astronaut experience to customers through direct sales and have sold a limited number of seats each year. Since 2014, we have not been actively selling our astronaut experience. Our success depends, in part, on our ability to attract new customers in acost-effective manner. While we had a backlog of 603 customers as of June 30, 2019, and have received over 3,000 inbound inquiries since December 2018, we expect that we will need to make significant investments in order to attract new customers. Our sales growth is dependent upon our ability to implement strategic initiatives and these initiatives may not be effective in generating sales growth. In addition, marketing campaigns, which we have not historically utilized, can be expensive and may not result in the acquisition of customers in a cost-effective manner, if at all. Further, as our brand becomes more widely known, future marketing campaigns or brand content may not attract new customers at the same rate as past campaigns or brand content. If we are unable to attract new customers, our business, financial condition and results of operations will be harmed.

 

35


Table of Contents

The market for commercial human spaceflight has not been established with precision, is still emerging and may not achieve the growth potential we expect or may grow more slowly than expected.

The market for commercial human spaceflight has not been established with precision and is still emerging. Our estimates for the total addressable market for commercial human spaceflight are based on a number of internal and third-party estimates, including our current backlog, the number of consumers who have expressed interest in our astronaut experience, assumed prices at which we can offer our astronaut experience, assumed flight cadence, our ability to leverage our current manufacturing and operational processes and general market conditions. While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, our estimates of the annual total addressable market for our astronaut experience, as well as the expected growth rate for the total addressable market for that experience, may prove to be incorrect.

We anticipate commencing commercial spaceflight operations with a single spaceflight system, which has yet to complete flight testing. Any delay in completing the flight test program and the final development of our existing spaceflight system would adversely impact our business, financial condition and results of operations.

We expect to commence commercial operations with a single spaceflight system. While we have already been issued our commercial launch license, we must clear a final set of provisos related to the analysis of test flight data before we fly commercial passengers using our spaceflight system. Following each flight test we undertake, we analyze the resulting data and determine whether additional changes to the spaceflight system are required. Historically, changes have been required and implementing those changes has resulted in additional delay and expense. For example, an unanticipatedin-flight incident involving an earlier model of SpaceShipTwo manufactured and operated by a third-party contractor, led to the loss of that spaceship and significant delays in the planned launch of our spaceflight system as we addressed design and safety concerns, including with applicable regulators. If issues like this arise or recur, if our remediation measures and process changes do not continue to be successful or if we experience issues with manufacturing improvements or design and safety, the anticipated launch of our commercial human spaceflight operations could be delayed.

Any inability to operate our spaceflight system after commercial launch at our anticipated flight rate could adversely impact our business, financial condition and results operations.

Even if we complete development and commence commercial human spaceflight operations, we will be dependent on a single spaceflight system. To be successful, we will need to maintain a sufficient flight rate, which will be negatively impacted if we are not able to operate that system for any reason. We may be unable to operate our current spaceflight system at our anticipated flight rate for a number of reasons, including, but not limited to, unexpected weather patterns, maintenance issues, pilot error, design and engineering flaws, natural disasters, changes in governmental regulations or in the status of our regulatory approvals or applications or other events that force us to cancel or reschedule flights. In the event we need to replace any components or hardware of our spaceflight system, there are limited numbers of replacement parts available, some of which have significant lead time associated with procurement or manufacture, so any unplanned failures could result in reduced numbers of flights and significant delays to our planned growth.

Our ability to grow our business depends on the successful development of our spaceflight systems and related technology, which is subject to many uncertainties, some of which are beyond our control.

Our current primary research and development objectives focus on the development of our existing and any additional spaceflight systems and related technology. If we do not complete this development in our anticipated timeframes or at all, our ability to grow our business will be adversely affected. The successful development of our spaceflight systems and related technology involves many uncertainties, some of which are beyond our control, including:

 

  

timing in finalizing spaceflight systems design and specifications;

 

36


Table of Contents
  

successful completion of flight test programs, including flight safety tests;

 

  

our ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies, if required, and maintaining current approvals, licenses or certifications;

 

  

performance of our manufacturing facilities despite risks that disrupt productions, such as natural disasters and hazardous materials;

 

  

performance of a limited number of suppliers for certain raw materials and supplied components;

 

  

performance of our third-party contractors that support our research and development activities;

 

  

our ability to maintain rights from third parties for intellectual properties critical to our research and development activities; and

 

  

our ability to continue funding and maintain our current research and development activities.

Unsatisfactory safety performance of our spaceflight systems could have a material adverse effect on our business, financial condition and results of operation.

We manufacture and operate highly sophisticated spaceflight systems and offer a specialized astronaut experience that depends on complex technology. While we have built operational processes to ensure that the design, manufacture, performance and servicing of our spaceflight systems meet rigorous quality standards, there can be no assurance that we will not experience operational or process failures and other problems, including through manufacturing or design defects, pilot error, cyber-attacks or other intentional acts, that could result in potential safety risks. Any actual or perceived safety issues may result in significant reputational harm to our businesses, in addition to tort liability, maintenance, increased safety infrastructure and other costs that may arise. Such issues with our spaceflight systems or customer safety could result in delaying or cancelling planned flights, increased regulation or other systemic consequences. Our inability to meet our safety standards or adverse publicity affecting our reputation as a result of accidents, mechanical failures, damages to customer property or medical complications could have a material adverse effect on our business, financial condition and results of operation.

We may not be able to convert our orders in backlog or inbound inquiries about flight reservations into revenue.

As of June 30, 2019, our backlog represents orders from 603 customers for which we have not yet recognized revenue. While many of these orders were accompanied by a significant deposit, the deposits are largely refundable and the reservations may be cancelled under certain circumstances without penalty. As a result, we may not receive revenue from these orders, and any order backlog we report may not be indicative of our future revenue. Additionally, we have received over 3,000 inbound inquiries about flight reservations since SpaceShipTwo’s first spaceflight in December 2018, but those inquiries have not been accompanied by any deposits, and we may not be able to convert those inquiries into reservations and revenue.

Many events may cause a delay in our ability to fulfill reservations or cause planned spaceflights to not be completed at all, some of which may be out of our control, including unexpected weather patterns, maintenance issues, natural disasters, changes in governmental regulations or in the status of our regulatory approvals or applications or other events that force us to cancel or reschedule flights. If we delay spaceflights or if customers reconsider their astronaut experience, those customers may seek to cancel their planned spaceflight, and may obtain a full or partial refund.

We have not yet tested flights at our anticipated full passenger capacity of our spaceship.

To date, only one of our test flights included a crew member that was not a pilot. The success of our human spaceflight operations will depend on our achieving and maintaining a sufficient level of passenger capacity on

 

37


Table of Contents

our spaceflights. We have not yet tested flights with a full cabin and it is possible that the number of passengers per flight may not meet our expectations for a number of factors, including maximization of the passenger experience and satisfaction. Any decrease from our assumptions in the number of passengers per flight could adversely impact our ability to generate revenue at the rate we anticipate.

Any delays in the development and manufacture of additional spaceflight systems and related technology may adversely impact our business, financial condition and results of operations.

We have previously experienced, and may experience in the future, delays or other complications in the design, manufacture, launch, production, delivery and servicing ramp of new spaceflight systems and related technology. If delays like this arise or recur, if our remediation measures and process changes do not continue to be successful or if we experience issues with planned manufacturing improvements or design and safety, we could experience issues in sustaining the ramp of our spaceflight system or delays in increasing production further.

If we encounter difficulties in scaling our delivery or servicing capabilities, if we fail to develop and successfully commercialize spaceflight technologies, if we fail to develop such technologies before our competitors, or if such technologies fail to perform as expected, are inferior to those of our competitors or are perceived as less safe than those of our competitors, our business, financial condition and results of operations could be materially and adversely impacted.

If we are unable to adapt to and satisfy customer demands in a timely and cost-effective manner, our ability to grow our business may suffer.

The success of our business depends in part on effectively managing and maintaining our existing spaceflight system, manufacturing more spaceflight systems, operating a sufficient number of spaceflights to meet customer demand and providing customers with an astronaut experience that meets or exceeds their expectations. If for any reason we are unable to manufacture new spaceflight systems or are unable to schedule spaceflights as planned, this could have a material adverse effect on our business, financial condition and results of operations. If our current or future spaceflight systems do not meet expected performance or quality standards, including with respect to customer safety and satisfaction, this could cause operational delays. In addition, any delay in manufacturing new spacecraft as planned could cause us to operate our existing spaceflight system more frequently than planned and in such a manner that may increase maintenance costs. Further, flight operations within restricted airspace require advance scheduling and coordination with government range owners and other users, and any high priority national defense assets will have priority in the use of these resources, which may impact our cadence of spaceflight operations or could result in cancellations or rescheduling. Any operational or manufacturing delays or other unplanned changes to our ability to operate spaceflights could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.

If our operations continue to grow as planned, of which there can be no assurance, we will need to expand our sales and marketing, research and development, customer and commercial strategy, products and services, supply, and manufacturing and distribution functions. We will also need to continue to leverage our manufacturing and operational systems and processes, and there is no guarantee that we will be able to scale the business and the manufacture of spacecraft as currently planned or within the planned timeframe. The continued expansion of our business may also require additional manufacturing and operational facilities, as well as space for administrative support, and there is no guarantee that we will be able to find suitable locations or partners for the manufacture and operation of our spaceflight systems.

Our continued growth could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring, training and managing an increasing number of pilots and employees,

 

38


Table of Contents

finding manufacturing capacity to produce our spaceflight systems and related equipment, and delays in production and spaceflights. These difficulties may result in the erosion of our brand image, divert the attention of management and key employees and impact financial and operational results. In addition, in order to continue to expand our fleet of spacecraft and increase our presence around the globe, we expect to incur substantial expenses as we continue to attempt to streamline our manufacturing process, increase our flight cadence, hire more employees, and continue research and development efforts relating to new products and technologies and expand internationally. If we are unable to drive commensurate growth, these costs, which include lease commitments, headcount and capital assets, could result in decreased margins, which could have a material adverse effect on our business, financial condition and results of operations.

Our prospects and operations may be adversely affected by changes in consumer preferences and economic conditions that affect demand for our spaceflights.

Because our business is currently concentrated on a single, discretionary product category, commercial human spaceflight, we are vulnerable to changes in consumer preferences or other market changes. The global economy has in the past, and will in the future, experience recessionary periods and periods of economic instability. During such periods, our potential customers may choose not to make discretionary purchases or may reduce overall spending on discretionary purchases, which may include not scheduling spaceflight experiences or cancelling existing reservations for spaceflight experiences. There could be a number of other effects from adverse general business and economic conditions on our business, including insolvency of any of our third-party suppliers or contractors, decreased consumer confidence, decreased discretionary spending and reduced consumer demand for spaceflight experiences. Moreover, future shifts in consumer spending away from our spaceflight experience for any reason, including decreased consumer confidence, adverse economic conditions or heightened competition, could have a material adverse effect on our business, financial condition and results of operations. If such business and economic conditions are experienced in future periods, this could reduce our sales and adversely affect our profitability, as demand for discretionary purchases may diminish during economic downturns, which could have a material adverse effect on our business, financial condition and results of operations.

Adverse publicity stemming from any incident involving us or our competitors, or an incident involving a commercial airline or other air travel provider, could have a material adverse effect on our business, financial condition and results of operations.

We are at risk of adverse publicity stemming from any public incident involving our company, our people or our brand. If our personnel or one of our spaceflight systems, or the personnel or spacecraft of one of our competitors or the personnel or aircraft of a commercial airline or governmental agency, were to be involved in a public incident, accident or catastrophe this could create an adverse public perception of spaceflight and result in decreased customer demand for spaceflight experiences, which could cause a material adverse effect on our business, financial conditions and results of operations. Further, if our personnel or our spaceflight systems were to be involved in a public incident, accident or catastrophe, we could be exposed to significant reputational harm or potential legal liability. Any reputational harm to our business could cause customers with existing reservations to cancel their spaceflights and could significantly impact our ability to make future sales. The insurance we carry may be inapplicable or inadequate to cover any such incident, accident or catastrophe. In the event that our insurance is inapplicable or not adequate, we may be forced to bear substantial losses from an incident or accident.

Due to the inherent risks associated with commercial spaceflight, there is the possibility that any accident or catastrophe could lead to the loss of human life or a medical emergency.

Human spaceflight is an inherently risky activity that can lead to accidents or catastrophes impacting human life. For example, on October 31, 2014, VSS Enterprise, an earlier model of SpaceShipTwo manufactured and operated by a third-party contractor, had an accident during a rocket-powered test flight. The pilot was seriously

 

39


Table of Contents

injured, theco-pilot was fatally injured and the vehicle was destroyed. As part of its 2015 accident investigation report, the National Transportation Safety Board (the “NTSB”) determined that the probable cause of the accident related to the failure by a third-party contractor to consider and protect against the possibility that a single human error could result in a catastrophic hazard to the vehicle. After the accident, we assumed responsibility for the completion of the flight test program and submitted a report to the NTSB that listed the actions we were taking for reducing the likelihood and effect of human error. This included modification of the feather lock control mechanism to add automatic inhibits that would prevent inadvertent operation during safety critical periods of flight. We have implemented and repeatedly demonstrated the efficacy of these actions, including implementing more rigorous protocols and procedures for safety-critical aircrew actions, requiring additional training for pilots that focuses on response protocols for safety critical actions, and eliminating certain single-point human performance actions that could potentially lead to similar accidents. We believe the steps we have taken are sufficient to address the issues noted in the NTSB’s report; however, it is impossible to completely eliminate the potential for human error, and there is a possibility that other accidents may occur in the future as a result of human error or for a variety of other reasons, some of which may be out of our control. Any such accident could result in substantial losses to us, including reputational harm and legal liability, and, as a result, could have a material adverse effect on our business, financial condition and results of operations.

We may require substantial additional funding to finance our operations, but adequate additional financing may not be available when we need it, on acceptable terms or at all.

Since our inception, we have financed our operations and capital expenditures primarily through cash flows financed by V10. In the future, we could be required to raise capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. We may sell equity securities or debt securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, our current investors may be materially diluted. Any debt financing, if available, may involve restrictive covenants and could reduce our operational flexibility or profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.

Certain future operational facilities may require significant expenditures in capital improvements and operating expenses to develop and foster basic levels of service needed by the spaceflight operation, and the ongoing need to maintain existing operational facilities requires us to expend capital.

As part of our growth strategy, we may utilize additional spaceports outside the United States. Construction of a spaceport or other facilities in which we conduct our operations may require significant capital expenditures to develop, and in the future we may be required to make similar expenditures to expand, improve or construct adequate facilities for our spaceflight operations. While Spaceport America was funded by the State of New Mexico and we intend to pursue similar arrangements in the future, we cannot assure that such arrangements will be available to us on terms similar to those we have with the State of New Mexico or at all. If we cannot secure such an arrangement, we would need to use cash flows from operations or raise additional capital in order to construct additional spaceports or facilities. In addition, as Spaceport America and any other facilities we may utilize mature, our business will require capital expenditures for the maintenance, renovation and improvement of such existing locations to remain competitive and maintain the value of our brand standard. This creates an ongoing need for capital, and, to the extent we cannot fund capital expenditures from cash flows from operations, we will need to borrow or otherwise obtain funds. If we cannot access the capital we need, we may not be able to execute on our growth strategy, take advantage of future opportunities or respond to competitive pressures. If the costs of funding new locations or renovations or enhancements at existing locations exceed budgeted amounts or the time for building or renovation is longer than anticipated, our business, financial condition and results of operations could be materially adversely affected.

 

40


Table of Contents

We rely on a limited number of suppliers for certain raw materials and supplied components. We may not be able to obtain sufficient raw materials or supplied components to meet our manufacturing and operating needs, or obtain such materials on favorable terms, which could impair our ability to fulfill our orders in a timely manner or increase our costs of production.

Our ability to produce our current and future spaceflight systems and other components of operation is dependent upon sufficient availability of raw materials and supplied components, such as nitrous oxide, valves, tanks, special alloys, helium and carbon fiber, which we secure from a limited number of suppliers. Our reliance on suppliers to secure these raw materials and supplied components exposes us to volatility in the prices and availability of these materials. We may not be able to obtain sufficient supply of raw materials or supplied components, on favorable terms or at all, which could result in delays in manufacture of our spacecraft or increased costs. For example, there are only a few nitrous oxide plants around the world and if one or more of these plants were to experience a slowdown in operations or to shutdown entirely, we may need to qualify new suppliers or pay higher prices to maintain the supply of nitrous oxide needed for our operations.

In addition, we have in the past and may in the future experience delays in manufacture or operation as we go through the requalification process with any replacement third-party supplier, as well as the limitations imposed by ITAR and other restrictions on transfer of sensitive technologies. Additionally, the imposition of tariffs on such raw materials or supplied components could have a material adverse effect on our operations. Prolonged disruptions in the supply of any of our key raw materials or components, difficulty qualifying new sources of supply, implementing use of replacement materials or new sources of supply or any volatility in prices could have a material adverse effect on our ability to operate in acost-efficient, timely manner and could cause us to experience cancellations or delays of scheduled spaceflights, customer cancellations or reductions in our prices and margins, any of which could harm our business, financial condition and results of operations.

Our spaceflight systems and related equipment may have shorter useful lives than we anticipate.

Our growth strategy depends in part on the continued operation of our current spaceflight system and related equipment, as well as the manufacture of other spaceflight systems in the future. Each spaceflight system has a limited useful life, which is driven by the number of cycles that the system undertakes. While the vehicle is designed for a certain number of cycles, known as the design life, there can be no assurance as to the actual operational life of a spaceflight system or that the operational life of individual components will be consistent with its design life. A number of factors impact the useful lives of the spaceflight systems, including, among other things, the quality of their design and construction, the durability of their component parts and availability of any replacement components, the actual combined environment experienced compared to the assumed combined environment for which the spaceflight systems were designed and tested and the occurrence of any anomaly or series of anomalies or other risks affecting the spaceflight systems during launch, flight and reentry. In addition, we are continually learning, and as our engineering and manufacturing expertise and efficiency increases, we aim to leverage this learning to be able to manufacture our spaceflight systems and related equipment using less of our currently installed equipment, which could render our existing inventory obsolete. Any continued improvements in spaceflight technology may make obsolete our existing spaceflight systems or any component of our spacecraft prior to the end of its life. If the spaceflight systems and related equipment have shorter useful lives than we currently anticipate, this may lead to greater maintenance costs than previously anticipated such that the cost to maintain the spacecraft and related equipment may exceed their value, which would have a material adverse effect on our business, financial condition and results of operations.

Failure of third-party contractors could adversely affect our business.

We are dependent on various third-party contractors to develop and provide critical technology, systems and components required for our spaceflight system. For example, each spaceflight currently requires replenishment of certain components of our RocketMotorTwo propulsion system that we obtain from third-party contractors. Should we experience complications with any of these components, which are critical to the operation of our

 

41


Table of Contents

spacecraft, we may need to delay or cancel scheduled spaceflights. We face the risk that any of our contractors may not fulfill their contracts and deliver their products or services on a timely basis, or at all. We have experienced, and may in the future experience, operational complications with our contractors. The ability of our contractors to effectively satisfy our requirements could also be impacted by such contractors’ financial difficulty or damage to their operations caused by fire, terrorist attack, natural disaster or other events. The failure of any contractors to perform to our expectations could result in shortages of certain manufacturing or operational components for our spacecraft or delays in spaceflights and harm our business. Our reliance on contractors and inability to fully control any operational difficulties with our third-party contractors could have a material adverse effect on our business, financial condition and results of operations.

We expect to face intense competition in the commercial spaceflight industry and other industries in which we may develop products.

The commercial spaceflight industry is still developing and evolving, but we expect it to be highly competitive. Currently, our primary competitor in establishing a commercial suborbital spaceflight offering is Blue Origin, a privately funded company founded in 2000. In addition, we are aware of several large, well-funded, public and private entities actively engaged in developing products within the aerospace industry, including SpaceX and Boeing. While these companies are currently focused on providing orbital spaceflight transportation to government agencies, a fundamentally different product from ours, we cannot assure you that one or more of these companies will not shift their focus to include suborbital spaceflight and directly compete with us in the future.

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. Our current and potential competitors may also establish cooperative or strategic relationships amongst themselves or with third parties 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 or services that compete directly or indirectly with ours in the future. Any such foreign competitor, for example, could benefit from subsidies from, or other protective measures by, its home country.

We believe our ability to compete successfully as a commercial provider of human spaceflight does and will depend on a number of factors, which may change in the future due to increased competition, including the price of our offerings, consumer confidence in the safety of our offerings, consumer satisfaction for the experiences we offer, and the frequency and availability of our offerings. If we are unable to compete successfully, our business, financial condition and results of operations could be adversely affected.

We may in the future invest significant resources in developing new offerings and exploring the application of our proprietary technologies for other uses and those opportunities may never materialize.

While our primary focus for the foreseeable future will be on commercializing human spaceflight, we may invest significant resources in developing new technologies, services, products and offerings. However, we may not realize the expected benefits of these investments. In addition, we expect to explore the application of our proprietary technologies for other commercial and government uses, including, among other things, supersonic and hypersonicpoint-to-point travel. These anticipated technologies, however, are unproven and these products or technologies may never materialize or be commercialized in a way that would allow us to generate ancillary revenue streams. Relatedly, if such technologies become viable offerings in the future, we may be subject to competition from our competitors within the commercial spaceflight industry, some of which may have substantially greater monetary and knowledge resources than we have and expect to have in the future to devote to the development of these technologies. Further, under the terms of the Amended TMLA, our ability to operationalize some of the technologies may be dependent upon the consent of VEL. Such competition or any

 

42


Table of Contents

limitations on our ability to take advantage of such technologies could impact our market share, which could have a material adverse effect on our business, financial condition and results of operations.

Such research and development initiatives may also have a high degree of risk and involve unproven business strategies and technologies with which we have limited operating or development experience. They may involve claims and liabilities (including, but not limited to, personal injury claims), expenses, regulatory challenges and other risks that we may not be able to anticipate. There can be no assurance that consumer demand for such initiatives will exist or be sustained at the levels that we anticipate, or that any of these initiatives will gain sufficient traction or market acceptance to generate sufficient revenue to offset any new expenses or liabilities associated with these new investments. Further, any such research and development efforts could distract management from current operations, and would divert capital and other resources from our more established offerings and technologies. Even if we were to be successful in developing new products, services, offerings or technologies, regulatory authorities may subject us to new rules or restrictions in response to our innovations that may increase our expenses or prevent us from successfully commercializing new products, services, offerings or technologies.

The “Virgin” brand is not under our control, and negative publicity related to the Virgin brand name could materially adversely affect our business.

We believe the “Virgin” brand, which is integral to our corporate identity, represents quality, innovation, creativity, fun, a sense of competitive challenge and employee-friendliness. As part of the Business Combination, we will enter into the Amended TMLA with VEL, an entity affiliated with the Virgin Group, pursuant to which we will obtain rights to use the Virgin brand. For more information on the terms of the Amended TMLA, please refer to the section of this proxy statement/prospectus titled “Information about the VG Companies—Intellectual Property—Virgin Trademark and License Agreement.” We expect to rely on the general goodwill of consumers and our pilots and employees towards the Virgin brand as part of our internal corporate culture and external marketing strategy. The Virgin brand is also licensed to and used by a number of other companies unrelated to us and in a variety of industries, and the integrity and strength of the Virgin brand will depend in large part on the efforts and the licensor and any other licensees of the Virgin brand and how the brand is used, promoted and protected by them, which will be outside of our control. Consequently, any adverse publicity in relation to the Virgin brand name or its principals, or in relation to another Virgin-branded company over which we have no control or influence, could have a material adverse effect on our business, financial condition and results of operations.

If we fail to adequately protect our proprietary intellectual property rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights.

Our success depends, in part, on our ability to protect our proprietary intellectual property rights, including certain methodologies, practices, tools, technologies and technical expertise we utilize in designing, developing, implementing and maintaining applications and processes used in our spaceflight systems and related technologies. To date, we have relied primarily on trade secrets and other intellectual property laws,non-disclosure agreements with our employees, consultants and other relevant persons and other measures to protect our intellectual property, and 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 may be inadequate, and we may choose not to pursue or maintain protection for our intellectual property in the United States or foreign jurisdictions. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our technology and use information that we regard as proprietary to create technology that competes with ours.

Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be

 

43


Table of Contents

inadequate. To the extent we expand our international activities, our exposure to unauthorized copying and use of our technologies and proprietary information may increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our technology and intellectual property.

We rely in part on trade secrets, proprietaryknow-how and other confidential information to maintain our competitive position. Although we enter intonon-disclosure and invention assignment agreements with our employees, enter intonon-disclosure agreements with our customers, consultants and other parties with whom we have strategic relationships and business alliances and enter into intellectual property assignment agreements with our consultants and vendors, no assurance can be given that these agreements will be effective in controlling access to and distribution of our technology and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products.

We rely on licenses from third parties for intellectual property that is critical to our business, and we would lose the rights to use such intellectual property if those agreements were terminated or not renewed.

We rely on licenses from third parties for certain intellectual property that is critical to our branding and corporate identity, as well as the technology used in our spacecraft. Termination of our current or future license agreements could cause us to have to negotiate new or restated agreements with less favorable terms or cause us to lose our rights under the original agreements.

In the case of our branding, we will not own the Virgin brand or any other Virgin-related assets, as we will license the right to use the Virgin brand pursuant to the Amended TMLA. VEL controls the Virgin brand, and the integrity and strength of the Virgin brand will depend in large part on the efforts and businesses of VEL and the other licensees of the Virgin brand and how the brand is used, promoted and protected by them, which will be outside of our control. For example, negative publicity or events affecting or occurring at VEL or other entities who use the Virgin brand, including transportation companies and/or other entities unrelated to us that presently or in the future may license the Virgin brand, may negatively impact the public’s perception of us, which may have a material adverse effect on our business, contracts, financial condition, operating results, liquidity and prospects.

In addition, the license to the Virgin brand granted to us under the Amended TMLA will expire in no later than forty-five years under the terms of the agreement and there is no guarantee that we will renew or replace the Amended TMLA on commercially reasonable terms or at all. In addition, there are certain circumstances under which the Amended TMLA may be terminated in its entirety, including our material breach of the Amended TMLA (subject to a cure period, if applicable), our insolvency, our improper use of the Virgin brand, our failure to commercially launch a spaceflight for paying passengers by a specified date, if we are unable to undertake any commercial flights for paying passengers for a specified period (other than in connection with addressing a significant safety issue), and our undergoing of a change of control to an unsuitable buyer, including a competitor of VEL’s group. Termination of the Amended TMLA would eliminate our rights to use the Virgin brand and may result in our having to negotiate a new or reinstated agreement with less favorable terms or cause us to lose our rights under the Amended TMLA, including our right to use the Virgin brand, which would require us to change our corporate name and undergo other significant rebranding efforts. These rebranding efforts may require significant resources and expenses and may affect our ability to attract and retain customers, all of which may have a material adverse effect on our business, contracts, financial condition, operating results, liquidity and prospects.

In the case of a loss of technology used in our spaceflight systems, we may not be able to continue to manufacture certain components for our spacecraft or for our operations or may experience disruption to our manufacturing processes as we test and requalify any potential replacement technology. Even if we retain the licenses, the licenses may not be exclusive with respect to such component design or technologies, which could aid our competitors and have a negative impact on our business.

 

44


Table of Contents

Protecting and defending against intellectual property claims may have a material adverse effect on our business.

Our success depends in part upon successful prosecution, maintenance, enforcement and protection of our owned and licensed intellectual property, including the Virgin brand and other intellectual property that we license from VEL under the Amended TMLA. Under the terms of the Amended TMLA, VEL has the primary right to take actions to obtain, maintain, enforce and protect the Virgin brand. If, following our written request, VEL elects not take an action to maintain, enforce or protect the Virgin brand, we may do so, at our expense, subject to various conditions including that so long as doing so would not have a material adverse effect on VEL, any of VEL’s other licensees or the Virgin brand and we reasonably believe failing to do so would materially adversely affect our business. Should VEL determine not to maintain, enforce or protect the Virgin brand, we and/or the Virgin brand could be materially harmed and we could incur substantial cost if we elect to take any such action.

To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology, as well as any costly litigation or diversion of our management’s attention and resources, could disrupt our business, as well as have a material adverse effect on our financial condition and results of operations. The results of intellectual property litigation are difficult to predict and may require us to stop using certain technologies or offering certain services or may result in significant damage awards or settlement costs. There is no guarantee that any action to defend, maintain or enforce our owned or licensed intellectual property rights will be successful, and an adverse result in any such proceeding could have a material adverse impact on our business, financial condition, operating results and prospects.

In addition, we may from time to time face allegations that we are infringing, misappropriating or otherwise violating the intellectual property rights of third parties, including the intellectual property rights of our competitors. We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Irrespective of the validity of any such claims, we could incur significant costs and diversion of resources in defending against them, and there is no guarantee any such defense would be successful, which could have a material adverse effect on our business, contracts, financial condition, operating results, liquidity and prospects.

Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could divert the time and resources of our management team and harm our business, our operating results and our reputation.

We have government customers, which subjects us to risks including early termination, audits, investigations, sanctions and penalties.

We derive limited revenue from contracts with NASA and the U.S. government and may enter into further contracts with the U.S. or foreign governments in the future, and this subjects us to statutes and regulations applicable to companies doing business with the government, including the Federal Acquisition Regulation. These government contracts customarily contain provisions that give the government substantial rights and remedies, many of which are not typically found in commercial contracts and which are unfavorable to contractors. For instance, most U.S. government agencies include provisions that allow the government to unilaterally terminate or modify contracts for convenience, and in that event, the counterparty to the contract may generally recover only its incurred or committed costs and settlement expenses and profit on work completed prior to the termination. If the government terminates a contract for default, the defaulting party may be liable for any extra costs incurred by the government in procuring undelivered items from another source.

 

45


Table of Contents

Some of our federal government contracts are subject to the approval of appropriations being made by the U.S. Congress to fund the expenditures under these contracts. In addition, government contracts normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:

 

  

specialized disclosure and accounting requirements unique to government contracts;

 

  

financial and compliance audits that may result in potential liability for price adjustments, recoupment of government funds after such funds have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the U.S. government;

 

  

public disclosures of certain contract and company information; and

 

  

mandatory socioeconomic compliance requirements, including labor requirements,non-discrimination and affirmative action programs and environmental compliance requirements.

Government contracts are also generally subject to greater scrutiny by the government, which can initiate reviews, audits and investigations regarding our compliance with government contract requirements. In addition, if we fail to comply with government contract laws, regulations and contract requirements, our contracts may be subject to termination, and we may be subject to financial and/or other liability under our contracts, the Federal Civil False Claims Act (including treble damages and other penalties), or criminal law. In particular, the False Claims Act’s “whistleblower” provisions also allow private individuals, including present and former employees, to sue on behalf of the U.S. government. Any penalties, damages, fines, suspension, or damages could adversely affect our ability to operate our business and our financial results.

If we commercialize outside the United States, we will be exposed to a variety of risks associated with international operations that could materially and adversely affect our business.

As part of our growth strategy, we may leverage our initial U.S. operations to expand internationally. In that event, we expect that we would be subject to additional risks related to entering into international business relationships, including:

 

  

restructuring our operations to comply with local regulatory regimes;

 

  

identifying, hiring and training highly skilled personnel;

 

  

unexpected changes in tariffs, trade barriers and regulatory requirements, including ITAR, EAR and OFAC;

 

  

economic weakness, including inflation, or political instability in foreign economies and markets;

 

  

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

  

foreign taxes, including withholding of payroll taxes;

 

  

the need for U.S. government approval to operate our spaceflight systems outside the United States;

 

  

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue;

 

  

government appropriation of assets;

 

  

workforce uncertainty in countries where labor unrest is more common than in the United States; and

 

  

disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the FCPA, OFAC regulations and U.S. anti-money laundering regulations, as well as exposure of our foreign operations to liability under these regulatory regimes.

 

46


Table of Contents

Our business is subject to a wide variety of extensive and evolving government laws and regulations. Failure to comply with such laws and regulations could have a material adverse effect on our business.

We are subject to a wide variety of laws and regulations relating to various aspects of our business, including with respect to our spaceflight system operations, employment and labor, health care, tax, privacy and data security, health and safety, and environmental issues. Laws and regulations at the foreign, federal, state and local levels frequently change, especially in relation to new and emerging industries, and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, current or future regulatory or administrative changes. We monitor these developments and devote a significant amount of management’s time and external resources towards compliance with these laws, regulations and guidelines, and such compliance places a significant burden on management’s time and other resources, and it may limit our ability to expand into certain jurisdictions. Moreover, changes in law, the imposition of new or additional regulations or the enactment of any new or more stringent legislation that impacts our business could require us to change the way we operate and could have a material adverse effect on our sales, profitability, cash flows and financial condition.

Failure to comply with these laws, such as with respect to obtaining and maintaining licenses, certificates, authorizations and permits critical for the operation of our business, may result in civil penalties or private lawsuits, or the suspension or revocation of licenses, certificates, authorizations or permits, which would prevent us from operating our business. For example, commercial space launches, reentry of our spacecraft and the operation of our spaceflight system in the United States require licenses and permits from certain agencies of the DOT, including the FAA, and review by other agencies of the U.S. Government, including the Department of Defense, Department of State, NASA, and Federal Communications Commission. License approval includes an interagency review of safety, operational, national security, and foreign policy and international obligations implications, as well as a review of foreign ownership. In 2016, the FAA granted us our commercial space launch license with a limited number of verification and validation steps that we must complete before we can include customers on our spaceflights. While we are in the process of completing those steps, which includes submission to the FAA of final integrated vehicle performance results conducted in an operational flight environment, delays in FAA action allowing us to conduct spaceflights with customers on board imposed by the agency could adversely affect our ability to operate our business and our financial results. See “Information about the VG Companies—Regulatory—Federal Aviation Administration.

Additionally, the FAA and other state government agencies also enforce informed consent and cross-waiver requirements for spaceflight participants and have the authority to regulate training and medical requirements for crew. Certain related federal and state laws provide for indemnification or immunity in the event of certain losses. However, this indemnification is subject to limits, and money to be used for indemnification under federal laws is still subject to appropriation by Congress. Furthermore, no such claim regarding the immunity provided by these informed consent provisions has been brought in New Mexico or in federal courts, and we are unable to determine whether the protections provided by applicable laws or regulations would be upheld by U.S. or foreign courts. See “Information about the VG Companies—Regulatory—Federal Aviation Administration” and “Information about the VG Companies—Regulatory—Informed Consent and Waiver.”

Moreover, regulation of our industry is still evolving, and new or different laws or regulations could affect our operations, increase direct compliance costs for us or cause any third-party suppliers or contractors to raise the prices they charge us because of increased compliance costs. For example, the FAA has an open notice of proposed rulemaking relating to commercial space launches, which could affect us and our operations. Application of these laws to our business may negatively impact our performance in various ways, limiting the collaborations we may pursue, further regulating the export andre-export of our products, services, and technology from the United States and abroad, and increasing our costs and the time necessary to obtain required authorization. The adoption of a multi-layered regulatory approach to any one of the laws or regulations to which we are or may become subject, particularly where the layers are in conflict, could require alteration of our manufacturing processes or operational parameters which may adversely impact our business. Potential conflicts between U.S. policy and international law defining the altitude above the earth’s surface where “space” begins

 

47


Table of Contents

and defining the status of, and obligations toward, spaceflight participants could introduce an additional level of legal and commercial complexity. We may not be in complete compliance with all such requirements at all times and, even when we believe we are in complete compliance, a regulatory agency may determine that we are not.

We are subject to stringent U.S. export and import control laws and regulations. Unfavorable changes in these laws and regulations or U.S. government licensing policies, our failure to secure timely U.S. 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 is subject to stringent U.S. import and export control laws and regulations as well as economic sanctions laws and regulations. We are required to import and export our products, software, technology and services, as well as run our operations in the United States, in full compliance with such laws and regulations, which include the EAR, the ITAR, and economic sanctions administered by the Treasury Department’s OFAC. Similar laws that impact our business exist in other jurisdictions. These foreign trade controls prohibit, restrict, or regulate our ability to, directly or indirectly, export, deemed export,re-export, deemedre-export or transfer certain hardware, technical data, technology, software, or services to certain countries and territories, entities, and individuals, and for end uses. If we are found to be in violation of these laws and regulations, it could result in civil and criminal liabilities, monetary andnon-monetary penalties, the loss of export or import privileges, debarment and reputational harm.

Pursuant to these foreign trade control laws and regulations, we are required, among other things, to (i) maintain a registration under the ITAR, (ii) determine the proper licensing jurisdiction and export classification of products, software, and technology, and (iii) obtain licenses or other forms of U.S. government authorization to engage in the conduct of our spaceflight business. The authorization requirements include the need to get permission to release controlled technology to foreign person employees and other foreign persons. Changes in U.S. foreign trade control laws and regulations, or reclassifications of our products or technologies, may restrict our operations. The inability to secure and maintain necessary licenses and other authorizations could negatively impact our ability to compete successfully or to operate our spaceflight business as planned. Any changes in the export control regulations or U.S. government licensing policy, such as those necessary to implement U.S. government commitments to multilateral control regimes, may restrict our operations. Given the great discretion the government has in issuing or denying such authorizations to advance U.S. national security and foreign policy interests, there can be no assurance we will be successful in our future efforts to secure and maintain necessary licenses, registrations, or other U.S. government regulatory approvals.

Failure to comply with federal, state and foreign laws and regulations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.

We collect, store, process, and use personal information and other customer data, including medical information, and we rely in part on third parties that are not directly under our control to manage certain of these operations and to collect, store, process and use payment information. Due to the volume and sensitivity of the personal information and data we and these third parties manage and expect to manage in the future, as well as the nature of our customer base, the security features of our information systems are critical. A variety of federal, state and foreign laws and regulations govern the collection, use, retention, sharing and security of this information. Laws and regulations relating to privacy, data protection and consumer protection are evolving and subject to potentially differing interpretations. These requirements may not be harmonized, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements and obligations.

We expect that new industry standards, laws and regulations will continue to be proposed regarding privacy, data protection and information security in many jurisdictions, including the CCPA, which will go into effect on

 

48


Table of Contents

January 1, 2020, and the Europeane-Privacy Regulation, which is currently in draft form. We cannot yet determine the impact such future laws, regulations and standards may have on our business. Complying with these evolving obligations is costly. For instance, expanding definitions and interpretations of what constitutes “personal data” (or the equivalent) within the United States, the EEA and elsewhere may increase our compliance costs and legal liability.

As we have expanded our international presence, we are also subject to additional privacy rules, many of which, such as the GDPR and national laws supplementing the GDPR, such as in the United Kingdom, are significantly more stringent than those currently enforced in the United States. The law requires companies to meet stringent requirements regarding the handling of personal data of individuals located in the EEA. These more stringent requirements include expanded disclosures to inform customers about how we may use their personal data through external privacy notices, increased controls on profiling customers and increased rights for data subjects (including customers and employees) to access, control and delete their personal data. In addition, there are mandatory data breach notification requirements. The law also includes significant penalties fornon-compliance, which may result in monetary penalties of up to the higher of €20.0 million or 4% of a group’s worldwide turnover for the preceding financial year for the most serious violations. The GDPR and other similar regulations require companies to give specific types of notice and informed consent is required for the placement of a cookie or similar technologies on a user’s device for online tracking for behavioral advertising and other purposes and for direct electronic marketing, and the GDPR also imposes additional conditions in order to satisfy such consent, such as a prohibition onpre-checked tick boxes and bundled consents, thereby requiring customers to affirmatively consent for a given purpose through separate tick boxes or other affirmative action.

A significant data breach or any failure, or perceived failure, by us to comply with any federal, state or foreign privacy or consumer protection-related laws, regulations or other principles or orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, investigations, proceedings or actions against us by governmental entities or others or other penalties or liabilities or require us to change our operations and/or cease using certain data sets. Depending on the nature of the information compromised, we may also have obligations to notify users, law enforcement or payment companies about the incident and may need to provide some form of remedy, such as refunds, for the individuals affected by the incident.

Failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.

If our main data center were to fail, or if we were to suffer an interruption or degradation of services at our main data center, we could lose important manufacturing and technical data, which could harm our business. Our facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events. In the event that our or any third-party provider’s systems or service abilities are hindered by any of the events discussed above, our ability to operate may be impaired. A decision to close the facilities without adequate notice, or other unanticipated problems, could adversely impact our operations. Any of the aforementioned risks may be augmented if our or any third-party provider’s business continuity and disaster recovery plans prove to be inadequate. The facilities also could be subject tobreak-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. Any security breach, including personal data breaches, or incident, including cybersecurity incidents, that we experience could result in unauthorized access to, misuse of or unauthorized acquisition of our or our customers’ data, the loss, corruption or alteration of this data, interruptions in our operations or damage to our computer hardware or systems or those of our customers. Moreover, negative publicity arising from these types of disruptions could damage our reputation. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service. Significant unavailability of our services due to attacks could cause users to cease using our services and materially and adversely affect our business, prospects, financial condition and results of operations.

 

49


Table of Contents

We use complex proprietary software in our technology infrastructure, which we seek to continually update and improve. Replacing such systems is often time-consuming and expensive, and can also be intrusive to daily business operations. Further, we may not always be successful in executing these upgrades and improvements, which may occasionally result in a failure of our systems. We may experience periodic system interruptions from time to time. Any slowdown or failure of our underlying technology infrastructure could harm our business, reputation and ability to acquire and serve our customers, which could materially adversely affect our results of operations. Our disaster recovery plan or those of our third-party providers may be inadequate, and our business interruption insurance may not be sufficient to compensate us for the losses that could occur.

We are highly 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 pilots, manufacturing and quality assurance, engineering, design, finance, marketing, sales and support personnel. Our senior management team has extensive experience in the aerospace industry, and we believe that their depth of experience is instrumental to our continued success. The loss of any one or more members of our senior management team, for any reason, including resignation or retirement, could impair our ability to execute our business strategy and have a material adverse effect on our business, financial condition and results of operations.

Competition for qualified highly skilled personnel can be strong, and we can provide no assurance that we will be successful in attracting or retaining such personnel now or in the future. We have not yet started commercial spaceflight operations, and our estimates of the required team size to support our estimated flight rates may require increases in staffing levels that may require significant capital expenditure. Further, any inability to recruit, develop and retain qualified employees may result in high employee turnover and may force us to pay significantly higher wages, which may harm our profitability. Additionally, we do not carry key man insurance for any of our management executives, and the loss of any key employee or our inability to recruit, develop and retain these individuals as needed, could have a material adverse effect on our business, financial condition and results of operations.

Any acquisitions, partnerships or joint ventures that we enter into could disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.

From time to time, we may evaluate potential strategic acquisitions of businesses, including partnerships or joint ventures with third parties. We may not be successful in identifying acquisition, partnership and joint venture candidates. In addition, we may not be able to continue the operational success of such businesses or successfully finance or integrate any businesses that we acquire or with which we form a partnership or joint venture. We may have potential write-offs of acquired assets and/or an impairment of any goodwill recorded as a result of acquisitions. Furthermore, the integration of any acquisition may divert management’s time and resources from our core business and disrupt our operations or may result in conflicts with our business. Any acquisition, partnership or joint venture may not be successful, may reduce our cash reserves, may negatively affect our earnings and financial performance and, to the extent financed with the proceeds of debt, may increase our indebtedness. We cannot ensure that any acquisition, partnership or joint venture we make will not have a material adverse effect on our business, financial condition and results of operations.

We are subject to many hazards and operational risks that can disrupt our business, including interruptions or disruptions in service at our primary 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

 

50


Table of Contents

by fires, floods and other natural disasters, power losses, telecommunications failures, terrorist attacks, 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.

Moreover, our commercial spaceflight operations are being moved to operate entirely out of a single facility, Spaceport America, in New Mexico, and our manufacturing operations are based in Mojave, California. Any significant interruption due to any of the above hazards and operational to the manufacturing or operation of our spaceflight systems at one of our primary facilities, including from weather conditions, growth constraints, performance by third-party providers (such as electric, utility or telecommunications providers), failure to properly handle and use hazardous materials, failure of computer systems, power supplies, fuel supplies, infrastructure damage, disagreements with the owners of the land on which our facilities are located, or damage sustained to our runway could result in manufacturing delays or the delay or cancellation of our spaceflights and, as a result, could have a material adverse effect on our business, financial condition and results of operations.

In addition, Spaceport America is run by a state agency, the New Mexico Spaceport Authority, and there may be delays or impacts to operations due to considerations unique to doing business with a government agency. For example, governmental agencies often have an extended approval process for service contracts, which may result in delays or limit the timely operation of our Spaceport America facilities.

Moreover, our insurance coverage may be inadequate to cover our liabilities related to such hazards or operational risks. In addition, passenger insurance may not be accepted or may be prohibitive to procure. Moreover, we may not be able to maintain adequate insurance in the future at rates we consider reasonable and commercially justifiable, and insurance may not continue to be available on terms as favorable as our current arrangements. The occurrence of a significant uninsured claim, or a claim in excess of the insurance coverage limits maintained by us, could harm our business, financial condition and results of operations.

Natural disasters, unusual weather conditions, epidemic outbreaks, terrorist acts and political events could disrupt our business and flight schedule.

The occurrence of one or more natural disasters such as tornadoes, hurricanes, fires, floods and earthquakes, unusual weather conditions, epidemic outbreaks, terrorist attacks or disruptive political events in certain regions where our facilities are located, or where our third-party contractors’ and suppliers’ facilities are located, could adversely affect our business. Natural disasters including tornados, hurricanes, floods and earthquakes may damage our facilities or those of our suppliers, which could have a material adverse effect on our business, financial condition and results of operations. Severe weather, such as rainfall, snowfall or extreme temperatures, may impact the ability for spaceflight to occur as planned, resulting in additional expense to reschedule the operation and customer travel plans, thereby reducing our sales and profitability. Terrorist attacks, actual or threatened acts of war or the escalation of current hostilities, or any other military or trade disruptions impacting our domestic or foreign suppliers of components of our products, may impact our operations by, among other things, causing supply chain disruptions and increases in commodity prices, which could adversely affect our raw materials or transportation costs. These events also could cause or act to prolong an economic recession in the United States or abroad. To the extent these events also impact one or more of our suppliers or contractors or result in the closure of any of their facilities or our facilities, we may be unable to maintain spaceflight schedules, provide other support functions to our astronaut experience or fulfill our other contracts. In addition, the disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans and, more generally, any of these events could cause consumer confidence and spending to decrease, which could adversely impact our commercial spaceflight operations.

 

51


Table of Contents

We have identified two material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.

In connection with the audit of our combined financial statements as of and for the year ended December 31, 2018, we identified two 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. The first material weakness is related to the lack of a sufficient number of personnel to execute, review and approve all aspects of the financial statement close and reporting process. This material weakness may not allow for us to have proper segregation of duties and the ability to close our books and records and report our results, including required disclosures, on a timely basis. The second material weakness arises from the need to augment our information technology and application controls.

We are in the process of designing and implementing measures to improve our internal control over financial reporting to remediate the material weaknesses, primarily by implementing additional review procedures within our accounting and finance department, hiring additional staff, designing and implementing information technology and application controls in our financially significant systems, and, if appropriate, engaging external accounting experts to supplement our internal resources in our computation and review processes. While we are designing and implementing measures to remediate the material weaknesses, we cannot predict the success of such measures or the outcome of our assessment of these measures at this time. We can give no assurance that these measures will remediate either of the deficiencies in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that may lead to a restatement of our financial statements or cause us to fail to meet our reporting obligations.

As a public company, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for each annual report on Form10-K to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm will also be required to attest to the effectiveness of our internal control over financial reporting in each annual report on Form10-K to be filed with the SEC. We will be required to disclose changes made in our internal control and procedures on a quarterly basis. To comply with the requirements of being a public company, we expect to need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff. Failure to comply with theSarbanes-Oxley Act could potentially subject us to sanctions or investigations by the SEC, the NYSE or other regulatory authorities, which would require additional financial and management resources. We have begun the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404, but we may not be able to complete our evaluation, testing and any required remediation in a timely fashion.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.

Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including:

 

  

the number of flights we schedule for a period, the number of seats we are able to sell in any given spaceflight and the price at which we sell them;

 

52


Table of Contents
  

unexpected weather patterns, maintenance issues, natural disasters or other events that force us to cancel or reschedule flights;

 

  

the cost of raw materials or supplied components critical for the manufacture and operation of our spaceflight system;

 

  

the timing and cost of, and level of investment in, research and development relating to our technologies and our current or future facilities;

 

  

developments involving our competitors;

 

  

changes in governmental regulations or in the status of our regulatory approvals or applications;

 

  

future accounting pronouncements or changes in our accounting policies; and

 

  

general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

The individual or cumulative effects of factors discussed above could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on aperiod-to-period basis may not be meaningful.

This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.

We may become involved in litigation that may materially adversely affect us.

From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including intellectual property, commercial, product liability, employment, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources, cause us to incur significant expenses or liability or require us to change our business practices. Because of the potential risks, expenses and uncertainties of litigation, we may, from time to time, settle disputes, even where we believe that we have meritorious claims or defenses. Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business.

We are subject to environmental regulation and may incur substantial costs.

We are subject to federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment, including those relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water, greenhouse gases and the management of hazardous substances, oils and waste materials. Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and remediate hazardous or toxic substances or petroleum product releases at or from the property. Under federal law, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Compliance with environmental laws and regulations can require significant expenditures. In addition, we could incur costs to comply with such current or future laws and regulations, the violation of which could lead to substantial fines and penalties.

We may have to pay governmental entities or third parties for property damage and for investigation and remediation costs that they incurred in connection with any contamination at our current and former properties without regard to whether we knew of or caused the presence of the contaminants. Liability under these laws may

 

53


Table of Contents

be strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of waste directly attributable to us. Even if more than one person may have been responsible for the contamination, each person covered by these environmental laws may be held responsible for all of theclean-up costs incurred. Environmental liabilities could arise and have a material adverse effect on our financial condition and performance. We do not believe, however, that pending environmental regulatory developments in this area will have a material effect on our capital expenditures or otherwise materially adversely affect its operations, operating costs, or competitive position.

Changes in tax laws or regulations may increase tax uncertainty and adversely affect results of our operations and our effective tax rate.

We will be subject to taxes in the United States and certain foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions, including the United States, may be subject to change. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws or their interpretation. In addition, we may be subject to income tax audits by various tax jurisdictions. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution by one or more taxing authorities could have a material impact on the results of our operations.

Recent U.S. tax legislation could adversely affect our business and financial condition.

Legislation enacted in December 2017 significantly changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate, limiting interest deductions, permitting immediate expensing of certain capital expenditures, adopting elements of a territorial tax system, imposing aone-time transition tax, or repatriation tax, on all undistributed earnings and profits of certain U.S.-owned foreign corporations, revising the rules governing net operating losses and the rules governing foreign tax credits, and introducing new anti-base erosion provisions. Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform or of any future administrative guidance interpreting the provisions thereof is uncertain, and our business and financial condition could be adversely affected.

Risks Related to the Business Combination and SCH

The Sponsor has agreed to vote in favor of the Business Combination, regardless of how our public shareholders vote.

Unlike some other blank check companies in which the initial shareholders agree to vote their shares in accordance with the majority of the votes cast by the public shareholders in connection with an initial business combination, the Sponsor and each officer and director of SCH have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement. As of the date of this proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

Neither the SCH board of directors nor any committee thereof obtained a third party valuation in determining whether or not to pursue the Business Combination.

Neither the SCH board of directors nor any committee thereof is required to obtain an opinion from an independent investment banking or accounting firm that the price that we are paying for the VG Companies is fair to us from a financial point of view. Neither the SCH board of directors nor any committee thereof obtained a third party valuation in connection with the Business Combination. In analyzing the Business Combination, the SCH board of directors and management conducted due diligence on the VG Companies. The SCH board of directors reviewed comparisons of selected financial data of the VG Companies with their peers in the industry

 

54


Table of Contents

and the financial terms set forth in the Merger Agreement, and concluded that the Business Combination was in the best interest of its shareholders. Accordingly, investors will be relying solely on the judgment of the SCH board of directors and management in valuing the VG Companies, and the SCH board of directors and management may not have properly valued such businesses. The lack of a third party valuation may also lead an increased number of shareholders to vote against the Business Combination or demand redemption of their shares, which could potentially impact our ability to consummate the Business Combination.

We may be forced to close the Business Combination even if we determined it is no longer in our shareholders’ best interest.

Our public shareholders are protected from a material adverse event of the VG Companies arising between the date of the Merger Agreement and the Closing primarily by the right to redeem their public shares for a pro rata portion of the funds held in the trust account, calculated as of two business days prior to the vote at the extraordinary general meeting. Accordingly, if a material adverse event were to occur after approval of the Condition Precedent Proposals at the extraordinary general meeting, we may be forced to close the Business Combination even if we determine it is no longer in our shareholders’ best interest to do so (as a result of such material adverse event) which could have a significant negative impact on our business, financial condition or results of operations.

Additionally, if we do not obtain shareholder approval at the extraordinary general meeting, VG can continually obligate us to hold additional extraordinary general meetings to vote on the Condition Precedent Proposals until the earlier of such shareholder approval being obtained and December 18, 2019 the date by which we must cease all operations and begin to windup if we have not completed a business combination. This could limit our ability to seek an alternative business combination that our shareholders may prefer after such initial vote.

Since the Sponsor and SCH’s directors and executive officers have interests that are different, or in addition to (and which may conflict with), the interests of our shareholders, a conflict of interest may have existed in determining whether the Business Combination with the VG Companies is appropriate as our initial business combination. Such interests include that Sponsor will lose its entire investment in us if our business combination is not completed.

When you consider the recommendation of SCH’s board of directors in favor of approval of the BCA Proposal, you should keep in mind that the Sponsor and SCH’s directors and executive officers have interests in such proposal that are different from, or in addition to, those of SCH shareholders and warrant holders generally. These interests include, among other things, the interests listed below:

 

  

If SCH does not consummate a business combination by December 18, 2019 (or if such date is further extended at a duly called extraordinary general meeting, such later date), it would cease all operations except for the purpose of winding up, redeeming all of the outstanding public shares for cash and, subject to the approval of its remaining shareholders and its board of directors, dissolving and liquidating, subject in each case to its obligations under the Cayman Islands Companies Law to provide for claims of creditors and the requirements of other applicable law. In such event, the 17,250,000 SCH Class B ordinary shares owned by the Sponsor would be worthless because following the redemption of the public shares, SCH would likely have few, if any, net assets and because the Sponsor has agreed to waive its rights to liquidating distributions from the trust account with respect to the Sponsor if SCH fails to complete a business combination within the required period. The Sponsor purchased the SCH Class B ordinary shares prior to SCH’s initial public offering for approximately $0.0001 per share and certain of SCH’s directors and executive officers, including Chamath Palihapitiya and Ian Osborne, have an economic interest in such shares. The 15,750,000 shares of VGH, Inc. common stock that the Sponsor will hold following the Mergers (including after giving effect to the Domestication), if unrestricted and freely tradable, would have had an aggregate market value of $172.0 million based upon the closing price of $10.92 per public share on the NYSE on October 8, 2019, the most recent

 

55


Table of Contents
 

practicable date prior to the date of this proxy statement/prospectus. Given such shares of VGH, Inc. common stock will be subject to certain restrictions, including those described above, SCH believes such shares have less value.

 

  

Chamath Palihapitiya, SCH’s Chief Executive Officer and Chairman of SCH’s board of directors, is expected to be the Chairperson of the board of directors of VGH, Inc. after the consummation of the Business Combination. As such, in the future, Mr. Palihapitiya will receive any cash fees, stock options, stock awards or other remuneration that VGH, Inc.’s board of directors determines to pay to him.

 

  

Adam Bain and James Ryans, current directors of SCH, are expected to be directors of VGH, Inc. after the consummation of the Business Combination (it is also anticipated that Dr. Ryans will serve as the chairperson of the audit committee of the Board). As such, in the future, Mr. Bain and Dr. Ryans will receive any cash fees, stock options, stock awards or other remuneration that VGH, Inc.’s board of directors determines to pay to them.

 

  

In connection with the execution of the Merger Agreement, the board of directors of SCH approved a grant of the Director RSU Awards to select members of the board of directors of SCH that, at the Closing, will vest and be converted into the right to receive an aggregate of 1,500,000 shares of VGH, Inc. common stock. The Director RSU Awards will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1st and December 31st of the year following the Closing. The grant and vesting of the Director RSU Awards are contingent upon, among other things, the consummation of the Business Combination, the approval of the 2019 Plan by SCH’s shareholders at the extraordinary general meeting and the continued service of the respective participants on the board of directors of SCH through the Closing Date.

 

  

SCH’s existing directors and officers will be eligible for continued indemnification and continued coverage under a directors’ and officers’ liability insurance policy after the Mergers and pursuant to the Merger Agreement.

 

  

In the event that SCH fails to consummate a business combination within the prescribed time frame (pursuant to the Cayman Constitutional Documents), or upon the exercise of a redemption right in connection with the Business Combination, SCH will be required to provide for payment of claims of creditors that were not waived that may be brought against SCH within the 10 years following such redemption. In order to protect the amounts held in the trust account, the Sponsor has agreed that it will be liable to SCH if and to the extent any claims by a third party (other than SCH’s independent auditors) for services rendered or products sold to SCH, or a prospective target business with which SCH has discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $10.00 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case, net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under the indemnity of the underwriters of SCH’s initial public offering against certain liabilities, including liabilities under the Securities Act.

 

  

A party related to our Sponsor and certain of our officers and directors has advanced funds to us for working capital purposes, including $0.8 million as of June 30, 2019. These outstanding advances have been documented in the Promissory Note, pursuant to which SCH may borrow up to $3.5 million from the Sponsor (including those amounts which are currently outstanding). The Promissory Note is non-interest bearing, unsecured and due and payable in full on the earlier of December 18, 2019 and the date SCH consummates its initial business combination. If we do not complete our initial business combination within the required period, we may use a portion of our working capital held outside the trust account to repay such advances and any other working capital advances made to us, but no proceeds held in the trust account would be used to repay such advances and any other working capital

 

56


Table of Contents
 

advances made to us, and such related party may not be able to recover the value it has loaned us and any other working capital advances it may make.

 

  

In connection with the Public Offering, the underwriters of the Public Offering agreed to reimburse the Company for amounts paid by the Company to Connaught (UK) Limited for financial advisory services in an amount equal to 10% of the discount paid to the underwriters, of which $1.0 million was paid at the closing of the Public Offering and up to $2.4 million will be payable at the time of the closing of the initial Business Combination. Connaught (UK) Limited is an affiliate of us, our Sponsor and certain of our officers and directors.

 

  

Following consummation of the Business Combination, the Sponsor, SCH’s officers and directors and their respective affiliates would be entitled to reimbursement for certainout-of-pocket expenses related to identifying, investigating and consummating an initial business combination or repayment of loans, if any, and on such terms as to be determined by SCH from time to time, made by the Sponsor or any of SCH’s officers or directors to finance transaction costs in connection with an intended initial business combination. However, if SCH fails to consummate a business combination within the required period, none of the Sponsor or SCH’s officers or directors or their respective affiliates will have any claim against the trust account for reimbursement.

 

  

In connection with the Purchase Agreement, if Vieco US elects to have Mr. Palihapitiya purchase shares of VGH, Inc. common stock (i) in a Primary Purchase, Mr. Palihapitiya will be issued up to 10,000,000 newly issued shares of VGH, Inc. common stock (depending on the size of the Primary Purchase as elected by Vieco US) or (ii) in a Secondary Purchase, Mr. Palihapitiya will be purchasing up to 10,000,000 shares of VGH, Inc. common stock from Vieco US (depending on the size of the Secondary Purchase as elected by Vieco US), in each case, at a price of $10.00 per share. It is anticipated that, following the Business Combination, if Vieco US elects that Mr. Palihapitiya purchase the maximum number of shares in a Secondary Purchase (after giving effect to the 3,771,178 public shares redeemed in connection with the Extension Amendment, at an assumed price approximating $10.33 per share (which price is based on trust account figures as of June 30, 2019)) and also assuming that (x) no additional public shareholders exercise their redemption rights in connection with the Business Combination or our extension proposal assuming consummation of the transactions contemplated by the Purchase Agreement and (y) VGH, Inc. will repurchase 17,359,126 shares of VGH, Inc. common stock from Vieco US in a Repurchase pursuant to the Merger Agreement), the Sponsor and related parties (including Mr. Palihapitiya) are expected to collectively own approximately 13.2% of outstanding VGH, Inc. common stock.

 

  

Pursuant to the Stockholders’ Agreement, Mr. Palihapitiya will have the right to designate two directors to the Board of VGH, Inc. and such directors may have the power collectively to withhold approval in respect of future transactions between VGH, Inc. and its subsidiaries, on the one hand and Vieco US or its affiliates, on the other.

 

  

Pursuant to the Registration Rights Agreement, the Sponsor, Mr. Palihapitiya and Vieco US will have customary registration rights, including demand and piggy-back rights, subject to cooperation andcut-back provisions with respect to the shares of VGH, Inc. common stock and warrants held by such parties.

 

  

The Proposed Certificate of Incorporation will contain a provision that expressly elects not to be governed by Section 203 (Delaware’s “interested stockholder” statute) of the Delaware General Corporation Law.

The existence of financial and personal interests of one or more of SCH’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of SCH and its shareholders and what he, she or they may believe is best for himself or themselves in determining to recommend that shareholders vote for the proposals. In addition, SCH’s officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “—Interests of SCH’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

 

57


Table of Contents

The personal and financial interests of the Sponsor and Mr. Palihapitiya as well as SCH’s directors and executive officers may have influenced their motivation in identifying and selecting the VG Companies as a business combination target, completing an initial business combination with the VG Companies and influencing the operation of the business following the initial business combination. In considering the recommendations of SCH’s board of directors to vote for the proposals, its shareholders should consider these interests.

The exercise of SCH’s directors’ and executive officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are appropriate and in SCH’s shareholders’ best interest.

In the period leading up to the Closing, events may occur that, pursuant to the Merger Agreement, would require SCH to agree to amend the Merger Agreement, to consent to certain actions taken by the VG Companies or to waive rights that SCH is entitled to under the Merger Agreement. Such events could arise because of changes in the course of the VG Companies’ businesses or a request by VG to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement. In any of such circumstances, it would be at SCH’s discretion, acting through its board of directors, to grant its consent or waive those rights. The existence of financial and personal interests of one or more of the directors described in the preceding risk factors (and described elsewhere in this proxy statement/prospectus) may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is best for SCH and its shareholders and what he, she or they may believe is best for himself, herself or themselves in determining whether or not to take the requested action. As of the date of this proxy statement/prospectus, SCH does not believe there will be any changes or waivers that SCH’s directors and executive officers would be likely to make after shareholder approval of the BCA Proposal has been obtained. While certain changes could be made without further shareholder approval, SCH will circulate a new or amended proxy statement/prospectus and resolicit SCH’s shareholders if changes to the terms of the transaction that would have a material impact on its shareholders are required prior to the vote on the BCA Proposal.

Vieco US and the other stockholders that are party to the Stockholders’ Agreement will control the direction of VGH, Inc.’s business, and the concentrated ownership of VGH, Inc.’s common stock will prevent you and other stockholders from influencing significant decisions.

In connection with the Business Combination, VGH, Inc. will enter into the Stockholders’ Agreement with Vieco US, the Sponsor and Mr. Palihapitiya. Pursuant to the terms of the Stockholders’ Agreement, VGH, Inc. will be required to take all necessary action to cause the specified designees of Vieco US and Mr. Palihapitiya to be nominated to serve on VGH, Inc.’s board of directors, and each of the holders will be required, among other things, to vote all of the securities of VGH, Inc. held by such party in a manner necessary to elect the individuals designated by such holders. For so long as these parties hold a majority of VGH, Inc.’s common stock, they will be able to control the composition of VGH, Inc.’s board of directors, which in turn will be able to control all matters affecting VGH, Inc., subject to the terms of the Stockholders’ Agreement, including:

 

  

any determination with respect to VGH, Inc.’s business direction and policies, including the appointment and removal of officers and, in the event of a vacancy on VGH, Inc.’s board of directors, additional or replacement directors;

 

  

any determinations with respect to mergers, business combinations or disposition of assets;

 

  

determination of VGH, Inc.’s management policies;

 

  

VGH, Inc.’s financing policy;

 

  

VGH, Inc.’s compensation and benefit programs and other human resources policy decisions; and

 

  

the payment of dividends on VGH, Inc.’s common stock.

 

58


Table of Contents

Additionally, Vieco US will individually control shares representing a majority of VGH, Inc.’s total outstanding shares of common stock upon completion of the Business Combination. Even if Vieco US were to control less than a majority of VGH, Inc.’s total outstanding shares of common stock, it will be able to influence the outcome of corporate actions so long as it owns a significant portion of VGH, Inc.’s total outstanding shares of common stock. Specifically, under the terms of the Stockholders’ Agreement, for so long as Vieco US continues to beneficially own at least 25% of the shares of VGH, Inc.’s common stock it beneficially owns upon completion of the Business Combination, Vieco US’s consent will be required for, among other things:

 

  

anynon-ordinary course sales of our assets having a fair market value of at least $10.0 million;

 

  

any acquisition of an entity, or the business or assets of any other entity, having a fair market value of at least $10.0 million;

 

  

certainnon-ordinary course investments having a fair market value of at least $10.0 million;

 

  

any increase or decrease in the size of VGH, Inc.’s board of directors;

 

  

any payment by VGH, Inc. of dividends or distributions to its stockholders or repurchases of stock by VGH, Inc., subject to certain limited exceptions; or

 

  

incurrence of certain indebtedness.

Furthermore, Vieco US’s consent will also be required for the following, among other things, for so long as Vieco US continues to beneficially own at least 10% of the shares of VGH, Inc.’s common stock it beneficially owns upon completion of the Business Combination:

 

  

any sale, merger, business combination or similar transaction to which VGH, Inc. or any of its subsidiaries are a party;

 

  

any amendment, modification or waiver of any provision of VGH, Inc.’s certificate of incorporation or bylaws;

 

  

any liquidation, dissolution,winding-up or causing any voluntary bankruptcy or related actions with respect to VGH, Inc. or any of its subsidiaries; or

 

  

any issuance or sale of any shares of VGH, Inc.’s capital stock or securities convertible into or exercisable for any shares of VGH, Inc.’s capital stock in excess of 5% of its then-issued and outstanding shares, other than issuances of shares of capital stock upon the exercise of options to purchase shares of VGH, Inc.’s capital stock.

Because the interests of these stockholders may differ from the interests of VGH, Inc. or its other stockholders, actions that these stockholders take with respect to us may not be favorable to VGH, Inc. or its other stockholders. For additional information, see “BCA Proposal—Related Agreements—Stockholders’ Agreement.”

The announcement of the proposed Business Combination could disrupt VGH, Inc.’s relationships with its customers, suppliers, joint venture partners and others, as well as its operating results and business generally.

Whether or not the Business Combination and related transactions are ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the Business Combination on VGH, Inc.’s business include the following:

 

  

its employees may experience uncertainty about their future roles, which might adversely affect VHG, Inc.’s ability to retain and hire key personnel and other employees;

 

  

customers, suppliers, joint venture partners and other parties with which VHG, Inc. maintains business relationships may experience uncertainty about its future and rescind their deposits, seek alternative relationships with third parties, seek to alter their business relationships with VHG, Inc. or fail to extend an existing relationship with VGH, Inc.; and

 

59


Table of Contents
  

VGH, Inc. has expended and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Business Combination.

If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact VHG, Inc.’s results of operations and cash available to fund its businesses.

Following the Business Combination, VGH, Inc. will be a controlled company within the meaning of the NYSE rules, and, as a result, will qualify for, and we expect it to rely on, exemptions from certain corporate governance requirements that provide protection to stockholders of other companies. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Following the completion of the Business Combination, Vieco US, the Sponsor and Mr. Palihapitiya will collectively control more than 50% of VGH, Inc.’s common stock and, on account of the voting agreement between those holders included in the Stockholders’ Agreement, VGH, Inc. will be considered a “controlled company” for the purposes of NYSE rules and corporate governance standards. As a controlled company, it will be exempt from certain NYSE corporate governance requirements, including those that would otherwise require its board of directors to have a majority of independent directors and require that VGH, Inc. either establish compensation and nominating and corporate governance committees, each comprised entirely of independent directors, or otherwise ensure that the compensation of its executive officers and nominees for directors are determined or recommended to the board of directors by the independent members of the board of directors. Because we expect VGH, Inc. to rely on these exemptions, holders of VGH, Inc.’s common stock will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

If VGH, Inc. ceases to be a “controlled company” in the future, it will be required to comply with the NYSE corporate governance requirements, which may require replacing a number of its directors and will require development of certain other governance-related policies and practices (including adopting written charters for each committee and instituting annual performance evaluations). These and any other actions necessary to achieve compliance with such rules may increase VGH, Inc.’s legal and administrative costs, will make some activities more difficult, time-consuming and costly and may also place additional strain on its personnel, systems and resources.

Subsequent to consummation of the Business Combination, we may be exposed to unknown or contingent liabilities and may be required to subsequently take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our share price, which could cause you to lose some or all of your investment.

We cannot assure you that the due diligence conducted in relation to the VG Companies has identified all material issues or risks associated with the VG Companies, their businesses or the industry in which they compete. Furthermore, we cannot assure you that factors outside of the VG Companies’ and our control will not later arise. As a result of these factors, we may be exposed to liabilities and incur additional costs and expenses and we may be forced to later write-down orwrite-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence has identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. If any of these risks materialize, this could have a material adverse effect on our financial condition and results of operations and could contribute to negative market perceptions about our securities or VGH, Inc. Additionally, we have no indemnification rights against Vieco US under the Merger Agreement and all of the purchase price consideration will be delivered to Vieco US at the Closing.

On October 3, 2019, we obtained and bound a representation and warranty insurance policy (“R&W Insurance Policy”) with respect to certain of the representations and warranties of VG contained in the Merger Agreement. The R&W Insurance Policy has a coverage period running for three years from Closing,

 

60


Table of Contents

except that the coverage period with respect to breaches of certain fundamental representations and the pre-Closing tax indemnity is the earlier of the expiration of the applicable statute of limitations and six years from Closing. However, the R&W Insurance Policy has certain exclusions and deductibles.

Accordingly, any shareholders or warrant holders of SCH who choose to remain VGH, Inc. stockholders or warrant holders following the Business Combination could suffer a reduction in the value of their shares, warrants and units. Such shareholders or warrant holders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the registration statement or proxy statement/prospectus relating to the Business Combination contained an actionable material misstatement or material omission.

The historical financial results of the VG Companies and unaudited pro forma financial information included elsewhere in this proxy statement/prospectus may not be indicative of what VGH, Inc.’s actual financial position or results of operations would have been.

The historical financial results of the VG Companies included in this proxy statement/prospectus do not reflect the financial condition, results of operations or cash flows they would have achieved as a standalone company during the periods presented or those VGH, Inc. will achieve in the future. This is primarily the result of the following factors: (i) the VG Companies’ historical financial results reflect charges for certain support functions (such as expenses for technology, facilities, legal, finance, human resources, business development and public affairs) that will be provided under the TSAs that will be entered into in connection with the Business Combination; (ii) the VG Companies’ historical financial results reflect charges for the use of certain intellectual property licensed from VEL under a prior trademark license agreement, while VGH, Inc. will have the right to use such intellectual property following the Business Combination pursuant to the Amended TMLA; (iii) VGH, Inc. will incur additional ongoing costs as a result of the Business Combination, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act; and (iv) VGH, Inc.’s capital structure will be different from that reflected in the VG Companies’ historical financial statements. The historical combined financial statements included in this proxy statement/prospectus for periods prior to VGH, Inc.’sPre-Closing Restructuring Plan have been prepared on a “carve-out” basis from V10 and may not be indicative of VGH, Inc.’s results of operations and financial condition had it operated as a standalone entity during such periods. VGH, Inc.’s financial condition and future results of operations could be materially different from amounts reflected in its historical financial statements included elsewhere in this proxy statement/prospectus, so it may be difficult for investors to compare VGH, Inc.’s future results to historical results or to evaluate its relative performance or trends in its business.

Similarly, the unaudited pro forma financial information in this proxy statement/prospectus is presented for illustrative purposes only and has been prepared based on a number of assumptions including, but not limited to, SCH being treated as the “acquired” company for financial reporting purposes in the Business Combination, the total debt obligations and the cash and cash equivalents of the VG Companies on the Closing Date and the number of SCH Class A ordinary shares that are redeemed in connection with the Business Combination. Accordingly, such pro forma financial information may not be indicative of VGH, Inc.’s future operating or financial performance and VGH, Inc.’s actual financial condition and results of operations may vary materially from VGH, Inc.’s pro forma results of operations and balance sheet contained elsewhere in this proxy statement/prospectus, including as a result of such assumptions not being accurate. See“Unaudited Pro Forma Condensed Combined Financial Information.”

 

61


Table of Contents

We may be able to complete only one Business Combination with the proceeds of our Public Offering and the sale of the private placement warrants, which will cause us to be solely dependent on a single business which may have a limited number of products or services. This lack of diversification may negatively impact our operations and profitability.

We may effectuate our Business Combination with a single target business or multiple target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our Business Combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial information with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By completing our Business Combination with only a single entity our lack of diversification may subject us to numerous economic, competitive and regulatory risks. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:

 

  

solely dependent upon the performance of a single business, property or asset; or

 

  

dependent upon the development or market acceptance of a single or limited number of products, processes or services.

This lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our Business Combination.

We have a specified maximum redemption threshold. This redemption threshold may make it more difficult for us to complete the Business Combination as contemplated.

The Merger Agreement provides that VG’s obligation to consummate the Business Combination is conditioned on, among other things, that as of the Closing, the Trust Amount, or the amount of cash available in the trust account into which substantially all of the proceeds of our initial public offering and private placements of our warrants have been deposited for the benefit of SCH, certain of our public shareholders and the underwriters of our initial public offering, after deducting the amount required to satisfy our obligations to our shareholders that exercise their rights to redeem their public shares (each, a “Redemption”) pursuant to the Cayman Constitutional Documents, is at least equal to the Minimum Available Cash Amount, which is the sum of (x) $400.0 million plus (y) if applicable, an aggregate of approximately $24.2 million of deferred underwriting commissions being held in the trust account (the “Minimum Cash Condition”).

However, if the Trust Amount as of the Closing is less than the Minimum Available Cash Amount, then Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00 (the “Additional Holder Equity Amount”) up to the Minimum Available Cash Amount less the amount of the aggregate purchase price paid to SCH by Mr. Palihapitiya in any Primary Purchase (the “Investment Amount”). If the Trust Amount when added to the Additional Holder Equity Amount and the Investment Amount (such aggregate amount, the “Available Cash”) is equal to or greater than the Minimum Available Cash Amount, then the Minimum Cash Condition will be deemed to have been satisfied. The Minimum Cash Condition is for the sole benefit of VG except that this condition may not be waived by VG if the Trust Amount is less than $200.0 million, provided that Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00 in an aggregate amount such that the Available Cash is, at or immediately prior to the Closing, equal to at least $200.0 million after giving effect to such purchases.

There can be no assurance that VG could and would waive the Minimum Cash Condition. Furthermore, as provided in the Cayman Constitutional Documents, in no event will we redeem our public shares in an amount

 

62


Table of Contents

that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). If such conditions are not met, and such conditions are not or cannot be waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated.

If such conditions are waived and the Business Combination is consummated with less than the Minimum Available Cash Amount in the trust account, the cash held by VGH, Inc. and its subsidiaries (including the VG Companies) in the aggregate, after the Closing may not be sufficient to allow us to operate and pay our bills as they become due as the VG Companies will only be required to have held an aggregate of $2.0 million in cash as of the Closing under the terms of the Merger Agreement. Furthermore, our affiliates are not obligated to make loans to us in the future (other than our Sponsor’s commitment to provide us an aggregate of $200,000 in loans in order to finance transaction costs in connection with a business combination). The additional exercise of redemption rights with respect to a large number of our public shareholders may make us unable to take such actions as may be desirable in order to optimize the capital structure of VGH, Inc. after consummation of the Business Combination and we may not be able to raise additional financing from unaffiliated parties necessary to fund our expenses and liabilities after the Closing. Any such event in the future may negatively impact the analysis regarding our ability to continue as a going concern at such time.

The Sponsor may elect to purchase shares from public shareholders prior to the consummation of the Business Combination, which may influence the vote on the Business Combination and reduce the public “float” of our Class A ordinary shares.

At any time at or prior to the Business Combination, during a period when they are not then aware of any material nonpublic information regarding us or SCH’s securities, the Sponsor, Mr. Palihapitiya, V10, Vieco US, the VG Companies or their directors, officers, advisors or respective affiliates may purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire public shares or vote their public shares in favor of the Condition Precedent Proposals. Such a purchase may include a contractual acknowledgement that such shareholder, although still the record holder of SCH’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, Mr. Palihapitiya, V10, Vieco US, the VG Companies or their directors, officers, advisors or respective affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholder would be required to revoke their prior elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood of (1) satisfaction of the requirement that holders of a majority of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the BCA Proposal, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the Repurchase Proposal and the Adjournment Proposal, (2) satisfaction of the requirement that holders of at leasttwo-thirds of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the Domestication Proposal and the Organizational Documents Proposals, (3) satisfaction of the Minimum Cash Condition, (4) otherwise limiting the number of public shares electing to redeem and (5) SCH’s net tangible assets (as determined in accordance with Rule 3a51(g)(1) of the Exchange Act) being at least $5,000,001.

Entering into any such arrangements may have a depressive effect on the ordinary shares (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination). If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the extraordinary general meeting and would likely increase the chances that such proposals would

 

63


Table of Contents

be approved. In addition, if such purchases are made, the public “float” of our public shares and the number of beneficial holders of our securities may be reduced, possibly making it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.

Future resales of common stock after the consummation of the Business Combination may cause the market price of VGH, Inc.’s securities to drop significantly, even if VGH, Inc.’s business is doing well.

After the consummation of the Business Combination and subject to certain exceptions, Vieco US will be contractually restricted from selling or transferring more than 50% of the shares of common stock it received in connection with the Business Combination, and the Sponsor will be contractually restricted from selling or transferring any of its shares of common stock. However, following the expiration of such lockup, neither Vieco US nor the Sponsor will be restricted from selling shares of VGH, Inc.’s common stock held by them, other than by applicable securities laws. As such, sales of a substantial number of shares of VGH, Inc. common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of VGH, Inc. common stock. Upon completion of the Business Combination, Vieco US and the Sponsor will collectively own approximately 60.6% of the outstanding shares of VGH, Inc. common stock (not including the shares of VGH, Inc. common stock that will be owned by Mr. Palihapitiya but will not be subject to thelock-up under the Registration Rights Agreement), assuming that no additional public shareholders redeem their public shares in connection with the Business Combination that Vieco US elects to have Mr. Palihapitiya purchase in a Secondary Purchase the maximum number of shares contemplated by the terms of the Purchase Agreement and that VGH, Inc. repurchases the maximum number of shares in the Repurchase contemplated by the terms of the Merger Agreement. Assuming redemption of approximately an additional 24,155,241 public shares (which is the estimated number of public shares that could be redeemed in connection with the Business Combination, in the aggregate (after taking into account the 3,771,178 public shares redeemed in connection with the Extension Amendment), in order to satisfy the closing conditions contained in the Merger Agreement, in each case at approximately $10.33 per share (based on trust account figures as of June 30, 2019)) are redeemed in connection with the Business Combination, in the aggregate, the collective ownership of Vieco US and the Sponsor would rise to 71.9% of the outstanding shares of VGH, Inc. common stock (not including the shares of VGH, Inc. common stock that will be owned by Mr. Palihapitiya but will not be subject to thelock-up under the Registration Rights Agreement). Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that were granted in connection with the Business Combination. The restricted stock units will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.

While each of Vieco US and the Sponsor will agree to certain restrictions regarding the transfer of the shares of VGH, Inc. common stock issued to them in connection with the Business Combination, these shares may be sold after the expiration of the applicablelock-up period under the Registration Rights Agreement. As restrictions on resale end and registration statements (filed after the Closing to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in VGH, Inc.’s share price or the market price of VGH, Inc. common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

We are not registering the shares of VGH, Inc. common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants and causing such warrants to expire worthless.

We are not registering the shares of VGH, Inc. common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of the Warrant Agreement, we have agreed, as soon as practicable, but in no event later than 15 business days after the closing of our initial

 

64


Table of Contents

business combination, to use our best efforts to file a registration statement under the Securities Act covering the issuance of such shares and maintain a current prospectus relating to the shares of VGH, Inc. common stock issuable upon exercise of the warrants, until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. If the shares issuable upon exercise of the warrants are not registered under the Securities Act, we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder or an exemption from registration is available. Notwithstanding the above, if the VGH, Inc. common stock is at the time of any exercise of a 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, we may, at our option, require holders of public 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, but we will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In no event will we be required to net cash settle any warrant, or issue securities or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrants under applicable state securities laws and no exemption is available. If the issuance of the shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of VGH, Inc. common stock included in the units. 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 shares of VGH, Inc. common stock for sale under all applicable state securities laws.

If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per share redemption amount received by shareholders may be less than $10.00 per share (which was the offering price per unit in our initial public offering).

Our placing of funds in the trust account may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers (other than our independent auditors), prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will enter into an agreement with a third party that has not executed a waiver only if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.

Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption of our public shares, if we are unable to complete our business combination within the prescribed time frame, or upon the exercise of a redemption right in connection with our business combination,

 

65


Table of Contents

we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption. Accordingly, the per share redemption amount received by public shareholders could be less than the $10.00 per share initially held in the trust account, due to claims of such creditors.

The Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party (other than our independent auditors) for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (1) $10.00 per public share or (2) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third party claims. We have not independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of our company. The Sponsor may not have sufficient funds available to satisfy those obligations. We have not asked the Sponsor to reserve for such obligations, and therefore, no funds are currently set aside to cover any such obligations. As a result, if any such claims were successfully made against the trust account, the funds available for our business combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our business combination, and you would receive such lesser amount per share in connection with any redemption of your public shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.

If, after we distribute the proceeds in the trust account to our public shareholders, SCH files a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our board of directors may be exposed to claims of punitive damages.

If, after we distribute the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our shareholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors or having acted in bad faith, thereby exposing it and us to claims of punitive damages, by paying public shareholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.

If, before distributing the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our shareholders and the per share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced.

If, before distributing the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the trust account, the per share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced.

 

66


Table of Contents

Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.

If we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors or may have acted in bad faith, and thereby exposing themselves and our company to claims, by paying public shareholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.

Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate the Business Combination, require substantial financial and management resources and increase the time and costs of completing a business combination.

The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because the VG Companies are not currently subject to Section 404 of the Sarbanes-Oxley Act. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act are significantly more stringent than those required of the VG Companies as privately held companies. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to VGH, Inc. after the Business Combination. If we are not able to implement the requirements of Section 404, including any additional requirements once we are no longer an emerging growth company, in a timely manner or with adequate compliance, we may not be able to assess whether its internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of VGH, Inc. common stock. Additionally, once we are no longer an emerging growth company, we will be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.

The price of VGH, Inc. common stock, warrants and units may be volatile.

Upon consummation of the Business Combination, the price of VGH, Inc. common stock, as well as VGH, Inc. warrants and units may fluctuate due to a variety of factors, including:

 

  

changes in the industries in which VGH, Inc. and its customers operate;

 

  

the number of flights VGH, Inc. schedules for a period, the number of seats it is able to sell in any given spaceflight and the price at which it sells them;

 

  

developments involving VGH, Inc.’s competitors;

 

  

unexpected weather patterns, maintenance issues, natural disasters or other events that force VGH, Inc. to cancel or reschedule flights;

 

  

variations in its operating performance and the performance of its competitors in general;

 

  

actual or anticipated fluctuations in VGH, Inc.’s quarterly or annual operating results;

 

  

publication of research reports by securities analysts about VGH, Inc. or its competitors or its industry;

 

  

the public’s reaction to VGH, Inc.’s press releases, its other public announcements and its filings with the SEC;

 

  

additions and departures of key personnel;

 

  

changes in laws and regulations affecting its business;

 

67


Table of Contents
  

commencement of, or involvement in, litigation involving the combined company;

 

  

changes in its capital structure, such as future issuances of securities or the incurrence of additional debt;

 

  

the volume of shares of VGH, Inc. common stock available for public sale; and

 

  

general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.

These market and industry factors may materially reduce the market price of VGH, Inc. common stock, warrants and units regardless of the operating performance of VGH, Inc., including the VG Companies businesses acquired in the Business Combination.

The obligations associated with being a public company will involve significant expenses and will require significant resources and management attention, which may divert from VGH, Inc.’s business operations.

As a public company, VGH, Inc. will become subject to the reporting requirements of the Exchange Act and theSarbanes-Oxley Act. The Exchange Act requires the filing of annual, quarterly and current reports with respect to a public company’s business and financial condition. TheSarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. As a result, VGH, Inc. will incur significant legal, accounting and other expenses that the VG Companies did not previously incur. VGH, Inc.’s entire management team and many of its other employees will need to devote substantial time to compliance, and may not effectively or efficiently manage its transition into a public company.

These rules and regulations will result in VGH, Inc. incurring substantial legal and financial compliance costs and will make some activities moretime-consuming and costly. For example, these rules and regulations will likely make it more difficult and more expensive for VGH, Inc. to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for VGH, Inc. to attract and retain qualified people to serve on its board of directors, its board committees or as executive officers.

While we anticipate losing our emerging growth company status by the end of 2019, we are currently an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and to the extent we have taken advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

We are currently an “emerging growth company” within the meaning of the Securities Act, as modified by 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, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, 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. As a result, our shareholders may not have access to certain information they may deem important. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not

 

68


Table of Contents

had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply tonon-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

We currently anticipate that we will lose our “emerging growth company” status as of the end of the year ending December 31, 2019 based on the public float of SCH’s Class A ordinary shares as of June 30, 2019. As a result of losing such status, we will no longer be able to take advantage of certain exemptions from reporting, and, absent other exemptions or relief available from the SEC, we will also be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will incur additional expenses in connection with such compliance and our management will need to devote additional time and effort to implement and comply with such requirements. We will also lose status as a “smaller reporting company” at the end of the year ending December 31, 2019.

The public stockholders will experience immediate dilution as a consequence of the issuance of VGH, Inc. common stock as consideration in the Business Combination.

It is anticipated that, following the Business Combination (assuming consummation of the transactions contemplated by the Purchase Agreement), (1) our public stockholders are expected to own approximately 33.3% of the outstanding VGH, Inc. common stock, (2) Vieco US (without taking into account any public shares held by the equityholders of Vieco US or V10 prior to the consummation of the Business Combination) is expected to own approximately 52.5% of the outstanding VGH, Inc. common stock and (3) the Sponsor and related parties (including Mr. Palihapitiya) are expected to collectively own approximately 13.2% of the outstanding VGH, Inc. common stock. These percentages give effect to the 3,771,178 public shares redeemed in connection with the Extension Amendment, at an assumed price approximating $10.33 per share (which price is based on trust account figures as of June 30, 2019) and assume (i) that no additional public shareholders exercise their redemption rights in connection with the Business Combination and (ii) that (x) VGH, Inc. issues 130,000,000 shares of VGH, Inc. common stock to Vieco US as the Aggregate Merger Consideration pursuant to the Merger Agreement, (y) VGH, Inc. repurchases 17,359,126 of such shares of VGH, Inc. common stock from Vieco US in the Repurchase pursuant to the Merger Agreement and (z) Vieco US elects under the Purchase Agreement to have Mr. Palihapitiya purchase 10,000,000 shares of VGH, Inc. common stock directly from Vieco US in a Secondary Purchase, in accordance with the terms and subject to the conditions of the Purchase Agreement. If the actual facts are different from these assumptions, the percentage ownership retained by the Company’s existing shareholders in the combined company will be different. Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that will be granted in connection with the Business Combination. The restricted stock units will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.

The issuance of additional common stock will significantly dilute the equity interests of existing holders of SCH securities and may adversely affect prevailing market prices for our units, public shares or public warrants.

Warrants will become exercisable for VGH, Inc. common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

If the Business Combination is completed, outstanding warrants to purchase an aggregate of 31,000,000 shares of VGH, Inc. common stock will become exercisable in accordance with the terms of the Warrant

 

69


Table of Contents

Agreement governing those securities. These warrants will become exercisable 30 days after the completion of the Business Combination. The exercise price of these warrants will be $11.50 per share. To the extent such warrants are exercised, additional shares of VGH, Inc. common stock will be issued, which will result in dilution to the holders of VGH, Inc. common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of VGH, Inc. common stock. However, there is no guarantee that the public warrants will ever be in the money prior to their expiration, and as such, the warrants may expire worthless. See “—Even if the Business Combination is consummated, the public warrants may never be in the money, and they may expire worthless and the terms of the warrants may be amended in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment.”

Even if the Business Combination is consummated, the public warrants may never be in the money, and they may expire worthless and the terms of the warrants may be amended in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment.

The warrants were issued in registered form under a Warrant Agreement between Continental Stock Transfer & Trust Company, as warrant agent, and SCH. The Warrant Agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 65% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of VGH, Inc. common stock purchasable upon exercise of a warrant.

We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.

We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of the VGH, Inc. common stock equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30trading-day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you to: (i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants; or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants.

None of the Private Placement Warrants will be redeemable by us so long as they are held by our Sponsor or its permitted transferees.

VGH, Inc. does not intend to pay cash dividends for the foreseeable future.

Following the Business Combination, VGH, Inc. currently intends to retain its future earnings, if any, to finance the further development and expansion of its business and does not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of VGH Inc.’s board of directors and will depend on its financial condition, results of operations, capital requirements, restrictions

 

70


Table of Contents

contained in the Stockholders’ Agreement and future agreements and financing instruments, business prospects and such other factors as its board of directors deems relevant.

NYSE may not list VGH, Inc.’s securities on its exchange, which could limit investors’ ability to make transactions in VGH, Inc.’s securities and subject VGH, Inc. to additional trading restrictions.

In connection with the Business Combination, in order to continue to maintain the listing of our securities on NYSE, we will be required to demonstrate compliance with NYSE’s initial listing requirements, which are more rigorous than NYSE’s continued listing requirements. We will apply to have VGH, Inc.’s securities listed on NYSE upon consummation of the Business Combination. We cannot assure you that we will be able to meet all initial listing requirements. Even if VGH, Inc.’s securities are listed on NYSE, VGH, Inc. may be unable to maintain the listing of its securities in the future.

If VGH, Inc. fails to meet the initial listing requirements and NYSE does not list its securities on its exchange, VG would not be required to consummate the Business Combination. In the event that VG elected to waive this condition, and the Business Combination was consummated without VGH, Inc.’s securities being listed on NYSE or on another national securities exchange, VGH, Inc. could face significant material adverse consequences, including:

 

  

a limited availability of market quotations for VGH, Inc.’s securities;

 

  

reduced liquidity for VGH, Inc.’s securities;

 

  

a determination that VGH, Inc. common stock is a “penny stock” which will require brokers trading in VGH, Inc. common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for VGH, Inc.’s securities;

 

  

a limited amount of news and analyst coverage; and

 

  

a decreased ability to issue additional securities or obtain additional financing in the future.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If VGH, Inc.’s securities were not listed on the NYSE, such securities would not qualify as covered securities and we would be subject to regulation in each state in which we offer our securities because states are not preempted from regulating the sale of securities that are not covered securities.

Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our common shares.

Securities research analysts may establish and publish their own periodic projections for VGH, Inc. following consummation of the Business Combination. These projections may vary widely and may not accurately predict the results we actually achieve. Our share price may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, our securities price or trading volume could decline. While we expect research analyst coverage following consummation of the Business Combination, if no analysts commence coverage of us, the market price and volume for our securities could be adversely affected.

Risks Related to the Consummation of the Domestication

The Domestication may result in adverse tax consequences for holders of SCH Class A ordinary shares and warrants.

U.S. Holders (as defined in “U.S. Federal Income Tax Considerations” beginning on page 166 of this proxy statement/prospectus) may be subject to U.S. federal income tax as a result of the Domestication. Because the

 

71


Table of Contents

Domestication will occur immediately prior to the redemption of SCH Class A ordinary shares, U.S. Holders exercising redemption rights will be subject to the potential tax consequences of the Domestication. Additionally,non-U.S. Holders (as defined in “U.S. Federal Income Tax Considerations” below) may become subject to withholding tax on any dividends paid on VGH, Inc. common stock after the Domestication.

A U.S. Holder who on the day of the Domestication beneficially owns (actually or constructively) SCH Class A ordinary shares with a fair market value of less than $50,000 on the date of the Domestication will not recognize any gain or loss and will not be required to include any part of our earnings in income. A U.S. Holder who on the day of the Domestication beneficially owns (actually or constructively) SCH Class A ordinary shares with a fair market value of $50,000 or more, but less than 10% of the total combined voting power of all classes of SCH stock entitled to vote and less than 10% or more of the total value of all classes of SCH stock, generally will recognize gain (but not loss) in respect of the Domestication as if such U.S. Holder exchanged its SCH Class A ordinary shares for VGH, Inc. common stock in a taxable transaction, unless such U.S. Holder elects in accordance with applicable Treasury Regulations to include in income as a deemed dividend the “all earnings and profits amount” (as defined in the Treasury Regulations under Section 367 of the Code) attributable to the SCH Class A ordinary shares held directly by such U.S. Holder. A U.S. Holder who on the day of the Domestication beneficially owns (actually or constructively) 10% or more of the total combined voting power of all classes of SCH stock entitled to vote or 10% or more of the total value of all classes of SCH stock, will generally be required to include in income as a deemed dividend the “all earnings and profits amount” (as defined in the Treasury Regulations) attributable to the SCH Class A ordinary shares held directly by such U.S. Holder.

Additionally, proposed Treasury Regulations with a retroactive effective date have been promulgated under Section 1291(f) of the Code which generally require that, a U.S. person who disposes of stock of a PFIC (including for this purpose exchanging warrants for newly issued warrants in the Domestication) must recognize gain equal to the excess of the fair market value of such PFIC stock over its adjusted tax basis, notwithstanding any other provision of the Code. Because we are a blank check company with no current active business, we believe that it is likely that SCH is classified as a PFIC for U.S. federal income tax purposes. As a result, these proposed Treasury Regulations, if finalized in their current form, would generally require a U.S. Holder of SCH Class A ordinary shares to recognize gain on the exchange of SCH Class A ordinary shares for VGH, Inc. common stock pursuant to the Domestication unless such U.S. Holder has made certain tax elections with respect to such U.S. Holder’s SCH Class A ordinary shares. Proposed Treasury Regulations, if finalized in their current form would also apply to a U.S. Holder who exchanges SCH warrants for newly issued VGH, Inc. warrants; a U.S. Holder, however, cannot currently make the election mentioned above with respect to such U.S. Holder’s SCH warrants. Any gain recognized from the application of the PFIC rules described above would be taxable income with no corresponding receipt of cash. The tax on any such gain would be imposed at the rate applicable to ordinary income and an interest charge would apply based on complex rules designed to offset the tax deferral to such U.S. Holder on the undistributed earnings, if any, of SCH. It is not possible to determine at this time whether, in what form, and with what effective date, final Treasury Regulations under Section 1291(f) of the Code may be adopted or how any such Treasury Regulations would apply.

All holders are urged to consult their own tax advisor regarding the tax consequences of the Domestication, including the impact of the PFIC rules and the proposed Treasury Regulations described above, to their particular situation. For a more detailed description of the U.S. federal income tax consequences associated with the Domestication, see “U.S. Federal Income Tax Considerations” (beginning on page 166 of this proxy statement/prospectus).

 

72


Table of Contents

Upon consummation of the Business Combination, the rights of holders of VGH, Inc. common stock arising under the DGCL as well as Proposed Organizational Documents will differ from and may be less favorable to the rights of holders of SCH Class A ordinary shares arising under the Cayman Islands Companies Law as well as our current memorandum and articles of association.

Upon consummation of the Business Combination, the rights of holders of VGH, Inc. common stock will arise under the Proposed Organizational Documents as well as the DGCL. Those new organizational documents and the DGCL contain provisions that differ in some respects from those in our current memorandum and articles of association and the Cayman Islands Companies Law and, therefore, some rights of holders of VGH, Inc. common stock could differ from the rights that holders of SCH Class A ordinary shares currently possess. For instance, while class actions are generally not available to shareholders under Cayman Islands Companies Law, such actions are generally available under the DGCL. This change could increase the likelihood that VGH, Inc. becomes involved in costly litigation, which could have a material adverse effect on VGH, Inc.

In addition, there are differences between the new organizational documents of VGH, Inc. and the current constitutional documents of SCH. For a more detailed description of the rights of holders of VGH, Inc. common stock and how they may differ from the rights of holders of SCH Class A ordinary shares, please see “Comparison of Corporate Governance and Shareholder Rights.” The forms of the Proposed Certificate of Incorporation and the Proposed Bylaws of VGH, Inc. are attached as Annex F and Annex G, respectively, to this proxy statement/prospectus and we urge you to read them.

Delaware law and VGH, Inc.’s Proposed Organizational Documents contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.

The Proposed Organizational Documents that will be in effect upon consummation of the Business Combination, and the DGCL, contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, and therefore depress the trading price of VGH, Inc. common stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of VGH, Inc.’s board of directors or taking other corporate actions, including effecting changes in our management. Among other things, the Proposed Organizational Documents include provisions regarding:

 

  

the ability of VGH, Inc.’s board of directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

  

subject to the terms of the Stockholders’ Agreement, VGH, Inc.’s board of directors will have the exclusive right to expand the size of its board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which will prevent stockholders from being able to fill vacancies on the board of directors;

 

  

once VGH, Inc. no longer qualifies as a “controlled company” under the listing standards of the NYSE, its stockholders will not be able to act by written consent, which will force stockholder action to be taken at an annual or special meeting of stockholders;

 

  

the amended and restated certificate of incorporation will prohibit cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

  

the limitation of the liability of, and the indemnification of, VGH, Inc.’s directors and officers;

 

  

the ability of VGH, Inc.’s board of directors to amend the bylaws, which may allow VGH, Inc.’s board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt;

 

73


Table of Contents
  

advance notice procedures with which stockholders must comply to nominate candidates to VGH, Inc.’s board of directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in VGH, Inc.’s Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of VGH, Inc.;

 

  

expansive negative consent rights for Vieco US which provide that as long as Vieco US maintains certain ownership thresholds to appoint a director under the Stockholders’ Agreement, the written consent of Vieco US is required to enter into certain business combinations or related transactions; and

 

  

the Stockholders’ Agreement requires that VGH, Inc.’s board of directors may not approve any transaction (excluding those involving consideration less than $120,000) between an interested stockholder and VGH, Inc. without the affirmative vote of at least a majority of the directors of VGH, Inc. that are not designees of Vieco US until the earlier of (i) Vieco US no longer has the right to designate two directors to VGH, Inc.’s board of directors and (ii) Mr. Palihapitiya no longer has the right to designate two directors to VGH, Inc.’s board of directors.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in VGH, Inc.’s board of directors or management.

The provisions of the proposed certificate of incorporation requiring exclusive forum in the Court of Chancery of the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.

VGH, Inc.’s proposed certificate of incorporation provides that, to the fullest extent permitted by law, and unless VGH, Inc. consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on VGH, Inc.’s behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of its directors, officers, employees or agents to VGH, Inc. or its stockholders, (iii) any action asserting a claim against VGH, Inc. or any of its directors, officers, stockholders, employees or agents arising out of or related to any provision of the DGCL or its certificate of incorporation or bylaws or (iv) any action asserting a claim against VGH, Inc. or any of its directors, officers, stockholders, employeesor agents governed by the internal affairs doctrine; provided, however,that, in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding will be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. Notwithstanding the foregoing, the proposed certificate of incorporation will provide that the exclusive forum provision will not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Similarly, 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.

These provisions may have the effect of discouraging lawsuits against VGH, Inc.’s directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against VGH, Inc., a court could find the choice of forum provisions contained in the proposed certificate of incorporation to be inapplicable or unenforceable in such action.

 

74


Table of Contents

VGH, Inc.’s proposed certificate of incorporation limits liability of Vieco US and Mr. Palihapitiya and their respective affiliates’ liability to VGH, Inc. for breach of fiduciary duty and could also prevent VGH, Inc. from benefiting from corporate opportunities that might otherwise have been available to it.

The proposed restated certificate of incorporation provides that, to the fullest extent permitted by law, and other than corporate opportunities that are expressly presented to one of VGH, Inc.’s directors in his or her capacity as such, Vieco US and Mr. Palihapitiya and their respective affiliates (other than VGH, Inc. and its officers and employees):

 

  

will not have any fiduciary duty to refrain from engaging in the same or similar business activities or lines of business as VGH, Inc., even if the opportunity is one that VGH, Inc. might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so;

 

  

will have no duty to communicate or offer such business opportunity to VGH, Inc.; and

 

  

will not be liable to VGH, Inc. for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such exempted person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to VGH, Inc.

Risks Related to the Redemption

Public shareholders who wish to redeem their public shares for a pro rata portion of the trust account must comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline. If shareholders fail to comply with the redemption requirements specified in this proxy statement/prospectus, they will not be entitled to redeem their public shares for a pro rata portion of the funds held in the trust account.

A public shareholder will be entitled to receive cash for any public shares to be redeemed only if such public shareholder: (1)(a) holds public shares, or (b) if the public shareholder holds public shares through units, the public shareholder elects to separate its units into the underlying public shares and public warrants prior to exercising its redemption rights with respect to the public shares; (2) submits a written request to Continental, SCH’s Stock Transfer & Trust Company, our transfer agent, that VGH, Inc. redeem all or a portion of its public shares for cash; and (3) delivers its public shares to Continental Stock Transfer & Trust Company, our transfer agent, physically or electronically through DTC. Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on October 21, 2019 (two business days before the extraordinary general meeting) in order for their shares to be redeemed. In order to obtain a physical share certificate, a shareholder’s broker or clearing broker, DTC and Continental Stock Transfer & Trust Company, our transfer agent, will need to act to facilitate this request. It is our understanding that shareholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. If it takes longer than anticipated to obtain a physical certificate, public shareholders who wish to redeem their public shares may be unable to obtain physical certificates by the deadline for exercising their redemption rights and thus will be unable to redeem their shares.

If the Business Combination is consummated, and if a public shareholder properly exercises its right to redeem all or a portion of the public shares that it holds and timely delivers its shares to Continental Stock Transfer & Trust Company, our transfer agent, VGH, Inc. will redeem such public shares for aper-share price, payable in cash calculated as of two business days prior to the consummation of the Business Combination. Please see the section entitled “Extraordinary General Meeting of SCH—Redemption Rights” for additional information on how to exercise your redemption rights.

 

75


Table of Contents

If a public shareholder fails to receive notice of our offer to redeem public shares in connection with the Business Combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed.

If, despite our compliance with the proxy rules, a public shareholder fails to receive our proxy materials, such public shareholder may not become aware of the opportunity to redeem his, her or its public shares. In addition, the proxy materials that we are furnishing to holders of public shares in connection with the Business Combination describes the various procedures that must be complied with in order to validly redeem the public shares. In the event that a public shareholder fails to comply with these procedures, its public shares may not be redeemed. Please see the section entitled “Extraordinary General Meeting of SCH—Redemption Rights” for additional information on how to exercise your redemption rights.

If you or a “group” of shareholders of which you are a part are deemed to hold an aggregate of more than 15% of the public shares, you (or, if a member of such a group, all of the members of such group in the aggregate) will lose the ability to redeem all such shares in excess of 15% of the public shares.

A public shareholder, together with any of his, her or its affiliates or any other person with whom it is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming in the aggregate his, her or its shares or, if part of such a group, the group’s shares, in excess of 15% of the public shares. In order to determine whether a shareholder is acting in concert or as a group with another shareholder, we will require each public shareholder seeking to exercise redemption rights to certify to us whether such shareholder is acting in concert or as a group with any other shareholder. Such certifications, together with other public information relating to stock ownership available to us at that time, such as Section 13D, Section 13G and Section 16 filings under the Exchange Act, will be the sole basis on which we make the above-referenced determination. Your inability to redeem any such excess shares will reduce your influence over our ability to consummate the Business Combination and you could suffer a material loss on your investment in SCH if you sell such excess shares in open market transactions. Additionally, you will not receive redemption distributions with respect to such excess shares if we consummate the Business Combination. As a result, you will continue to hold that number of shares aggregating to more than 15% of the public shares and, in order to dispose of such excess shares, would be required to sell your stock in open market transactions, potentially at a loss. We cannot assure you that the value of such excess shares will appreciate over time following the Business Combination or that the market price of the public shares will exceed theper-share redemption price. Notwithstanding the foregoing, shareholders may challenge our determination as to whether a shareholder is acting in concert or as a group with another shareholder in a court of competent jurisdiction.

However, our shareholders’ ability to vote all of their shares (including such excess shares) for or against the Business Combination is not restricted by this limitation on redemption.

There is no guarantee that a shareholder’s decision whether to redeem its shares for a pro rata portion of the trust account will put the shareholder in a better future economic position.

We can give no assurance as to the price at which a shareholder may be able to sell its public shares in the future following the completion of the Business Combination or any alternative business combination. Certain events following the consummation of any initial business combination, including the Business Combination, may cause an increase in SCH share price, and may result in a lower value realized now than a shareholder of SCH might realize in the future had the shareholder not redeemed its shares. Similarly, if a shareholder does not redeem its shares, the shareholder will bear the risk of ownership of the public shares after the consummation of any initial business combination, and there can be no assurance that a shareholder can sell its shares in the future for a greater amount than the redemption price set forth in this proxy statement/prospectus. A shareholder should consult the shareholder’s own tax or financial advisor for assistance on how this may affect his, her or its individual situation.

 

76


Table of Contents

Risks if the Adjournment Proposal is Not Approved

If the Adjournment Proposal is not approved, and an insufficient number of votes have been obtained to authorize the consummation of the Business Combination and the Domestication, our board of directors will not have the ability to adjourn the extraordinary general meeting to a later date in order to solicit further votes, and, therefore, the Business Combination will not be approved, and, therefore, the Business Combination may not be consummated.

Our board of directors is seeking approval to adjourn the extraordinary general meeting to a later date or dates if, at the extraordinary general meeting, based upon the tabulated votes, there are insufficient votes to approve each of the Condition Precedent Proposals. If the Adjournment Proposal is not approved, our board of directors will not have the ability to adjourn the extraordinary general meeting to a later date and, therefore, will not have more time to solicit votes to approve the Condition Precedent Proposals. In such events, the Business Combination would not be completed.

Risks if the Domestication and the Business Combination are not Consummated

If we are not able to complete the Business Combination with the VG Companies by December 18, 2019 nor able to complete another business combination by such date, in each case, as such date may be further extended pursuant to the Cayman Constitutional Documents, we would cease all operations except for the purpose of winding up and we would redeem our Class A ordinary shares and liquidate the trust account, in which case our public shareholders may only receive approximately $10.00 per share and our warrants will expire worthless.

If SCH is not able to complete the Business Combination with the VG Companies by December 18, 2019 nor able to complete another business combination by such date, in each case, as such date may be extended pursuant to SCH’s Cayman Constitutional Documents SCH will: (1) cease all operations except for the purpose of winding up; (2) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the public shares, at aper-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net of taxes payable), divided by the number of then issued and outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (3) as promptly as reasonably possible following such redemption, subject to the approval of SCH’s remaining shareholders and its board, dissolve and liquidate, subject in each case to its obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such case, our public shareholders may only receive approximately $10.00 per share and our warrants will expire worthless.

You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to sell your public shares or public warrants, potentially at a loss.

Our public shareholders will be entitled to receive funds from the trust account only upon the earliest of (1) the completion of a business combination (including the Closing), and then only in connection with those public shares that such public shareholder properly elected to redeem, (2) the redemption of any public shares properly tendered in connection with a shareholder vote to amend the Cayman Constitutional Documents to modify the substance and timing of our obligation to redeem 100% of the public shares if we do not complete a business combination by December 18, 2019 or (3) the redemption of all of the public shares if we are unable to complete an initial business combination by December 18, 2019, subject to applicable law, and as further described in this proxy statement/prospectus. In no other circumstances will a public shareholder have any right or interest of any kind in the trust account. Accordingly, to liquidate your investment, you may be forced to sell your public shares or public warrants, potentially at a loss.

 

77


Table of Contents

If we are unable to consummate our initial business combination, our public shareholders may be forced to wait until after December 18, 2019 before redemption from the trust account.

If we are unable to consummate our initial business combination by December 18, 2019 (or if such date is further extended at a duly called extraordinary general meeting, such later date), we will distribute the aggregate amount then on deposit in the trust account (less up to $100,000 of the net interest to pay dissolution expenses and which interest shall be net of taxes payable), pro rata to our public shareholders by way of redemption and cease all operations except for the purposes of winding up of our affairs, as further described in this proxy statement/prospectus. Any redemption of public shareholders from the trust account shall be affected automatically by function of the Cayman Constitutional Documents prior to any voluntary winding up. If we are required towind-up, liquidate the trust account and distribute such amount therein, pro rata, to our public shareholders, as part of any liquidation process, such winding up, liquidation and distribution must comply with the applicable provisions of the Cayman Islands Companies Law. In that case, investors may be forced to wait beyond December 18, 2019 (or if such date is further extended at a duly called extraordinary general meeting, such later date), before the redemption proceeds of the trust account become available to them, and they receive the return of their pro rata portion of the proceeds from the trust account. We have no obligation to return funds to investors prior to the date of our redemption or liquidation unless we consummate our initial business combination prior thereto and only then in cases where investors have sought to redeem their public shares. Only upon our redemption or any liquidation will public shareholders be entitled to distributions if we are unable to complete our initial business combination.

If our funds not being held in the trust account are insufficient to allow us to operate until December 18, 2019, we may be unable to complete our initial business combination.

The funds available to us outside of the trust account may not be sufficient to allow us to operate until December 18, 2019, assuming that our initial business combination is not completed during that time. We expect to incur significant costs in pursuit of our acquisition plans. However, our affiliates are not obligated to make loans to us in the future (other than our Sponsor’s commitment to provide us an aggregate of $0.2 million in loans in order to finance transaction costs in connection with a business combination), and we may not be able to raise additional financing from unaffiliated parties necessary to fund our expenses. Any such event in the future may negatively impact the analysis regarding our ability to continue as a going concern at such time.

Of the funds available to us, we could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a“no-shop” provision (a provision in letters of intent designed to keep target businesses from “shopping” around for transactions with other companies or investors on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into a letter of intent where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business. If we are unable to complete our Business Combination, our public shareholders may receive only approximately $10.00 per share, or less in certain circumstances, on the liquidation of our trust account and our Warrants will expire worthless.

If the net proceeds of our initial public offering not being held in the trust account are insufficient to allow us to operate through to December 18, 2019 and we are unable to obtain additional capital, we may be unable to complete our initial business combination, in which case our public shareholders may only receive $10.00 per share, and our warrants will expire worthless.

As of June 30, 2019, SCH had cash of $0.3 million held outside the trust account, which is available for use by us to cover the costs associated with identifying a target business and negotiating a business combination and other general corporate uses. In addition, as of June 30, 2019, SCH had total current liabilities of $3.2 million.

 

78


Table of Contents

The funds available to us outside of the trust account may not be sufficient to allow us to operate until December 18, 2019 assuming that our initial business combination is not completed during that time. Of the funds available to us, we could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a“no-shop” provision (a provision in letters of intent designed to keep target businesses from “shopping” around for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into a letter of intent where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business.

If we are required to seek additional capital, we would need to borrow funds from Sponsor, members of our management team or other third parties to operate or may be forced to liquidate. Neither the members of our management team nor any of their affiliates is under any further obligation to advance funds to SCH in such circumstances. Any such advances would be repaid only from funds held outside the trust account or from funds released to us upon completion of our initial business combination. If we are unable to obtain additional financing, we may be unable to complete our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. Consequently, our public shareholders may only receive approximately $10.00 per share on our redemption of the public shares and the public warrants will expire worthless.

 

79


Table of Contents

EXTRAORDINARY GENERAL MEETING OF SCH

General

SCH is furnishing this proxy statement/prospectus to our shareholders as part of the solicitation of proxies by our board of directors for use at the extraordinary general meeting of SCH to be held on October 23, 2019, and at any adjournment thereof. This proxy statement/prospectus is first being furnished to our shareholders on or about October 11, 2019 in connection with the vote on the proposals described in this proxy statement/prospectus. This proxy statement/prospectus provides our shareholders with information they need to know to be able to vote or instruct their vote to be cast at the extraordinary general meeting.

Date, Time and Place

The extraordinary general meeting will be held on October 23, 2019, at 12:30 p.m., Eastern Time, at The Westin Palo Alto, located at 675 El Camino Real, Palo Alto, CA 94301, unless the extraordinary general meeting is adjourned.

Purpose of the SCH Extraordinary General Meeting

At the extraordinary general meeting, SCH is asking holders of ordinary shares to:

 

  

consider and vote upon a proposal to approve by ordinary resolution and adopt the Merger Agreement attached to this proxy statement/prospectus statement as Annex A, pursuant to which, among other things, (i) Merger Sub A will merge with and into Company A, with Company A surviving the merger as a wholly owned subsidiary of VGH, Inc., (ii) Merger Sub B will merge with and into Company B, with Company B surviving the merger as a wholly owned subsidiary of VGH, Inc. and (iii) Merger Sub LLC will merge with and into Company LLC, with Company LLC surviving the merger as a wholly owned subsidiary of VGH, Inc., in each case in accordance with the terms and subject to the conditions of the Merger Agreement as more fully described elsewhere in this proxy statement/prospectus (we refer to this proposal as the “BCA Proposal”);

 

  

consider and vote upon a proposal to approve by special resolution, assuming the BCA Proposal is approved and adopted, the change of SCH’s jurisdiction of incorporation by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (we refer to this proposal as the “Domestication Proposal”);

 

  

consider and vote upon the following four separate proposals (we refer to these proposals, collectively, as the “Organizational Documents Proposals”) to approve by special resolution, assuming the BCA Proposal and the Domestication Proposal are approved and adopted, the following material differences between the Cayman Constitutional Documents and the Proposed Organizational Documents:

 

 (A)

to authorize the change in the authorized capital stock of SCH from 500,000,000 SCH Class A ordinary shares, par value $0.0001 per share, 50,000,000 SCH Class B ordinary shares, par value $0.0001 per share, and 5,000,000 preferred shares, par value $0.0001 per share, to 700,000,000 shares of common stock, par value $0.0001 per share of VGH, Inc. and 10,000,000 shares of preferred stock, par value $0.0001 per share of VGH, Inc. (we refer to this as “Organizational Documents Proposal A”);

 

 (B)

to authorize the board of directors of VGH, Inc. to issue any or all shares of VGH, Inc. preferred stock in one or more classes or series, with such terms and conditions as may be expressly determined by the Board and as may be permitted by the DGCL (we refer to this as “Organizational Documents Proposal B”);

 

 (C)

to provide that certain provisions of the Proposed Certificate of Incorporation will be subject to the Stockholders’ Agreement and certain provisions of the Proposed Bylaws will be subject to the Stockholders’ Agreement and the Registration Rights Agreement (we refer to this as “Organizational Documents Proposal C”); and

 

80


Table of Contents
 (D)

to authorize all other changes in connection with the replacement of Cayman Constitutional Documents with the Proposed Certificate of Incorporation and Proposed Bylaws as part of the Domestication (copies of which are attached to this proxy statement/prospectus as Annex F and Annex G, respectively), including (1) changing the corporate name from “Social Capital Hedosophia Holdings Corp.” to “Virgin Galactic Holdings, Inc.,” (2) making VGH, Inc.’s corporate existence perpetual, (3) adopting Delaware as the exclusive forum for certain stockholder litigation, (4) granting an explicit waiver regarding corporate opportunities to certain “exempted persons” (including Vieco US and Mr. Palihapitiya and their respective affiliates and representatives), and (5) removing certain provisions related to SCH’s status as a blank check company that will no longer be applicable upon consummation of the Business Combination, all of which SCH’s board of directors believes is necessary to adequately address the needs of VGH, Inc. after the Business Combination (we refer to this as “Organizational Documents Proposal D”);

 

  

consider and vote upon a proposal to approve by ordinary resolution, assuming the BCA Proposal, the Domestication Proposal and the Organizational Documents Proposals are approved, to elect eight directors who, upon consummation of the Business Combination, will be the directors of VGH, Inc. (we refer to this as the “Director Election Proposal”);

 

  

consider and vote upon a proposal to approve by ordinary resolution, assuming the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals and the Director Election Proposal are approved, for the purposes of complying with the applicable provisions of Section 312.03 of the NYSE’s Listed Company Manual, the issuance of shares of VGH, Inc. common stock to (1) Vieco US pursuant to the Merger Agreement, and (2) Mr. Palihapitiya and Vieco US, in each case, if applicable, pursuant to the Purchase Agreement (we refer to this as the “Stock Issuance Proposal”);

 

  

consider and vote upon a proposal to approve by ordinary resolution, assuming the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal and the Stock Issuance Proposal are approved, the VGH, Inc. 2019 Incentive Award Plan (the “2019 Plan”) (we refer to this as the “Incentive Award Plan Proposal”);

 

  

consider and approve by ordinary resolution, assuming the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal, the Stock Issuance Proposal and the Incentive Award Plan Proposal are approved, the repurchase, at Vieco US’s election, of up to 20,000,000 shares of VGH, Inc. common stock from Vieco US at a price of $10.00 per share with cash in an aggregate amount equal to the lesser of $200.0 million and the Remaining Cash (we refer to this as the “Repurchase Proposal” and, collectively with the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal, the Stock Issuance Proposal and the Incentive Award Plan Proposal, the “Condition Precedent Proposals”); and

 

  

consider and vote upon a proposal to approve the adjournment of the extraordinary general meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the extraordinary general meeting (we refer to this as the “Adjournment Proposal”).

Each of the Condition Precedent Proposals is cross-conditioned on the approval of each other. The Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus.

Recommendation of SCH Board of Directors

SCH’s board of directors believes that the BCA Proposal and the other proposals to be presented at the extraordinary general meeting are in the best interest of SCH’s shareholders and unanimously recommends that its shareholders vote “FOR” the BCA Proposal, “FOR” the Domestication Proposal, “FOR” each of the separate Organizational Documents Proposals, “FOR” the Director Election Proposal, “FOR” the Stock Issuance Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the Repurchase Proposal and “FOR” the Adjournment Proposal, in each case, if presented to the extraordinary general meeting.

 

81


Table of Contents

The existence of financial and personal interests of one or more of SCH’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of SCH and its shareholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that shareholders vote for the proposals. In addition, SCH’s officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “BCA Proposal—Interests of SCH’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

Record Date; Who is Entitled to Vote

SCH shareholders will be entitled to vote or direct votes to be cast at the extraordinary general meeting if they owned ordinary shares at the close of business on September 16, 2019, which is the “record date” for the extraordinary general meeting. Shareholders will have one vote for each ordinary share owned at the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. SCH warrants do not have voting rights. As of the close of business on the record date, there were 82,478,822 ordinary shares issued and outstanding, of which 65,228,822 were issued and outstanding public shares.

The Sponsor and each officer and director of SCH have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement, and waive their redemption rights in connection with the consummation of the Business Combination with respect to any ordinary shares held by them. The ordinary shares held by the Sponsor will be excluded from the pro rata calculation used to determine theper-share redemption price. As of the date of the accompanying proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

Quorum

A quorum of SCH shareholders is necessary to hold a valid meeting. A quorum will be present at the extraordinary general meeting if the holders of a majority of the issued and outstanding ordinary shares entitled to vote at the extraordinary general meeting are represented in person or by proxy. As of the record date for the extraordinary general meeting, 41,239,412 ordinary shares would be required to achieve a quorum.

Abstentions and BrokerNon-Votes

Proxies that are marked “abstain” and proxies relating to “street name” shares that are returned to SCH but marked by brokers as “not voted” will be treated as shares present for purposes of determining the presence of a quorum on all matters, but they will not be treated as shares voted on the matter. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect tonon-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. We believe all the proposals presented to the shareholders will be considerednon-discretionary and therefore your broker, bank, or nominee cannot vote your shares without your instruction.

Vote Required for Approval

The approval of the BCA Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting.

The approval of the Domestication Proposal requires a special resolution under Cayman Islands Companies Law, being the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by

 

82


Table of Contents

proxy and entitled to vote thereon and who vote at the extraordinary general meeting. The Domestication Proposal is conditioned on the approval of the BCA Proposal. Therefore, if the BCA Proposal is not approved, the Domestication Proposal will have no effect, even if approved by holders of ordinary shares.

The approval of each of the Organizational Documents Proposals requires a special resolution under Cayman Islands Companies Law, being the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. Each of the Organizational Documents Proposals is conditioned on the approval of the Domestication Proposal, and, therefore, also conditioned on approval of the BCA Proposal. Therefore, if the BCA Proposal and the Domestication Proposal are not approved, Organizational Documents Proposal A will have no effect, even if approved by holders of ordinary shares.

The approval of the Director Election Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. The Director Election Proposal is conditioned on the approval of the Organizational Documents Proposals, and, therefore, also conditioned on approval of the BCA Proposal and the Domestication Proposal. Therefore, if the BCA Proposal, the Domestication Proposal and the Organizational Documents Proposals are not approved, the Director Election Proposal will have no effect, even if approved by holders of ordinary shares.

The approval of the Stock Issuance Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. The Stock Issuance Proposal is conditioned on the approval of the Director Election Proposal, and, therefore, also conditioned on approval of the BCA Proposal, the Domestication Proposal and the Organizational Documents Proposals. Therefore, if the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals and the Director Election Proposal are not approved, the Stock Issuance Proposal will have no effect, even if approved by holders of ordinary shares.

The approval of the Incentive Award Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. The Incentive Award Plan Proposal is conditioned on the approval of the Stock Issuance Proposal, and, therefore, also conditioned on approval of the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals and the Director Election Proposal. Therefore, if the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal and the Stock Issuance Proposal are not approved, the Incentive Award Plan Proposal will have no effect, even if approved by holders of ordinary shares.

The approval of the Repurchase Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. The Repurchase Proposal is conditioned on the approval of the Incentive Award Plan Proposal, and, therefore, also conditioned on approval of the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal and the Stock Issuance Proposal. Therefore, if the BCA Proposal, the Domestication Proposal, the Organizational Documents Proposals, the Director Election Proposal, the Stock Issuance Proposal and Incentive Award Plan Proposal are not approved, the Repurchase Proposal will have no effect, even if approved by holders of ordinary shares.

The approval of the Adjournment Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. The Adjournment Proposal is not conditioned upon any other proposal.

 

83


Table of Contents

Voting Your Shares

Each SCH ordinary share that you own in your name entitles you to one vote. Your proxy card shows the number of ordinary shares that you own. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.

There are two ways to vote your ordinary shares at the extraordinary general meeting:

 

  

You can vote by signing and returning the enclosed proxy card. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by SCH’s board “FOR” the BCA Proposal, “FOR” the Domestication Proposal, “FOR” each of the separate Organizational Documents Proposals, “FOR” the Director Election Proposal, “FOR” the Stock Issuance Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the Repurchase Proposal and “FOR” the Adjournment Proposal, in each case, if presented to the extraordinary general meeting. Votes received after a matter has been voted upon at the extraordinary general meeting will not be counted.

 

  

You can attend the extraordinary general meeting and vote in person. You will receive a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a valid legal proxy from the broker, bank or other nominee. That is the only way SCH can be sure that the broker, bank or nominee has not already voted your shares.

Revoking Your Proxy

If you are a SCH shareholder and you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:

 

  

you may send another proxy card with a later date;

 

  

you may notify SCH’s Secretary in writing before the extraordinary general meeting that you have revoked your proxy; or

 

  

you may attend the extraordinary general meeting, revoke your proxy, and vote in person, as indicated above.

Who Can Answer Your Questions About Voting Your Shares

If you are a shareholder and have any questions about how to vote or direct a vote in respect of your ordinary shares, you may call Morrow, SCH’s proxy solicitor, by calling (800)662-5200 or banks and brokers can call collect at (203)658-9400, or by emailing IPOA.info@morrowsodali.com.

Redemption Rights

Pursuant to the Cayman Constitutional Documents, a public shareholder may request of SCH that VGH, Inc. redeem all or a portion of its public shares for cash if the Business Combination is consummated. As a holder of public shares, you will be entitled to receive cash for any public shares to be redeemed only if you:

 

 (iv)

(a) hold public shares, or (b) if you hold public shares through units, you elect to separate your units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares;

 

 (v)

submit a written request to Continental, SCH’s transfer agent, that VGH, Inc. redeem all or a portion of your public shares for cash; and

 

84


Table of Contents
 (vi)

deliver your public shares to Continental, SCH’s transfer agent, physically or electronically through DTC.

Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on October 21, 2019 (two business days before the extraordinary general meeting) in order for their shares to be redeemed.

Therefore, the election to exercise redemption rights occurs prior to the Domestication and the redemption is with respect to the VGH, Inc. public shares that an electing public shareholder holds after the Domestication. For the purposes of Article 49.3 of SCH’s memorandum and articles of association and the Cayman Islands Companies Law, the exercise of redemption rights shall be treated as an election to have such public shares repurchased for cash and references in this proxy statement/prospectus to “redemption” or “redeeming” shall be interpreted accordingly. Immediately following the Domestication and the consummation of the Business Combination, VGH, Inc. shall satisfy the exercise of redemption rights by redeeming the corresponding VGH, Inc. public shares issued to the public shareholders that validly exercised their redemption rights.

Holders of units must elect to separate the units into the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If holders hold their units in an account at a brokerage firm or bank, holders must notify their broker or bank that they elect to separate the units into the underlying public shares and public warrants, or if a holder holds units registered in its own name, the holder must contact Continental, SCH’s transfer agent, directly and instruct them to do so. Public shareholders may elect to redeem all or a portion of the public shares held by them, regardless of if or how they vote in respect of the BCA Proposal.If the Business Combination is not consummated, the public shares will be returned to the respective holder, broker or bank. If the Business Combination is consummated, and if a public shareholder properly exercises its right to redeem all or a portion of the public shares that it holds and timely delivers its shares to Continental, SCH’s transfer agent, VGH, Inc. will redeem such public shares for aper-share price, payable in cash, equal to the pro rata portion of the trust account, calculated as of two business days prior to the consummation of the Business Combination. For illustrative purposes, as of June 30, 2019, this would have amounted to approximately $10.33 per issued and outstanding public share. If a public shareholder exercises its redemption rights in full, then it will be electing to exchange its public shares for cash and will no longer own public shares. The redemption takes place following the Domestication and, accordingly, it is shares of VGH, Inc. common stock that will be redeemed immediately after consummation of the Business Combination.

If you hold the shares in “street name,” you will have to coordinate with your broker to have your shares certificated or delivered electronically. VGH, Inc. public shares that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash. There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through DTC’s DWAC (deposit withdrawal at custodian) system. The transfer agent will typically charge the tendering broker $80 and it would be up to the broker whether or not to pass this cost on to the redeeming shareholder. In the event the proposed business combination is not consummated this may result in an additional cost to shareholders for the return of their shares.

Any request for redemption, once made by a holder of public shares, may be withdrawn at any time up to the time the vote is taken with respect to the BCA Proposal at the extraordinary general meeting. If you deliver your shares for redemption to Continental, SCH’s transfer agent, and later decide prior to the extraordinary general meeting not to elect redemption, you may request that SCH’s transfer agent return the shares (physically or electronically) to you. You may make such request by contacting Continental, SCH’s transfer agent, at the phone number or address listed at the end of this section.

Any corrected or changed written exercise of redemption rights must be received by Continental, SCH’s transfer agent, prior to the vote taken on the BCA Proposal at the extraordinary general meeting. No request for

 

85


Table of Contents

redemption will be honored unless the holder’s public shares have been delivered (either physically or electronically) to Continental, SCH’s agent, at least two business days prior to the vote at the extraordinary general meeting.

Notwithstanding the foregoing, a public shareholder, together with any affiliate of such public shareholder or any other person with whom such public shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its public shares with respect to more than an aggregate of 15% of the public shares. Accordingly, if a public shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the public shares, then any such shares in excess of that 15% limit would not be redeemed for cash.

The Sponsor and each officer and director of SCH have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement, and waive their redemption rights in connection with the consummation of the Business Combination with respect to any ordinary shares held by them. The ordinary shares held by the Sponsor will be excluded from the pro rata calculation used to determine theper-share redemption price. As of the date of the accompanying proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

Holders of the warrants will not have redemption rights with respect to the warrants.

The closing price of public shares on October 8, 2019, the most recent practicable date prior to the date of this proxy statement/prospectus, was $10.92. As of June 30, 2019, funds in the trust account totaled $712.5 million and were comprised entirely of U.S. Treasury Bills or approximately $10.33 per issued and outstanding public share. After giving effect to the Extension Amendment Redemptions, the funds in the trust account totaled $676.2 million as of September 9, 2019.

Prior to exercising redemption rights, public shareholders should verify the market price of the public shares as they may receive higher proceeds from the sale of their public shares in the public market than from exercising their redemption rights if the market price per share is higher than the redemption price. SCH cannot assure its shareholders that they will be able to sell their public shares in the open market, even if the market price per share is higher than the redemption price stated above, as there may not be sufficient liquidity in its securities when its shareholders wish to sell their shares.

Appraisal Rights

Neither SCH’s shareholders nor SCH’s warrant holders have appraisal rights in connection with the Business Combination or the Domestication under the Cayman Islands Companies Law or under the DGCL.

Proxy Solicitation Costs

SCH is soliciting proxies on behalf of its board of directors. This solicitation is being made by mail but also may be made by telephone or in person. SCH and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. SCH will bear the cost of the solicitation.

SCH has hired Morrow to assist in the proxy solicitation process. SCH will pay that firm a fee of $35,000 plus disbursements. Such fee will be paid withnon-trust account funds.

SCH will ask banks, brokers and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. SCH will reimburse them for their reasonable expenses.

 

86


Table of Contents

SCH Initial Shareholders

As of the date of this proxy statement/prospectus, there are 82,478,822 ordinary shares issued and outstanding, which include the 17,250,000 SCH Class B ordinary shares held by the Sponsor and the 65,228,822 public shares. In addition, as of the date of this proxy statement/prospectus, there is outstanding an aggregate of 30,999,980 warrants to acquire ordinary shares, which includes the 8,000,000 private placement warrants held by the Sponsor and the 22,999,980 public warrants.

At any time at or prior to the Business Combination, during a period when they are not then aware of any material nonpublic information regarding us or our securities, the Sponsor, the VG Companies or our or their respective directors, officers, advisors or respective affiliates may purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire public shares or vote their public shares in favor of the Condition Precedent Proposals. Such a purchase may include a contractual acknowledgement that such shareholder, although still the record holder of SCH’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, the VG Companies or our or their respective directors, officers, advisors or respective affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholder would be required to revoke their prior elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirements that (1) holders of a majority of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the BCA Proposal, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the Repurchase Proposal and the Adjournment Proposal, (2) holders of at leasttwo-thirds of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the Domestication Proposal and the Organizational Documents Proposals, (3) the Minimum Available Cash Amount condition is satisfied, (4) otherwise limit the number of public shares electing to redeem and (5) VGH, Inc.’s net tangible assets (as determined in accordance with Rule 3a51(g)(1) of the Exchange Act) being at least $5,000,001.

Entering into any such arrangements may have a depressive effect on the ordinary shares (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination).

If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the extraordinary general meeting and would likely increase the chances that such proposals would be approved. We will file or submit a Current Report on Form8-K to disclose any material arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals to be put to the extraordinary general meeting or the redemption threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

 

87


Table of Contents

BCA PROPOSAL

SCH is asking its shareholders to approve by ordinary resolution and adopt the Merger Agreement. SCH shareholders should read carefully this proxy statement/prospectus in its entirety for more detailed information concerning the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus. Please see the subsection entitled “The Merger Agreement” below for additional information and a summary of certain terms of the Merger Agreement. You are urged to read carefully the Merger Agreement in its entirety before voting on this proposal.

Because SCH is holding a shareholder vote on the Mergers, SCH may consummate the Mergers only if they are approved by the affirmative vote of the holders of a majority of ordinary shares that are voted at the extraordinary general meeting.

The Merger Agreement

This subsection of the proxy statement/prospectus describes the material provisions of the Merger Agreement, but does not purport to describe all of the terms of the Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus. You are urged to read the Merger Agreement in its entirety because it is the primary legal document that governs the Mergers.

The Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Merger Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Merger Agreement. The representations, warranties and covenants in the Merger Agreement are also modified in part by the underlying disclosure letters (the “disclosure letters”), which are not filed publicly and which are subject to a contractual standard of materiality different from that generally applicable to shareholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts. We do not believe that the disclosure letters contain information that is material to an investment decision. Additionally, the representations and warranties of the parties to the Merger Agreement may or may not have been accurate as of any specific date and do not purport to be accurate as of the date of this proxy statement/prospectus. Accordingly, no person should rely on the representations and warranties in the Merger Agreement or the summaries thereof in this proxy statement/prospectus as characterizations of the actual state of facts about SCH, the VG Companies or any other matter.

Structure of the Mergers

On July 9, 2019, SCH entered into the Merger Agreement, as amended on October 2, 2019, with V10, Vieco US, Merger Sub A, Merger Sub B, Merger Sub LLC, Company A, Company B and Company LLC, pursuant to which, among other things, following the Domestication, (i) Merger Sub A will merge with and into Company A, the separate corporate existence of Merger Sub A will cease and Company A will be the surviving corporation and a wholly owned subsidiary of VGH, Inc., (y) Merger Sub B, will merge with and into Company B, the separate corporate existence of Merger Sub B will cease and Company B will be the surviving corporation and a wholly owned subsidiary of VGH, Inc. and (z) Merger Sub LLC will merge with and into Company LLC, the separate company existence of Merger Sub LLC will cease and Company LLC will be the surviving company and a wholly owned subsidiary of VGH, Inc. Pursuant to the terms of the Merger Agreement, under certain limited circumstances, Vieco US, SCH and the VG Companies will work together in good faith to restructure Corp Merger A or Corp Merger B, including by changing the direction of the applicable merger, if it is determined to be in the best interests of the parties.

Prior to and as a condition of the Mergers, pursuant to the Domestication, SCH will change its jurisdiction of incorporation by effecting a deregistration under the Cayman Islands Companies Law and a domestication

 

88


Table of Contents

under Section 388 of the DGCL, pursuant to which SCH’s jurisdiction of incorporation will be changed from the Cayman Islands to the State of Delaware. For more information, see “The Domestication Proposal.”

Consideration

Aggregate Merger Consideration

As a result of and upon the Closing (as defined below), among other things, all outstanding shares of common stock or limited liability company interests, as applicable, of each of the VG Companies will be cancelled in exchange for the right to receive 130,000,000 shares of VGH, Inc. common stock (at a deemed value of $10.00 per share) for an aggregate merger consideration of $1.3 billion (the “Aggregate Merger Consideration”). This does not take into account the additional issuances or payments to Vieco US which may be made under the terms of the Purchase Agreement of: (i) up to $100,000,000 in cash from Chamath Palihapitiya in exchange for up to 10,000,000 of Vieco US’s shares of VGH, Inc. common stock at a price of $10.00 per share in a Secondary Purchase (as defined below) under the terms of the Purchase Agreement or (ii) up to 10,000,000 additional newly issued shares of VGH, Inc. common stock from VGH, Inc. at a price of $10.00 per share to be paid with some or all of the cash proceeds of a Secondary Purchase in a Reinvestment (as defined below) under the terms of the Purchase Agreement. For additional information on the Purchase Agreement, see “BCA Proposal—Related Agreements—Purchase Agreement.”

The Aggregate Merger Consideration also does not take into account certain additional issuances and payments to Vieco US which may be made under the terms of the Merger Agreement only to the extent certain conditions are satisfied or certain options are elected by Vieco US, in each case, as contemplated thereunder, including, if applicable: (i) the issuance of additional shares of VGH, Inc. common stock to Vieco US or an affiliate of Vieco US as part of the Additional Holder Equity Amount (as defined below) under the terms of the Merger Agreement and (ii) the cash payment received by Vieco US in any Repurchase (as defined below) under the terms of the Merger Agreement, in each case, as described more fully elsewhere in this proxy statement/prospectus. For additional information on the Repurchase, see “Repurchase Proposal.”

Closing

In accordance with the terms and subject to the conditions of the Merger Agreement, the closing of the Mergers (the “Closing”) will take place at 10:00 a.m., Eastern Time, on the date that is the second business day after the satisfaction or waiver of the conditions set forth in the Merger Agreement (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), unless another time or date is mutually agreed to in writing by the parties. The date on which the Closing actually occurs is referred to as the “Closing Date.”

Representations and Warranties

The Merger Agreement contains representations and warranties of SCH, Merger Subs, the VG Companies and Vieco US, certain of which are qualified by materiality and material adverse effect (as defined below) and may be further modified and limited by the disclosure letters. See “—Material Adverse Effect” below. The representations and warranties of SCH are also qualified by information included in SCH’s public filings, filed or submitted to the SEC on or prior to the date of the Merger Agreement (subject to certain exceptions contemplated by the Merger Agreement).

Representations and Warranties of Vieco US

Vieco US has made representations and warranties relating to, among other things, company organization, due authorization, no conflict, ownership, litigation and proceedings and brokers’ fees.

 

89


Table of Contents

The representations and warranties of Vieco US identified as fundamental under the terms of the Merger Agreement are those made pursuant to: (i) the first and second sentences of Section 4.1 of the Merger Agreement (Company Organization), Section 4.2 of the Merger Agreement (Due Authorization), Section 4.4 of the Merger Agreement (Ownership) and Section 4.6 of the Merger Agreement (Brokers’ Fees) (collectively, the “Holder Fundamental Representations”).

Representations and Warranties of the VG Companies

The VG Companies have made representations and warranties relating to, among other things, company organization, subsidiaries, due authorization, no conflict, governmental authorities and consents, capitalization of the VG Companies, capitalization of subsidiaries, financial statements, undisclosed liabilities, litigation and proceedings, legal compliance, contracts and no defaults, company benefit plans, labor relations and employees, taxes, brokers’ fees, insurance, permits, equipment and other tangible property, real property, intellectual property, environmental matters, absence of changes, anti-corruption compliance, sanctions and international trade compliance and security clearances, information supplied, vendors, sufficiency of assets, aviation regulation compliance, government contracts and no additional representations or warranties.

The representations and warranties of the VG Companies identified as fundamental under the terms of the Merger Agreement are those made pursuant to: (i) the first and second sentences of Section 5.1 of the Merger Agreement (Company Organization), (ii) the first and second sentences of Section 5.2 of the Merger Agreement (Subsidiaries), Section 5.3 of the Merger Agreement (Due Authorization), Section 5.6 of the Merger Agreement (Capitalization of the Companies), Section 5.7 of the Merger Agreement (Capitalization of Subsidiaries) and Section 5.16 of the Merger Agreement (Brokers’ Fees) (collectively, the “Company Fundamental Representations”).

Representations and Warranties of SCH and the Merger Subs

SCH and Merger Subs have made representations and warranties relating to, among other things, company organization, due authorization, no conflict, litigation and proceedings, SEC filings, internal controls, listing on the NYSE, financial statements, governmental authorities and consents, trust account, Investment Company Act and JOBS Act, absence of changes, no undisclosed liabilities, capitalization, brokers’ fees, indebtedness, taxes, business activities, NYSE stock market quotation, registration statement, proxy statement and proxy/registration statement, takeover statutes and charter provisions, no outside reliance and no additional representations or warranties.

Survival of Representations and Warranties

Except in the case of claims against a person in respect of such person’s actual fraud, the representations and warranties of the respective parties to the Merger Agreement generally will not survive the Closing. However, under the terms of the Merger Agreement, SCH retains the right to pursue recoveries under the R&W Insurance Policy (as defined below), which SCH obtained and bound on October 3, 2019. See “—R&W Insurance Policy” below.

Material Adverse Effect

Under the Merger Agreement, certain representations and warranties of the VG Companies and Vieco US are qualified in whole or in part by a material adverse effect standard for purposes of determining whether a breach of such representations and warranties has occurred. Under the Merger Agreement, certain representations and warranties of SCH are qualified in whole or in part by a material adverse effect on the ability of SCH to enter into and perform its obligations under the Merger Agreement standard for purposes of determining whether a breach of such representations and warranties has occurred.

 

90


Table of Contents

Pursuant to the Merger Agreement, a material adverse effect with respect to Vieco US (“Holder Material Adverse Effect”) means any event, state of facts, development, circumstance, occurrence or effect that does, or would reasonably be expected to, individually or in the aggregate, prevent or materially impair the ability of Vieco US to perform its obligations under the Merger Agreement or to consummate the Mergers.

Pursuant to the Merger Agreement, a material adverse effect with respect to the VG Companies (“Company Material Adverse Effect”) means any event, state of facts, development, circumstance, occurrence or effect (collectively, “Events”) that (i) has had, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, assets, results of operations or financial condition of the VG Companies and their subsidiaries, taken as a whole or (ii) does or would reasonably be expected to, individually or in the aggregate, prevent the ability of the VG Companies to consummate the Mergers.

However, in no event would any of the following, alone or in combination, be deemed to constitute, or be taken into account in determining whether there has been or will be, a “Company Material Adverse Effect”:

 

 (a)

any change in applicable laws or GAAP or any interpretation thereof following the date of the Merger Agreement;

 

 (b)

any change in interest rates or economic, political, business or financial market conditions generally;

 

 (c)

the taking of any action required by the Merger Agreement;

 

 (d)

any natural disaster (including hurricanes, storms, tornados, flooding, earthquakes, volcanic eruptions or similar occurrences), pandemic or change in climate;

 

 (e)

any acts of terrorism or war, the outbreak or escalation of hostilities, geopolitical conditions, local, national or international political conditions;

 

 (f)

any failure of the VG Companies to meet any projections or forecasts, provided that this clause will not prevent a determination that any Event not otherwise excluded from this definition of Company Material Adverse Effect underlying such failure to meet projections or forecasts has resulted in a Company Material Adverse Effect;

 

 (g)

any Events generally applicable to the industries or markets in which the VG Companies and their subsidiaries operate (including increases in the cost of products, supplies, materials or other goods purchased from third party suppliers);

 

 (h)

the announcement of the Merger Agreement and consummation of the transactions contemplated hereby, including any termination of, reduction in or similar adverse impact (but in each case only to the extent attributable to such announcement or consummation) on relationships, contractual or otherwise, with any landlords, customers, suppliers, distributors, partners or employees of the VG Companies and their subsidiaries (it being understood that this clause (h) will be disregarded for purposes of the representation and warranties in Section 5.4 of the Merger Agreement and the corresponding condition to Closing);

 

 (i)

any matter set forth on the VG Companies’ disclosure letter or V10’s disclosure letter;

 

 (j)

any Events to the extent actually known by certain individuals identified in SCH’s disclosure letter on or prior to the date of the Merger Agreement;

 

 (k)

any launch failure, crash, fatality, launch or flight delay, launch or flight cancellation, or any other operational or other delays of the business of the VG Companies;

 

 (l)

any requests for return or the return of any deposits made, on or prior to the Closing Date, by or on behalf of prospective space tourists or other customers of the VG Companies or any of their subsidiaries or affiliates, in each case, pursuant to the Virgin Galactic Deposit Terms and Conditions

 

91


Table of Contents
 entered into by such depositor with VG, LLC (each such deposit, a “Customer Deposit”) or portion thereof pursuant to and in accordance with the agreements governing such deposit, as applicable; or

 

 (m)

any action taken by, or at the request of, SCH or Merger Subs.

Any Event referred to in clauses (a), (b), (d), (e) or (g) above may be taken into account in determining if a Company Material Adverse Effect has occurred to the extent it has a disproportionate and adverse effect on the business, assets, results of operations or condition (financial or otherwise) of the VG Companies and their subsidiaries, taken as a whole, relative to similarly situated companies in the industry in which the VG Companies and their subsidiaries conduct their respective operations (which will include the aerospace industry generally), but only to the extent of the incremental disproportionate effect on the VG Companies and their subsidiaries, taken as a whole, relative to similarly situated companies in the industry in which the VG Companies and their subsidiaries conduct their respective operations.

Covenants and Agreements

Vieco US and the VG Companies have made covenants relating to, among other things, conduct of business, inspection, preparation and delivery of certain audited and unaudited financial statements, affiliate agreements,Pre-Closing Restructuring and acquisition proposals.

SCH has made covenants relating to, among other things, employee matters, trust account proceeds and related available equity, NYSE listing, no solicitation by SCH, SCH’s conduct of business, post-closing directors and officers, post-closing common share repurchase, domestication, indemnification and insurance, SCH public filings and Customer Deposit Guarantee.

Pre-Closing Restructuring

Pursuant to the Merger Agreement, VG has agreed to, prior to the Closing and subject to the terms and conditions of the Merger Agreement, consummate thePre-Closing Restructuring Plan, pursuant to which Company A, Company B and Company LLC will become, in each case, direct wholly owned subsidiaries of Vieco US.

Wrong Pocket Provisions

In connection with thePre-Closing Restructuring and related transactions by and among Vieco US and certain of its subsidiaries (including the VG Companies), the Merger Agreement contains “wrong pockets” covenants, pursuant to which:

 

  

From and after the Closing, (i) Vieco US and its affiliates (other than the VG Companies and their subsidiaries) will transfer to the VG Companies any asset or liability substantially exclusively used in the business of the VG Companies as conducted on the date of the Closing that was inadvertently not transferred to the VG Companies prior to the Closing (including in thepre-closing restructuring) (the “VG Company Liabilities”) and (ii) SCH and its subsidiaries (including, from and after the Closing, the VG Companies and their subsidiaries) will transfer to Vieco US or its designated affiliate any asset or liability substantially exclusively used in the business of Vieco US or its affiliates (other than the VG Companies and their subsidiaries) as conducted on the date of the Closing, that was inadvertently transferred to the VG Companies prior to Closing (including in thepre-closing restructuring) in addition to any liability identified on a corresponding disclosure letter as of the date of the Merger Agreement (the “Vieco US Liabilities”);

 

  

Vieco US and its affiliates (other than the VG Companies and their subsidiaries) shall reimburse each of SCH and its subsidiaries (including, from and after the Closing, the VG Companies and their subsidiaries), as applicable, in each case, in respect of any loss, liability, fine, penalty, cost or expense

 

92


Table of Contents
 

(including reasonable legal expenses and costs (including costs of investigation)) which such person has actually paid in respect of any Vieco US Liabilities; provided that each of SCH and its subsidiaries (including, from and after the Closing, the VG Companies and their subsidiaries), as applicable, shall have first provided reasonable notice to Vieco US and its affiliates (other than the VG Companies and their subsidiaries) of the existence of such Vieco US Liabilities and a reasonable period of time to transfer or defend against, as applicable, such Vieco US Liabilities, and shall reasonably cooperate with Vieco US and its affiliates (other than the VG Companies and their subsidiaries) in connection with such transfer or defense, prior to the payment of such Vieco US Liabilities; and

 

  

SCH and its subsidiaries (including, from and after the Closing, the VG Companies and their subsidiaries) will reimburse each of Holder and its affiliates (other than the VG Companies and their subsidiaries), as applicable, in each case, in respect of any loss, liability, fine, penalty, cost or expense (including reasonable legal expenses and costs (including costs of investigation)) which such person has actually paid to a third party in respect of any VG Company Liabilities; provided that each of Vieco US and its affiliates (other than the VG Companies and their subsidiaries), as applicable, shall have first provided reasonable notice to SCH and its subsidiaries (including, from and after the Closing, the VG Companies and their subsidiaries) of the existence of such VG Company Liabilities and a reasonable period of time to transfer or defend against, as applicable, such VG Company Liabilities, and shall reasonably cooperate with SCH and its subsidiaries (including, from and after the Closing, the VG Companies and their subsidiaries) in connection with such transfer or defense, prior to the payment of such VG Company Liabilities.

Conduct of Business by VG

Vieco US and the VG Companies have agreed that from the date of the Merger Agreement through the earlier of the Closing or the termination of the Merger Agreement (the “Interim Period”), they will, and will cause their respective subsidiaries to, except as otherwise contemplated by the Merger Agreement, as consented to by SCH in writing (which consent will not be unreasonably conditioned, withheld, delayed or denied) or as required by applicable law:

 

  

operate their respective businesses in the ordinary course and in accordance with past practice in all material respects; and

 

  

use reasonable best efforts to operate the business of the VG Companies in the ordinary course consistent with past practice.

During the Interim Period, Vieco US and the VG Companies have also agreed not to, and not to permit their respective subsidiaries to, except as otherwise contemplated by the Merger Agreement, including the disclosure letters, as consented to by SCH in writing (which consent will not be unreasonably conditioned, withheld, delayed or denied) or as required by applicable law:

 

  

change or amend the governing documents of any VG Company or any of the VG Companies’ subsidiaries, except as otherwise required by law;

 

  

make or declare any dividend or distribution to the shareholders or members, as applicable, of any VG Company or make any other distributions in respect of any of the VG Companies’ or any of their subsidiaries’ capital stock or equity interests, except for dividends or distributions by one VG Company to another VG Company or one of its subsidiaries;

 

  

split, combine, reclassify, recapitalize or otherwise amend any terms of any shares or series of the VG Companies’ or any of their subsidiaries’ capital stock or equity interests, provided that the VG Companies may split, combine or reclassify shares of any of the VG Companies’ subsidiaries that remain wholly owned;

 

  

purchase, repurchase, redeem or otherwise acquire any issued and outstanding share capital, outstanding shares of capital stock, membership interests or other equity interests of the VG

 

93


Table of Contents
 

Companies or their subsidiaries, except for acquisitions of equity interests in connection with the forfeiture or cancellation of such interests and transactions between the VG Companies or a VG Company and the subsidiary of a VG Company;

 

  

enter into, modify in any material respect or terminate (other than expiration in accordance with its terms) any material contracts, any real property lease or any government contract of a VG Company, other than entry into such agreements in the ordinary course of business;

 

  

sell, assign, transfer, convey, lease or otherwise dispose of any material tangible assets or properties of the VG Companies or their subsidiaries, except for dispositions of obsolete or worthless equipment in the ordinary course of business;

 

  

acquire any ownership interest in any real property;

 

  

other than as required by law, an existing benefit plan, or certain contractual obligations, (i) grant any severance, retention, change in control or termination or similar pay, except in connection with the promotion, hiring or termination of employment of anynon-officer employee in the ordinary course of business consistent with past practice, (ii) make any change in the key management structure of any VG Company or any of the VG Companies’ subsidiaries, including the hiring of additional officers or termination of existing officers, other than terminations for cause or due to death or disability, (iii) terminate, adopt, enter into or materially amend any benefit plan, (iv) increase the cash compensation or bonus opportunity of any employee, officer, director or other individual service provider, except in the ordinary course of business consistent with past practice, (v) establish any trust or take any other action to secure the payment of any compensation payable by any VG Company or any of the VG Companies’ subsidiaries or (vi) take any action to amend or waive any performance or vesting criteria or to accelerate the time of payment of vesting of any compensation or benefit payable by any VG Company or any of the VG Companies’ subsidiaries, except in the ordinary course of business consistent with past practice;

 

  

acquire by merger or consolidation with, or merge or consolidate with, or purchase substantially all or a material portion of the assets of, any corporation, partnership, association, joint venture or other business organization or division thereof;

 

  

make any material loans or material advances to any person, except for (i) advances to employees, officers or independent contractors of any VG Company or any of the VG Companies’ subsidiaries for indemnification, attorneys’ fees, travel and other expenses incurred in the ordinary course of business consistent with past practice, (ii) loans or advances among the Virgin Galactic Companies or their subsidiaries and (iii) extended payment terms for customers in the ordinary course of business;

 

  

take certain actions with respect to tax related matters, including, among others, make or change any material election in respect of material taxes, amend, modify or otherwise change any filed material tax return and related activities;

 

  

take or knowingly fail to take any action, where such action or failure to act could reasonably be expected to prevent either Corp Merger A or Corp Merger B from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

 

  

incur or assume any indebtedness or guarantee any indebtedness of another person, other than any indebtedness or guarantee incurred in the ordinary course of business and in an aggregate amount not to exceed $0.5 million or incurred between the VG Companies and any of their wholly owned subsidiaries;

 

  

issue any additional VG Company Interests or securities exercisable for or convertible into VG Company Interests or grant any additional equity or equity-based compensation;

 

  

adopt a plan of, or otherwise enter into or effect a, complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of the VG Companies or their subsidiaries (other than the Mergers);

 

94


Table of Contents
  

waive, release, settle, compromise or otherwise resolve any investigation, claim, action, litigation or other legal proceedings, except in the ordinary course of business or where such waivers, releases, settlements or compromises involve only the payment of monetary damages in an amount less than $1,000,000 in the aggregate;

 

  

grant to, or agree to grant to, any person rights to any material intellectual property of the VG Companies and their subsidiaries, or dispose of, abandon or permit to lapse any rights to such intellectual property, (except for the expiration of registered intellectual property of the VG Companies in accordance with the applicable statutory term or registration period) or in the reasonable exercise of the VG Companies’ or any of their subsidiaries’ business judgment;

 

  

disclose or agree to disclose to any person (other than SCH or any of its representatives) any trade secret or any other material confidential or proprietary information,know-how or process of the VG Companies or any of their subsidiaries other than disclosure of such information to SCH or any of its representatives or in the ordinary course of business consistent with past practice and pursuant to obligations to maintain the confidentiality thereof;

 

  

make or commit to make capital expenditures other than in an amount not in excess of the amount identified in the VG Companies’ disclosure letter in the aggregate;

 

  

manage the VG Companies and their subsidiaries’ working capital (including paying amounts payable in a timely manner when due and payable) in a manner other than in the ordinary course of business consistent with past practice (including with respect to fundings of cash by Vieco US or its affiliates (other than the VG Companies)) to the VG Companies to fund their working capital provided that the VG Companies will not be required to have more than $2.0 million in cash at Closing;

 

  

permit any of its material intellectual property to become subject to a lien (other than a permitted lien) or sell, lease, license or otherwise dispose of any of its material intellectual property rights but excluding licenses granted in the ordinary course of business consistent with past practice;

 

  

enter into or extend any collective bargaining agreement or similar labor agreement, or recognize or certify any labor union, labor organization, works council, or group of employees of the VG Companies or their subsidiaries as the bargaining representative for any employees of the VG Companies or their subsidiaries except as otherwise required by applicable law;

 

  

waive the restrictive covenant obligations of any current or former employee of any VG Company or any of the VG Companies’ subsidiaries;

 

  

(i) limit the right of any VG Company or any of the VG Companies’ subsidiaries to engage in any line of business or in any geographic area, to develop, market or sell products or services, or to compete with any person or (ii) grant any exclusive or similar rights to any person;

 

  

amend in a manner materially detrimental to any VG Company or any of the VG Companies’ subsidiaries, terminate or permit to lapse or fail to use reasonable best efforts to maintain any material governmental authorization or material permit required for the conduct of the business of any VG Company or any of the VG Companies’ subsidiaries;

 

  

terminate or amend in a manner materially detrimental to any VG Company or any of the VG Companies’ subsidiaries any material insurance policy insuring the business of any VG Company or any of the VG Companies’ subsidiaries;

 

  

access or withdraw any Customer Deposits or any portion thereof other than pursuant to and in accordance with the terms of the applicable deposit agreements; or

 

  

enter into any agreement to take any of the above actions prohibited under the Merger Agreement.

Conduct of Business of SCH

SCH has agreed that from the date of the Merger Agreement through the earlier of the Closing or the termination of the Merger Agreement, it will, and will cause its subsidiaries to, except as otherwise contemplated

 

95


Table of Contents

by the Merger Agreement, as consented to by Vieco US in writing (which consent will not be unreasonably conditioned, withheld, delayed or denied):

 

  

operate its business in the ordinary course and substantially in accordance with past practice; and

 

  

comply with, and continue performing under, as applicable, the governing documents of SCH, the Investment Management Trust Agreement, dated as of September 13, 2017, between SCH and Continental Stock Transfer & Trust Company (the “Trust Agreement”) and all other agreements or contracts to which SCH or its subsidiaries may be a party.

From the date of the Merger Agreement through the earlier of the Closing or the termination of the Merger Agreement, SCH has also agreed not to, and to cause its subsidiaries not to, except as otherwise contemplated by the Merger Agreement or the Ancillary Agreements (as defined below), as consented to by Vieco US in writing (which consent will not be unreasonably conditioned, withheld, delayed or denied) or as required by applicable law:

 

  

seek any approval from SCH’s shareholders to change, modify or amend the Trust Agreement or the governing documents of SCH or the Merger Subs, except as otherwise contemplated by the BCA;

 

  

(x) make or declare any dividend or distribution to the shareholders of SCH or make any other distributions in respect of any of SCH’s or Merger Subs’ capital stock, share capital or equity interests, (y) split, combine, reclassify or otherwise amend any terms of any shares or series of SCH’s or Merger Subs’ capital stock or equity interests or (z) purchase, repurchase, redeem or otherwise acquire any issued and outstanding share capital, outstanding shares of capital stock, share capital or membership interests, warrants or other equity interests of SCH or Merger Subs other than a redemption of SCH ordinary shares effected in connection with the BCA;

 

  

take certain actions with respect to tax related matters, including, among others, make or change any material election in respect of material taxes, amend, modify or otherwise change any filed material tax return and related activities;

 

  

take or knowingly fail to take any action, where such action or failure to act could reasonably be expected to prevent either Corp Merger A or Corp Merger B from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

 

  

other than as expressly required by the Sponsor Support Agreement, enter into, renew or amend in any material respect, any transaction or contract with an affiliate of SCH or Merger Subs;

 

  

incur or assume any indebtedness or guarantee any indebtedness of another person, other than any indebtedness or guarantee incurred in the ordinary course of business and in an aggregate amount not to exceed $100,000 or incurred between SCH and the Merger Subs;

 

  

incur, guarantee or otherwise become liable for (whether directly, contingently or otherwise) any indebtedness or otherwise knowingly and purposefully incur, guarantee or otherwise become liable for (whether directly, contingently or otherwise) any other material liabilities, debts or obligations other than in support of the transactions contemplated by the BCA or in support of the ordinary course operations of SCH;

 

  

other than with respect to the Director RSU Awards, (A) issue any securities of SCH or securities exercisable for or convertible into securities of SCH, other than the issuance of the Aggregate Merger Consideration, (B) grant any options, warrants or other equity-based awards with respect to securities of SCH, not outstanding on the date of the Merger Agreement or (C) amend, modify or waive any of the material terms or rights set forth in any SCH warrant or the Warrant Agreement, including any amendment, modification or reduction of the warrant price set forth therein; or

 

  

enter into any agreement to do any of the above actions prohibited under the Merger Agreement.

 

96


Table of Contents

Covenants of SCH

Pursuant to the Merger Agreement, SCH or, to the extent occurring after the Closing, VGH, Inc., has agreed, among other things, to:

 

  

take all necessary action to cause each employee of a VG Company immediately prior to the Closing to continue in employment with VGH, Inc. and its affiliates immediately following the Closing and take certain other actions relating to employee benefits;

 

  

honor and perform in accordance with their terms all the VG Companies’ benefit plans, including all employment, severance, bonus, transaction, incentive and other compensation arrangements;

 

  

except where prohibited by applicable law or an existing contract as of the Closing, for the 12 month period commencing on the Closing Date, provide, or cause the VG Companies to provide to each continuing VG employee, a base salary or hourly wage and annual cash target bonus no less favorable than those provided to such continuing VG employee as of immediately prior to the Closing and employee benefits (excluding equity, defined benefit pension and retiree medical benefits, except where required by applicable law or contract) substantially comparable in the aggregate to those provided to such continuing VG employee as of immediately prior to the Closing;

 

  

recognize, or cause the VG Companies to recognize, each continuing VG employee’s employment or service with the VG Companies or any of their subsidiaries for all purposes, including determining eligibility for participation, vesting and entitlement in all benefits plans maintained by the VG Companies (excluding equity incentive plans or benefit accruals under a defined benefit pension plan), except to the extent that such recognition would result in a duplication of benefits, including (except in limited circumstances) causing, or causing the VG Companies to cause, anypre-existing conditions or limitations, eligibility waiting periods, activelyat-work requirements, evidence of insurability requirements or required physical examinations under any benefit plans maintained by the VG Companies or any of their subsidiaries, except to the extent that such waiting period, exclusion or requirement applied to such continuing VG employees prior to the Closing, and fully credit each continuing VG employee with all deductible payments,co-payments and otherout-of-pocket expenses incurred by such continuing VG employee under any benefits plans maintained by the VG Companies or any of their subsidiaries prior to the Closing during the plan year in which the closing occurs;

 

  

prior to the Closing Date, obtain approval for and adopt the 2019 Plan;

 

  

after the Closing, file an effective registration statement on FormS-8 (or other applicable form) with respect to the VGH, Inc. common stock issuable under the 2019 Plan and use reasonable efforts to maintain effectiveness of such registration statement(s) (and the current status of the prospectus or prospectuses contained therein) for so long as awards granted thereunder remain outstanding;

 

  

on the Closing Date, grant stock options under the 2019 Plan and, upon effectiveness of the applicable FormS-8, grant restricted stock units under the 2019 Plan (in each case, as contemplated by the Merger Agreement);

 

  

prior to the Closing Date, take certain actions in cooperation with Vieco US and the VG Companies with respect to obtaining any waivers or shareholder approvals necessary under Section 280G(b)(5)(B) of the Code in connection with the consummation of the Business Combination;

 

  

in connection with the Minimum Cash Condition, reasonably cooperate with and take all actions reasonably required to meet the Minimum Cash Condition including issuing additional shares of VGH, Inc. common stock to Vieco US, or Mr. Palihapitiya;

 

  

take certain actions so that the Trust Amount will be released from the trust account and so that the trust account will terminate thereafter, in each case, pursuant to the terms and subject to the conditions of the Trust Agreement;

 

97


Table of Contents
  

during the Interim Period, use reasonable best efforts to ensure SCH remains listed as a public company on the NYSE, and use reasonable best efforts to obtain approval for the listing of applicable shares of VGH, Inc. common stock to be issued in connection with the Business Combination;

 

  

during the Interim Period, not, and cause its subsidiaries and instruct its and their representatives not to, initiate any negotiations or enter into any agreements for certain alternative transactions and to terminate any such negotiations ongoing as of the date of the Merger Agreement;

 

  

subject to the terms of the Stockholders’ Agreement and the governing documents of SCH (prior to the Domestication) or VGH, Inc. (following the Domestication), as applicable, take all such action within its power as may be necessary or appropriate such that immediately following the Closing:

 

  

the Board of VGH, Inc. shall consist of eight directors, to be comprised of (i) three directors designated by Mr. Palihapitiya, which will initially be Mr. Palihapitiya, Adam Bain and James Ryans, (ii) three directors designated by Vieco US, (iii) one independent director to be mutually agreed by Mr. Palihapitiya and Vieco US, and (iv) the VG Companies’ Chief Executive Officer, Mr. Whitesides;

 

  

the Chairperson of the Board of Directors of VGH, Inc. shall initially be Chamath Palihapitiya, who shall serve in such capacity in accordance with the terms of the Stockholders’ Agreement and the Proposed Organizational Documents following the Closing; and

 

  

the initial officers of SCH will be as set forth in SCH’s disclosure letter, who will serve in such capacity in accordance with the terms of the governing documents of VGH, Inc. following the Closing;

 

  

following the Closing, consummate the Repurchase in accordance with the terms and subject to the conditions of the Merger Agreement. See“Repurchase Proposal” above;

 

  

subject to approval of SCH’s shareholders, cause the Domestication to become effective on or prior to the Closing Date and prior to the Closing. See “Domestication Proposal” above;

 

  

after the Closing, indemnify and hold harmless each present and former director and officer of the VG Companies and SCH and each of their respective subsidiaries against any costs, expenses, damages or liabilities incurred in connection with any legal proceeding, to the fullest extent that would have been permitted under applicable law and the applicable governing documents to indemnify such person;

 

  

maintain for a period of not less than six years from the effective time of the Mergers (i) provisions in its governing documents and those of its subsidiaries concerning the indemnification and exoneration of its subsidiaries and their subsidiaries’ former and current officers, directors and employees, no less favorable than as contemplated by the applicable governing documents immediately prior to the effective time of the Mergers and (ii) a directors’ and officers’ liability insurance policy covering those persons who are currently covered by the VG Companies’ or their subsidiaries’ directors’ and officers’ liability insurance policies on terms not less favorable than the terms of such current insurance coverage, except that in no event will SCH be required to pay an annual premium for such insurance in excess of 300% of the aggregate annual premium payable by the VG Companies for such insurance policy for the year ended December 31, 2018;

 

  

on the Closing Date, enter into customary indemnification agreements reasonably satisfactory to Vieco US with the post-Closing directors and officers of VGH, Inc., which indemnification agreements will continue to be effective following the Closing;

 

  

during the Interim Period, keep current and timely file all reports required to be filed or furnished with the SEC and otherwise comply in all material respects with its reporting obligations under applicable law; and

 

  

from and after the Closing, indemnify and hold harmless Virgin Holdings Limited, a private limited company incorporated in England & Wales, its affiliates (other than SCH and its subsidiaries

 

98


Table of Contents
 

(including, after the Closing, the VG Companies and their subsidiaries)), and its and their respective directors, officers, employees, counsel, accountants, consultants, agents and other representatives from and against any losses, damages, liabilities, taxes, judgments and other costs and expenses (including attorneys’ fees) (collectively, “Damages”) arising from or relating to the Amended and Restated Deed of Guarantee, dated September 2, 2014 (the “Guarantee”), between Virgin Holdings Limited and Virgin Galactic, LLC, including any claim or demand for payment made on any holder indemnified person under the Guarantee, in each case to the extent such Damages arise from or relate to events occurring from or after the Closing (the “Customer Deposit Guarantee”).

Covenants of VG

Pursuant to the Merger Agreement, VG has agreed, among other things:

 

  

subject to confidentiality obligations that may be applicable to information furnished to Vieco US or any of the VG Companies and their subsidiaries by third parties and except for any information that is subject to attorney-client privilege, to the extent permitted by applicable law, to afford SCH and its accountants, counsel and other representatives reasonable access during the Interim Period to their properties, books, contracts, commitments, tax returns, records and appropriate officers and employees and furnish such representatives will all financial and operating data and other information concerning the affairs of the VG Companies and their subsidiaries that are in the possession of Vieco US or the VG Companies and their subsidiaries as such representatives may reasonably request;

 

  

to prepare and deliver to SCH (i) unaudited financial statements for (x) the three and six month periods ended June 30, 2019 (to be delivered as soon as reasonably practicable following the date of the Merger Agreement, provided that the VG Companies will use their reasonable best efforts to deliver such financial statements no later than August 31, 2019) and (y) the three and nine month periods ended September 30, 2019 (if the Closing has not occurred prior to November 12, 2019) and (ii) audited financial statements as of and for (x) the years ended December 31, 2018 and December 31, 2017, together with the auditor’s report thereon (to be delivered as soon as reasonably practicable following the date of the Merger Agreement) and (y) the year ended December 31, 2019, together with the auditor’s report thereon (if the Closing has not occurred prior to March 1, 2020);

 

  

to deliver to SCH evidence that all affiliate agreements (other than those set forth in a disclosure letter to the Merger Agreement) have been terminated or settled at or prior to the Closing without further liability to SCH or any VG Company;

 

  

to consummate thePre-Closing Restructuring prior to the Closing. See “—Pre-Closing Restructuring” above; and

 

  

during the Interim Period, not to, and to use reasonable best efforts to cause its representatives not to (i) initiate any negotiations with any person with respect to certain alternative transactions, (ii) enter into an agreement with respect to any such alternative transactions or proposed transactions, (iii) grant any waiver, amendment or release under any confidentiality agreement or the anti-takeover laws of any state, or (iv) otherwise knowingly facilitate any inquiries, proposals, discussions, or negotiations or any effort or attempt by any person to make a proposal with respect to any such alternative transaction, in each case, other than (a) with respect to any actions taken in connection with thePre-Closing Restructuring or as otherwise contemplated by the Merger Agreement, (b) any funding of the operations of the VG Companies or their subsidiaries by Vieco US or its affiliates, (c) any transactions between Vieco US or its affiliates (other than the VG Companies or their subsidiaries) and third parties, which do not primarily involve the VG Companies or their subsidiaries and (d) the arrangement of financing in order to facilitate the consummation of the VG Business Combination or for the financing of SCH following the Closing.

 

99


Table of Contents

Joint Covenants of SCH, the VG Companies and Vieco US

In addition, each of SCH, the VG Companies and Vieco US has agreed, among other things, to take certain actions set forth below.

 

  

Each of Vieco US, the VG Companies and SCH will (and, to the extent required, will cause its affiliates to) comply promptly but in no event later than ten business days after the date of the Merger Agreement with the notification and reporting requirements of the HSR Act.

 

  

Each of Vieco US, the VG Companies and SCH will substantially comply with any information or document requests with respect to antitrust matters as contemplated by the Merger Agreement.

 

  

Each of Vieco US, the VG Companies and SCH will (and, to the extent required, will cause its affiliates to) (x) request early termination of any waiting period or periods under the HSR Act and exercise its reasonable best efforts to (i) obtain termination or expiration of the waiting period or periods under the HSR Act and (ii) prevent the entry, in any legal proceeding brought by an antitrust authority or any other person, of any governmental order which would prohibit, make unlawful or delay the consummation of the transactions contemplated by the Merger Agreement and (y) take certain other actions to cooperate to avoid any governmental order from an antitrust authority that would delay, enjoin, prevent, restrain or otherwise prohibit the consummation of the Mergers, including sharing relevant information with the other parties thereto for such purposes and each payone-half of any applicable antitrust filing fees (subject to, as applicable, a requirement to obtain Vieco US’s prior written consent with respect to certain such actions identified above as contemplated by the Merger Agreement).

 

  

Each of Vieco US, the VG Companies and SCH will (i) diligently and expeditiously defend and use reasonable best efforts to obtain any necessary clearance, approval, consent or governmental authorization under laws prescribed or enforceable by the FAA or any other governmental authority for the transactions contemplated by the Merger Agreement and to resolve any objections as may be asserted by any governmental authority with respect to the transactions contemplated by the Merger Agreement and (ii) cooperate fully with each other in the defense of such matters.

 

  

Each of Vieco US, VGH LLC and Galactic Ventures, LLC will use its reasonable best efforts to obtain registration and secure all necessary licenses under ITAR.

 

  

Each of SCH and the VG Companies will use its reasonable best efforts to cause the proxy statement/registration statement to comply with the rules and regulations promulgated by the SEC, to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and to keep the Registration Statement effective as long as is necessary to consummate the transactions contemplated by the Merger Agreement and otherwise ensure that the information contained therein contains no untrue statement of material fact or material omission.

 

  

SCH will as promptly as practicable after the Registration Statement is declared effective under the Securities Act, (i) disseminate this proxy statement/prospectus to the shareholders of SCH, (ii) give notice, convene and hold a meeting of the shareholders to vote on the Condition Precedent Proposals, in each case in accordance with its governing documents then in effect and Section 710 of the NYSE Listing Rules for a date no later than 30 business days following the date the Registration Statement is declared effective, (iii) solicit proxies from the holders of public shares of SCH to vote in favor of each of the Condition Precedent Proposals, and (iv) provide its shareholders with the opportunity to elect to effect a Redemption.

 

  

As promptly as reasonably practicable after the execution of the Merger Agreement, SCH will prepare and file with the SEC a mutually acceptable proxy statement in order to obtain the requisite approval of our extension proposal by SCH’s shareholders (if necessary).

 

  

Vieco US and the VG Companies will each, and will each cause their respective subsidiaries to use reasonable best efforts to obtain all material consents and approvals of third parties that any of SCH,

 

100


Table of Contents
 

Vieco US, the VG Companies, or their respective affiliates are required to obtain in order to consummate the Mergers.

 

  

The parties will take certain actions in respect of tax matters, including, among others, actions in connection with combined reporting and tax returns.

 

  

Each of the VG Companies and SCH will, prior to the Closing, take all such steps as may be required (to the extent permitted under applicable law) to cause any dispositions of the VG Company Interests or acquisitions of shares of VGH, Inc. common stock (including, in each case, securities deliverable upon exercise, vesting or settlement of any derivative securities) resulting from the transactions contemplated by the Merger Agreement by each individual who may become subject to the reporting requirements of Section 16(a) of the Exchange Act in connection with the transactions contemplated thereby to be exempt underRule B-3 promulgated under the Exchange Act.

 

  

The parties will take any action required pursuant to the “wrong pocket” provisions contained in the Merger Agreement. See “—Wrong Pocket Provisions” above.

 

  

Vieco US will take certain actions in respect of insurance matters, including, among others (i) using commercially reasonable efforts in the ordinary course of business to maintain its third-party insurance policies provided to the VG Companies and (ii) making reports as required under such policies.

Closing Conditions

The consummation of the Mergers is conditioned upon the satisfaction or waiver by the applicable parties to the Merger Agreement of the conditions set forth below. Therefore, unless these conditions are waived by the applicable parties to the Merger Agreement, the Mergers may not be consummated. There can be no assurance that the parties to the Merger Agreement would waive any such provisions of the Merger Agreement.

Minimum Cash Condition

The Merger Agreement provides that the obligations of VG to consummate the Mergers are conditioned on, among other things, that as of the Closing, the amount of cash available in the trust account, after deducting the amount required to satisfy SCH’s obligations to its shareholders that exercise their rights to redeem their public shares pursuant to the Cayman Constitutional Documents (including the Extension Amendment Redemptions) (“Trust Amount”), is at least equal to the sum of (x) $400.0 millionplus(y) if applicable, an aggregate of approximately $24.2 million of deferred underwriting commissions being held in the trust account (the “Minimum Available Cash Amount”).

However, if the Trust Amount as of the Closing is less than the Minimum Available Cash Amount, then Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00 (the “Additional Holder Equity Amount”) up to the Minimum Available Cash Amount less the amount of the aggregate purchase price paid to SCH by Mr. Palihapitiya in any Primary Purchase (the “Investment Amount” and when added to the Additional Holder Equity Amount and the Trust Amount, the “Available Cash”). For additional information on the Purchase Agreement, see “BCA Proposal—Related Agreements—Purchase Agreement.”

If SCH’s Available Cash at the Closing is equal to or greater than the Minimum Available Cash Amount, then this condition will be deemed to have been satisfied (such condition, the “Minimum Cash Condition”). The Minimum Cash Condition is for the sole benefit of VG, except that this condition may not be waived by VG if the Trust Amount is less than $200.0 million at the Closing, provided that Vieco US and its affiliates will have the right (but not the obligation) to purchase (or seek a third party to purchase) additional shares of VGH, Inc. common stock at a price per share of $10.00 in an aggregate amount such that the Available Cash is, at or immediately prior to the Closing, equal to at least $200.0 million after giving effect to such purchases.

 

101


Table of Contents

Conditions to the Obligations of Each Party

The obligations of each party to the Merger Agreement to consummate, or cause to be consummated, the Mergers are subject to the satisfaction of the following conditions, any one or more of which may be waived in writing by all of such parties:

 

  

the approval of the Condition Precedent Proposals by SCH’s shareholders will have been obtained (the “SCH Shareholder Approval”);

 

  

solely to the extent the SCH Shareholder Approval has not been earlier obtained, the requisite approval of our extension proposal by SCH’s shareholders will have been obtained;

 

  

the registration statement of which this proxy statement/prospectus forms a part (the “Registration Statement”) will have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement will have been issued and no proceedings for that purpose will have been initiated or threatened by the SEC and not withdrawn;

 

  

the waiting period or periods under the HSR Act applicable to the transactions contemplated by the Merger Agreement and the Purchase Agreement will have expired or been terminated;

 

  

there will not be in force any order, judgment, injunction, decree, writ, stipulation, determination or award (entered by or with any federal, state, provincial, municipal, local or foreign government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, court or tribunal (a “Governmental Order”), in each case, to the extent such governmental authority has jurisdiction over the parties to the Merger Agreement and the transactions contemplated thereby), statute, rule or regulation enjoining or prohibiting the consummation of the Mergers;

 

  

VGH, Inc. will have at least $5,000,001 of net tangible assets (as determined in accordance with Rule3a51-1(g)(1) of the Exchange Act); and

 

  

the shares of VGH, Inc. common stock to be issued in connection with the Mergers will have been approved for listing on the NYSE.

Conditions to the Obligations of SCH and Merger Subs

The obligations of SCH and Merger Subs to consummate, or cause to be consummated, the Mergers are subject to the satisfaction of the following additional conditions, any one or more of which may be waived in writing by SCH and Merger Subs:

 

  

each of the representations and warranties of Vieco US that Vieco US has, directly or indirectly, good, valid and marketable title to all of the outstanding shares of common stock or limited liability company interests, as applicable, of each of the VG Companies (the “VG Company Interests”) owned (beneficially and of record) by Vieco US, free and clear of all liens other than applicable securities laws restrictions will be true and correct in all butde minimis respects as of the Closing Date, except with respect to such representations and warranties which speak as to an earlier date, which representations and warranties will be true and correct in all butde minimisrespects at and as of such date, except for changes after the date of the Merger Agreement which are contemplated or expressly permitted by the Merger Agreement or the Ancillary Agreements;

 

  

each of the other Holder Fundamental Representations will be true and correct in all material respects, in each case as of the Closing Date, except with respect to such representations and warranties which speak as to an earlier date, which representations and warranties will be true and correct in all material respects at and as of such date, except for changes after the date of the Merger Agreement which are contemplated or expressly permitted by the Merger Agreement or the Ancillary Agreements;

 

  

each of the remaining representations and warranties of Vieco US contained in the Merger Agreement (disregarding any qualifications and exceptions relating to materiality, material adverse effect or any

 

102


Table of Contents
 

similar qualification or exception) will be true and correct as of the Closing Date, except with respect to such representations and warranties which speak as to an earlier date, which representations and warranties will be true and correct at and as of such date, except for, in each case, inaccuracies or omissions that would not, individually or in the aggregate, reasonably be expected to have a Holder Material Adverse Effect;

 

  

the representations and warranties of the VG Companies pertaining to capitalization of the VG Companies will be true and correct in all butde minimis respects as of the Closing Date, except with respect to such representations and warranties which speak as to an earlier date, which representations and warranties will be true and correct in all butde minimis respects at and as of such date, except for changes after the date of the Merger Agreement which are contemplated or expressly permitted by the Merger Agreement or the Ancillary Agreements;

 

  

each of the other Companies Fundamental Representations will be true and correct in all material respects, in each case as of the Closing Date, except with respect to such representations and warranties which speak as to an earlier date, which representations and warranties will be true and correct in all material respects at and as of such date, except for changes after the date of the Merger Agreement which are contemplated or expressly permitted by the Merger Agreement or the Ancillary Agreements;

 

  

each of the remaining representations and warranties of the VG Companies contained in the Merger Agreement (disregarding any qualifications and exceptions contained therein relating to materiality, material adverse effect or any similar qualification or exception) will be true and correct as of the Closing Date, except with respect to such representations and warranties which speak as to an earlier date, which representations and warranties will be true and correct at and as of such date, except for, in each case, inaccuracies or omissions that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect (except for actions contemplated by thePre-Closing Restructuring Plan);

 

  

each of the covenants of the VG Companies and Vieco US to be performed as of or prior to the Closing will have been performed in all material respects (subject to a 20 day cure period and except for actions contemplated by thePre-Closing Restructuring Plan);

 

  

the VG Companies and their subsidiaries will collectively hold cash in an amount equal to or greater than $2.0 million in the aggregate as of the Closing; and

 

  

thePre-Closing Restructuring Plan will have been substantially completed prior to the Closing.

Conditions to the Obligations of Vieco US and the VG Companies

The obligation of Vieco US and the VG Companies to consummate, or cause to be consummated, the Mergers is subject to the satisfaction of the following conditions any one or more of which may be waived in writing by Vieco US and the VG Companies:

 

  

each of the representations and warranties of SCH regarding its capitalization, as provided for in the Merger Agreement, will be true and correct in all butde minimisrespects as of the Closing Date, except with respect to such representations and warranties which speak as to an earlier date, which representations and warranties will be true and correct in all butde minimisrespects at and as of such date, except for changes after the date of the Merger Agreement which are contemplated or expressly permitted by the Merger Agreement;

 

  

each of the other representations and warranties of SCH contained in the Merger Agreement (disregarding any qualifications and exceptions contained therein relating to materiality, material adverse effect or any similar qualification or exception) will be true and correct in all material respects, in each case as of the Closing Date, except with respect to such representations and warranties which speak as to an earlier date, which representations and warranties will be true and correct in all material respects at and as of such date, except for changes after the date of the Merger Agreement which are contemplated or expressly permitted by the Merger Agreement or the Ancillary Agreements;

 

103


Table of Contents
  

each of the covenants of SCH to be performed as of or prior to the Closing will have been performed in all material respects;

 

  

the Domestication will have been completed as contemplated by the Merger Agreement and a time-stamped copy of the certificate issued by the Delaware Secretary of State in relation thereto will have been delivered to Vieco US (for additional information, see “Domestication Proposal”); and

 

  

the Minimum Cash Condition. See “—Minimum Cash Condition” above.

Termination; Effectiveness

The Merger Agreement may be terminated and the Mergers abandoned at any time prior to the Closing:

 

  

by written consent of Vieco US and SCH;

 

  

by Vieco US if any Governmental Order has become final and nonappealable which has the effect of making consummation of the Mergers illegal or otherwise preventing or prohibiting the Mergers;

 

  

by Vieco US if the SCH Shareholder Approval will not have been obtained by reason of the failure to obtain the required vote at a meeting of SCH’s shareholders duly convened therefor or at any adjournment thereof;

 

  

by Vieco US if there has been a modification in recommendation of the board of directors of SCH with respect to any of the Condition Precedent Proposals;

 

  

prior to the Closing, by written notice to Vieco US from SCH in the event of certain uncured breaches on the part of the VG Companies or Vieco US or if the Closing has not occurred on or before December 18, 2019, or if the time period for SCH to consummate a business combination is extended to April 18, 2020, the Closing has not occurred on or before April 18, 2020 (the later of such dates, the “Agreement End Date”), unless SCH is in material breach of the Merger Agreement; or

 

  

prior to the Closing, by written notice to SCH from Vieco US in the event of certain uncured breaches on the part of SCH or Merger Subs or if the Closing has not occurred on or before the Agreement End Date, unless any of Vieco US or the VG Companies is in material breach of the Merger Agreement.

In the event of the termination of the Merger Agreement, the Merger Agreement will become void and have no effect, without any liability on the part of any party thereto or its respective affiliates, officers, directors or stockholders, other than liability of Vieco US, the VG Companies, SCH or Merger Subs, as the case may be, for any willful and material breach of the Merger Agreement occurring prior to such termination, other than with respect to certain exceptions contemplated by the Merger Agreement (including the terms of the Confidentiality Agreement) that will survive any termination of the Merger Agreement.

R&W Insurance Policy

Pursuant to the Merger Agreement, on October 3, 2019, SCH obtained and bound a representation and warranty insurance policy (the “R&W Insurance Policy”) with respect to the representations and warranties of Vieco US and the VG Companies contained in the Merger Agreement. The R&W Insurance Policy has a coverage period running for three years from Closing, except that the coverage period with respect to breaches of certain fundamental representations and the pre-Closing tax indemnity is the earlier of the expiration of the applicable statute of limitations and six years from Closing. However, the R&W Insurance Policy has certain exclusions and deductibles.

The SCH Designated Directors will serve as representatives of such SCH shareholders from and after the effective time of the Mergers, act on behalf of such SCH shareholders and take all necessary actions, and make all decisions and direct all actions of VGH, Inc. related to the rights of such SCH shareholders pursuant to the provisions described above. We have actively engaged in the process of obtaining a R&W Insurance Policy. However, there can be no assurance that we will obtain such policy on satisfactory terms or without significant exclusions.

 

104


Table of Contents

Waiver; Amendments

No provision of the Merger Agreement may be waived unless such waiver is in writing and signed by the party or parties against whom such waiver is effective. Any party to the Merger Agreement may, at any time prior to the Closing, by action taken by its board of directors, board of managers, managing member or other officers or persons thereunto duly authorized, (a) extend the time for the performance of the obligations or acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties (of another party hereto) that are contained in the Merger Agreement or (c) waive compliance by the other parties hereto with any of the agreements or conditions contained in the Merger Agreement, but such extension or waiver will be valid only if in writing signed by the waiving party.

The Merger Agreement may be amended or modified in whole or in part, only by a duly authorized agreement in writing that is executed in the same manner as the Merger Agreement and which makes reference to the Merger Agreement.

Fees and Expenses

If the Closing does not occur, each party to the Merger Agreement will be responsible for and pay its own expenses incurred in connection with the Merger Agreement and the transactions contemplated hereby, including all fees of its legal counsel, financial advisers and accountants. If the Closing occurs, VGH, Inc. will, upon the consummation of the Mergers and release of proceeds from the trust account, pay or cause to be paid all accrued and unpaid transaction expenses of VG and pay or cause to be paid all accrued transaction expenses of SCH or its affiliates (including the Sponsor). SCH and VG will exchange written statements listing all unpaid transaction expenses not less than two days prior to Closing.

Related Agreements

This section describes certain additional agreements entered into or to be entered into pursuant to the Merger Agreement, but does not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of each of the agreements.

This section describes certain additional agreements entered into or to be entered into pursuant to the Merger Agreement, but does not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of each of the agreements. Each of the Purchase Agreement and the Sponsor Support Agreement is attached hereto as Annex B and Annex D. The Stockholders’ Agreement, the TMLA and TSAs are exhibits to the registration statement of which this proxy statement/prospectus is a part. You are urged to read such agreements in their entirety prior to voting on the proposals presented at the extraordinary general meeting.

The Purchase Agreement

In connection with the execution of the Merger Agreement, SCH, Mr. Palihapitiya Vieco US and V10 have entered into the Purchase Agreement, a copy of which is attached to this proxy statement/prospectus as Annex B. Pursuant to the Purchase Agreement, among other things, Mr. Palihapitiya has agreed to, concurrently with the consummation of the Mergers and at the option of Vieco US, (i) purchase a number of shares of newly issued VGH, Inc. common stock in the Primary Purchase from VGH, Inc. in exchange for cash to be retained by VGH, Inc., or (ii) purchase a number of shares of VGH, Inc. common stock in the Secondary Purchase from Vieco US, which will reduce the number of shares purchased directly from VGH, Inc. pursuant to clause (i), in each case, subject to the terms and conditions contemplated by the Purchase Agreement; provided that the aggregate number of shares of VGH, Inc. common stock to be purchased by Mr. Palihapitiya pursuant to the Purchase Agreement will, in any event, be equal to 10,000,000, and the aggregate price paid for such shares will be equal to $100.0 million.

 

105


Table of Contents

The Purchase Agreement also contemplates that, at the option of Vieco US, Vieco US may use all or a portion of the proceeds of any Secondary Purchase to purchase from VGH, Inc. up to 10,000,000 newly issued shares of VGH, Inc. common stock (but in no event to exceed the number of shares of VGH, Inc. common stock purchased in such Secondary Purchase) at a price of $10.00 per share for an aggregate purchase price of up to $100.0 million.

Conditions; Termination

Vieco US may not make any election under the Purchase Agreement, Mr. Palihapitiya will not be required to effect any Primary Purchase or Secondary Purchase and Vieco US may not effect any Reinvestment if the Minimum Cash Condition under the Merger Agreement is not satisfied or validly waived prior to or concurrently with the Closing.

In addition, the consummation of the transactions contemplated by the Purchase Agreement is subject to the condition that, on the date of the Closing:

 

  

the Business Combination will have been consummated;

 

  

the representations and warranties made by the parties thereto will be true and correct in all material respects (subject to certain limitations and customary qualifiers with respect to materiality);

 

  

all specified waiting periods under the HSR Act will have expired or been terminated and there will not be in force any statute, rule or regulation or order, judgment, injunction, decree, writ, stipulation, determination or award, in each case, entered by or with any federal, state, provincial, municipal, local or foreign government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, court or tribunal, enjoining or prohibiting the consummation of the transactions contemplated by the Purchase Agreement on the terms and conditions set forth therein;

 

  

there will have been no suspension of the qualification of the shares of VGH, Inc. common stock for offering or sale or trading in any jurisdiction or initiation or threatening of any proceedings for any of such purposes will have occurred; and

 

  

at the applicable Closing, the parties thereto will execute and deliver such additional documents and take such additional actions as the parties reasonably may deem to be practical and necessary in order to consummate the transactions contemplated by this Agreement, including theCo-Investment, on the terms and conditions set forth herein.

Termination

The Purchase Agreement will terminate and be void and of no further force and effect and all rights and obligations of the parties thereunder will terminate without any further liability on the part of any party in respect thereof, upon the earlier to occur of (i) the termination of the Merger Agreement in accordance with its terms or (ii) the termination by mutual written agreement of each of the parties to the Purchase Agreement; provided, that such parties will not be relieved from liability for any willful breach thereof prior to the time of termination, and each party will be entitled to any remedies at law or in equity to recover losses, liabilities or damages arising from such breach of the Purchase Agreement.

Stockholders’ Agreement

Board Composition

The Merger Agreement contemplates that, at the Closing, VGH, Inc. will enter into the Stockholders’ Agreement with Vieco US, the Sponsor and Mr. Palihapitiya (together with any individuals or entities that are signatories thereto or hereafter become party to the agreement, the “Voting Parties”), pursuant to which, among

 

106


Table of Contents

other things, the Voting parties will agree to take all necessary action to cause the Board to be comprised of eight directors effectively immediately following the effective time of the Mergers:

 

  

three of whom (the “VG designees”) will initially be Craig Kreeger, Evan Lovell and George Mattson and will thereafter be designated by Vieco US for as long as Vieco US beneficially owns a number of shares of VGH, Inc. common stock representing at least the 50% of the number of shares beneficially owned by Vieco US immediately following the effective time of the Mergers (after taking into account the consummation of the transactions contemplated by the Purchase Agreement) (provided that when such percentage falls below (x) 50%, Vieco US will have the right to designate only two directors, (y) 25%, Vieco US will have the right to designate only one director and (z) 10%, Vieco US will not have the right to designate any directors);

 

  

two of whom (the “CP designees”) will initially be Chamath Palihapitiya and Adam Bain and will thereafter be designated by Mr. Palihapitiya (one of which must qualify as an “independent director” under stock exchange regulations applicable to VGH, Inc.) for as long as Mr. Palihapitiya and the Sponsor collectively beneficially own a number of shares of VGH, Inc. common stock representing at least 90% of the number of shares beneficially owned by them as of immediately following the effective time of the Mergers (excluding any shares purchased by Mr. Palihapitiya pursuant to the Purchase Agreement) (provided that when such percentage falls below (x) 90%, Mr. Palihapitiya will have the right to designate only one director, who will not be required to qualify as an “independent director” and (y) 50%, Mr. Palihapitiya will not have the right to designate any directors);

 

  

two of whom (the “Other designees”) will initially be Wanda Austin and James Ryans and will thereafter be designated as determined by the Board (provided that each of the two Other designees must qualify in the determination of the Board as an “independent director” under stock exchange regulations applicable to VGH, Inc. and one of the two Other designees must qualify as an “audit committee financial expert” within the meaning of SEC RegulationS-K); and

 

  

one of whom (the “CEO designee”) will initially be George Whitesides and will thereafter be determined by what individual holds the title of Chief Executive Officer of VGH, Inc.

Resignation; Removal; Vacancies

Upon any decrease in the number of directors that Vieco US or Mr. Palihapitiya is entitled to designate for nomination to the Board, Vieco US or Mr. Palihapitiya, as applicable shall take all necessary action to cause the appropriate number of designees to offer to tender their resignation, effective as of the next annual meeting of stockholders of VGH, Inc. If as a result of changes in ownership by Vieco US or by the Sponsor and Mr. Palihapitiya of VGH, Inc. common stock such that there are any seats on the Board for which none of Vieco US or Mr. Palihapitiya have the right to designate a director, the selection of such director shall be conducted in accordance with applicable law and with the organizational documents of VGH, Inc. then in effect.

Vieco US and Mr. Palihapitiya will have the exclusive right to remove one or more of the VG designees or CP designees, respectively, from the Board and Vieco US and Mr. Palihapitiya will have the exclusive right to designate directors for election to the Board to fill vacancies created by reason of death, removal or resignation of VG designees or CP designees, respectively (in each case, so long as the applicable Voting Party retains its right to designate a director to such seat on the Board by virtue of its ownership levels of VGH, Inc. common stock). Until the earliest of (i) the date Mr. Palihapitiya is no longer entitled to designate two CP designees to the Board or, if earlier, the date Vieco US is no longer entitled to designate two or more VG designees to the Board, in each case, pursuant to the Stockholders’ Agreement (the “Sunset Date”) and (ii) the expiration of thelock-up period under the Registration Rights Agreement, Vieco US will take no action to cause the removal of any of the Other designees. Until the Sunset Date, Vieco US must consult and discuss with the other directors of VGH, Inc. before undertaking any action to cause the removal of one or more of the Other designees.

 

107


Table of Contents

Chairperson of the Board

For so long as Mr. Palihapitiya is entitled to designate at least one director for election to the Board in accordance with the terms and conditions of the Stockholders’ Agreement, the Voting Parties and VGH, Inc. will take all necessary action to cause the initial Chairperson of the Board to be Chamath Palihapitiya. However, at such time as Vieco US identifies and nominates a permanent Chairperson who is reasonably acceptable to Mr. Palihapitiya and whom the Board determines qualifies as an “independent director” under stock exchange regulations applicable to VGH, Inc. (the “New designee”):

 

  

Chamath Palihapitiya shall resign from the role of Chairperson;

 

  

one Other designee shall resign from the Board, with the identity of such resigning Other designee being determined by the Board (provided that Chamath Palihapitiya shall remain on the Board); and

 

  

the New designee shall become the Chairperson and replace the resigning Other designee.

Voting; Necessary Actions

In addition, pursuant to the Stockholders’ Agreement, each of VGH, Inc. and the Voting Parties will agree not to take, directly or indirectly, any actions (including removing directors in a manner inconsistent with the Stockholders’ Agreement) that would frustrate, obstruct or otherwise affect the provisions of the Stockholders’ Agreement and the intention of the parties thereto with respect to the composition of the Board as therein stated. Each Voting Party, to the extent not prohibited by the certificate of incorporation of VGH, Inc. as then in effect, will vote all of its shares of VGH, Inc. common stock held by such Voting Party in such manner as may be necessary to elect and/or maintain in office as members of the Board those individuals designated in accordance with the Stockholders’ Agreement and to otherwise effect the intent of the provisions of the Stockholders’ Agreement.

The Stockholders’ Agreement contains certain provisions intended to maintain, following the consummation of the Merger, the Company’s qualification as a “controlled company” within the meaning of Rule 303A of the NYSE corporate governance requirements.

Vieco US Approval Rights; Limitations

Pursuant to the Stockholders’ Agreement, among other things, Vieco US will also have certain approval rights with respect to significant corporate transactions as contemplated thereby (subject to certain ownership thresholds with respect to voting securities of VGH, Inc.), which will require the prior written consent of Vieco US before any such action is taken by VGH, Inc. or any of its subsidiaries, in each case, in accordance with the terms and subject to the conditions contemplated by the Stockholders’ Agreement.

Pursuant to the Stockholders’ Agreement, Vieco US’s approval rights include:

(A) For so long as Vieco US is entitled to designate one director to the Board under the Stockholders’ Agreement, in addition to any vote or consent of the stockholders or the Board as required by law, VGH, Inc. and its subsidiaries must obtain Vieco US’s prior written consent to engage in:

 

  

any business combination or similar transaction;

 

  

amendments to VGH, Inc.’s certificate of incorporation, VGH, Inc.’s bylaws, any other organizational document of VGH, Inc. or its subsidiaries, the Stockholders’ Agreement and the Registration Rights Agreement;

 

  

a liquidation or related transaction; or

 

  

an issuance of capital stock in excess of 5% of the then issued and outstanding shares of VGH, Inc. or its subsidiaries.

 

108


Table of Contents

(B) For so long as Vieco US is entitled to designate two directors to the Board under the Stockholders’ Agreement, in addition to any vote or consent of the stockholders or the Board as required by law, VGH, Inc. and its subsidiaries must obtain Vieco US’s prior written consent to engage in:

 

  

a business combination or similar transaction having a FMV of $10.0 million or more;

 

  

anon-ordinary course sale of assets or equity interest having a FMV of $10.0 million or more;

 

  

an acquisition of any business or assets having a FMV of $10.0 million or more;

 

  

an acquisition of equity interests having a FMV of $10.0 million or more;

 

  

an engagement of any professional advisers, including, without limitation, investment bankers and financial advisers;

 

  

the approval of anon-ordinary course investment having a FMV of $10.0 million or more;

 

  

increasing or decreasing the size of the Board;

 

  

an issuance or sale of any capital stock of VGH, Inc. or its subsidiaries, other than an issuance of shares of capital stock upon the exercise of options to purchase shares of capital stock of VGH, Inc.;

 

  

making any dividends or distributions to the stockholders of the Company other than Redemptions and those made in connection with the cessation of services of employees;

 

  

incurring indebtedness outside of the ordinary course in an amount greater than $25.0 million in a single transaction or $100.0 million in aggregate consolidated indebtedness;

 

  

amending VGH, Inc.’s certificate of incorporation, VGH, Inc.’s bylaws, any other organizational document of VGH, Inc. or its subsidiaries, the Stockholders’ Agreement and the Registration Rights Agreement;

 

  

a liquidation or similar transaction;

 

  

transactions with any interested stockholder pursuant to Item 404 of RegulationS-K;

 

  

engaging any professional advisors for any of the matters listed above; or

 

  

the authorization or approval, or entrance into any agreement to engage in any of the matters listed above.

However, the Stockholders’ Agreement also contemplates that: (i) no transaction involving consideration of $120,000 or more, between Vieco US or any affiliate of Vieco US, on the one hand, and VGH, Inc. or any of its subsidiaries on the other, may be approved without the affirmative vote of at least a majority of the directors of VGH, Inc. that were not designated by Vieco US under the terms of the Stockholders’ Agreement (or otherwise) and (ii) Vieco US and the directors it has designated to the board of directors of VGH, Inc., as applicable, will be required to first consult and discuss with the board of directors of VGH, Inc. before (x) adopting, amending or repealing, in whole or in part, the charter or bylaws of VGH, Inc. or (y) taking any action by written consent as a stockholder of VGH, Inc., in each case, in addition to any vote or consent required under the charter or bylaws of VGH, Inc., and otherwise in accordance with the other terms and subject to the other conditions contemplated by the Stockholders’ Agreement.

Termination

Following the Closing:

 

  

Section 2 of the Stockholders’ Agreement (Agreement to Vote), Section 3 of the Stockholders’ Agreement (Board of Directors), Section 4 of the Stockholders’ Agreement (Required Approvals) and Section 7 of the Stockholders’ Agreement (Covenants of the Company) will terminate automatically (without any action by any party to the Stockholders’ Agreement) on the first date on which no Voting

 

109


Table of Contents
 

Party has the right to designate a director to the board of directors of VGH, Inc. under the Stockholders’ Agreement; provided, that the provisions in Section 7(b) of the Stockholders’ Agreement (regarding indemnification of directors of the Company and maintenance of director and officer liability insurance by the Company) will survive such termination;

 

  

Section 5 of the Stockholders’ Agreement (Controlled Company) will terminate automatically (without any action by any party to the Stockholders’ Agreement) on the first date on which the combined voting power of the Voting Parties no longer exceeds 50% of the total voting power of the Company then outstanding; and

 

  

the remainder of the Stockholders’ Agreement will terminate automatically (without any action by any party thereto) as to each Voting Party when such Voting Party ceases to beneficially own any securities of the Company that may be voted in the election of the Company’s directors registered in the name of, or beneficially owned (as such term is defined in Rule13d-3 under the Exchange Act, including by the exercise or conversion of any security exercisable or convertible for shares of VGH, Inc. common stock, but excluding shares of stock underlying unexercised options or warrants) by such Voting Party.

Sponsor Support Agreement

In connection with the execution of the Merger Agreement, SCH, the Sponsor, V10 and each officer and director of SCH, V10, Company A, Company B and Company LLC entered into the Sponsor Support Agreement, dated as of July 9, 2019, a copy of which is attached to the accompanying proxy statement/prospectus as Annex D. Pursuant to the Sponsor Support Agreement, the Sponsor and each officer and director of SCH agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement.

The Sponsor Support Agreement and all of its provisions will terminate and be of no further force or effect upon the earlier of (a) the consummation of the Business Combination and (b) the liquidation of SCH. Upon such termination of the Sponsor Support Agreement, all obligations of the parties under the Sponsor Support Agreement will terminate, without any liability or other obligation on the part of any party thereto to any person in respect thereof or the transactions contemplated hereby, and no party thereto will have any claim against another (and no person will have any rights against such party), whether under contract, tort or otherwise, with respect to the subject matter thereof; provided, however, that the termination of the Sponsor Support Agreement will not relieve any party thereto from liability arising in respect of any breach of the Sponsor Support Agreement prior to such termination.

Transfer Restrictions and Registration Rights

The Merger Agreement contemplates that, at the Closing, VGH, Inc., Vieco US, the Sponsor and Mr. Palihapitiya will enter into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which VGH, Inc. will agree to register for resale, pursuant to Rule 415 under the Securities Act, certain shares of VGH, Inc. common stock and other equity securities of VGH, Inc. that are held by the parties thereto from time to time.

Additionally, the Registration Rights Agreement contains certain restrictions on transfer with respect to the shares of VGH, Inc. common stock held by the Sponsor immediately following the Closing and the shares of VGH, Inc. common stock received by Vieco US in connection with the Business Combination, including atwo-yearlock-up of such shares in each case, subject to limited exceptions as contemplated thereby (including that Vieco US may transfer up to 50% of the shares of VGH, Inc. common stock received by it pursuant to the Merger Agreement after giving effect to the related transactions).

The Registration Rights Agreement amends and restates the registration rights agreement that was entered into by SCH, Sponsor and the other parties thereto in connection with SCH’s initial public offering.

 

110


Table of Contents

Trademark License Agreement

On July 9, 2019 and in connection with the VG Companies’ entry into the Merger Agreement, the VG Companies agreed that the trademark license agreement with VEL would, effective on the consummation of the Business Combination, be amended and restated and novated to VGH, Inc., in order for VGH, Inc. to continue to have these rights following consummation of the Business Combination. Pursuant to the Amended TMLA, VGH, Inc. will have certain exclusive and non-exclusive rights to use the “Virgin Galactic” name and brand and the Virgin signature logo. The rights of the VG Companies under the Amended TMLA are subject to certain reserved rights andpre-existing licenses granted by VEL to third parties. In addition, for the term of the Amended TMLA, to the extent the Virgin Group does not otherwise have a right to place a director on the board of directors of VGH, Inc., such as Vieco US’s right to designate the VG designees under the Stockholders’ Agreement, under the Amended TMLA, VGH, Inc. has agreed to provide VEL with the right to appoint one director to VGH, Inc.’s board of directors (provided the designee is qualified to serve on the board under all applicable corporate governance policies and regulatory and NYSE requirements).

Unless terminated earlier, the Amended TMLA will have an initial term of 25 years from the date of the consummation of the Business Combination, subject to up to two additional10-year renewals by mutual agreement of the parties. The Amended TMLA may be terminated by VEL upon the occurrence of a number of specified events, including if:

 

  

VGH, Inc. commits a material breach of its obligations under the agreement (subject to a cure period, if applicable);

 

  

VGH, Inc. materially damages the Virgin brand;

 

  

VGH, Inc. uses the brand name “Virgin Galactic” outside of the scope of the activities licensed under the Amended TMLA (subject to a cure period);

 

  

VGH, Inc. becomes insolvent;

 

  

VGH, Inc. undergoes a change of control to an unsuitable buyer, including to a competitor of VEL’s group;

 

  

VGH, Inc. fails to make use of the “Virgin Galactic” brand to conduct its business;

 

  

VGH, Inc. challenges the validity or entitlement of VEL to own the “Virgin” brand; or

 

  

the commercial launch of VGH, Inc.’s services does not occur by a fixed date or thereafter, if we are unable to undertake any commercial flights for paying passengers for a specified period (other than in connection with addressing a significant safety issue).

Upon any termination or expiration of the Amended TMLA, VGH, Inc. will (unless otherwise agreed with VEL) have ninety days to exhaust, return or destroy any products or other materials bearing the licensed trademarks, and to change VGH, Inc.’s corporate name to a name that does not include any of the licensed trademarks, including the Virgin name.

Pursuant to the terms of the Amended TMLA, VGH, Inc. will be obligated to pay VEL quarterly royalties equal to the greater of (a) a low single-digit percentage of its gross sales and (b)(i) prior to the first spaceflight for paying customers, amid-five figure amount in dollars and (ii) from its first spaceflight for paying customers, alow-six figure amount in dollars, which increases to alow-seven figure amount in dollars over a four-year ramp up and thereafter increases in correlation with the consumer price index. In relation to certain sponsorship opportunities, a higher,mid-double-digit percentage royalty on related gross sales applies.

The Amended TMLA also contains, among other things, customary mutual indemnification provisions, representations and warranties, information rights of VEL and restrictions on VGH, Inc.’s and its affiliates’ ability to apply for or obtain registration for any confusingly similar intellectual property to that licensed to

 

111


Table of Contents

VGH, Inc. pursuant to the Amended TMLA. Furthermore, VEL is generally responsible for the protection, maintenance, and enforcement of the licensed intellectual property, including the Virgin brand, subject to VGH, Inc.’sstep-in rights in certain circumstances.

All Virgin and Virgin-related trademarks are owned by VEL and VGH, Inc.’s use of such trademarks will be subject to the terms of the Amended TMLA, including its adherence to VEL’s quality control guidelines and granting VEL customary audit rights over its use of the licensed intellectual property.

U.S. Transition Services Agreement

The Merger Agreement contemplates that, at the Closing, TSC, LLC, VG, LLC, GV LLC and VO, LLC will enter into the U.S. Transition Services Agreement, pursuant to which the parties will establish a service schedule to control the provision of services among the parties, as GV LLC and VO, LLC on the one hand and TSC, LLC and VG, LLC on the other hand, will no longer be members of the same consolidated corporate group following the Business Combination.

VO, LLC will provide propulsion engineering, tank design support services, tank manufacturing services, and office space access and usage services to TSC, LLC, as well as business development and regulatory affairs services to both TSC, LLC and VG, LLC. TSC, LLC will provide office space, logistics and welding services, and IT services to VO, LLC. VG, LLC will provide pilot utilization services, finance and accounting services, and insurance advisory services to VO, LLC. GV LLC will provide IT services to VG, LLC and TSC, LLC if such IT services have not been fully transitioned or the applicable contracts have not been assigned prior to Closing. The proposed U.S. Transition Services Agreement is necessary in order for the parties to continue to operate their respective businesses on and after the Closing.

U.K. Transition Services Agreement

The Merger Agreement contemplates that, at the Closing, VGL and VML will enter into the U.K. Transition Services Agreement, governed under the laws of England and Wales, pursuant to which current VGL employees based in the United Kingdom will continue to receive access to certain third-party and Virgin Group employee benefits services for up to 12 months post-Closing, including pension benefits, dental insurance and private healthcare schemes. Under the terms of the U.K. Transition Services Agreement, VML is obliged to use its best endeavors to provide access to or procure the performance of any service listed in the schedule to the extent that VML is (i) receiving such service from a relevant third-party provider itself, (ii) permitted by the terms of its agreement with that third-party provider to allow VGL to receive the relevant services and (iii) not prevented by the third-party provider from providing VGL access to the relevant services.

Non-Disclosure Agreement

On October 23, 2018, SCH entered into anon-disclosure agreement (the“Non-Disclosure Agreement” and, together with the Purchase Agreement and the Sponsor Support Agreement, the “Ancillary Agreements”) with Virgin Management USA, Inc., and its parent and subsidiary entities (referred to collectively therein as “Virgin”), the provisions of which agreement survived the execution of the Merger Agreement and will automatically terminate on October 23, 2020. TheNon-Disclosure Agreement provides for, among other things, certain confidentiality obligations mutually owed by SCH and Virgin in relation to the information disclosed by or on behalf of either party in connection with the consideration of a possible transaction or business relationship between the parties.

Background to the Business Combination

SCH is a blank check company incorporated on May 5, 2017, as a Cayman Islands exempted company and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or

 

112


Table of Contents

similar business combination with one or more businesses. The Business Combination was the result of an extensive search for a potential transaction using the network and investing and operating experience of our management team, including our board of directors. The terms of the Merger Agreement were the result of extensive negotiations between SCH and VG (and its affiliates). The following is a brief description of the background of these negotiations, the Business Combination and related transactions.

On September 18, 2017, SCH completed its initial public offering of 69,000,000 units which included the issuances of 69,000,000 units including 9,000,000 units subject to the underwriters’ over-allotment option, at a price of $10.00 per unit (the “SCH units”), generating gross proceeds of $690,000,000 before transaction costs (including deferred underwriting expenses to be paid upon the completion of SCH’s initial business combination). Each unit consisted of one SCH Class A ordinary share andone-third of one public warrant. Each public warrant entitles the holder thereof to purchase one SCH Class A ordinary share at a price of $11.50 per share, subject to certain adjustments. Simultaneous with the closing of the initial public offering, SCH completed the private sale of an aggregate of 8,000,000 Private Placement Warrants at a price of $1.50 per warrant to the Sponsor. The Private Placement Warrants are the same as the public warrants, except that the Private Placement Warrants (i) are not redeemable by SCH, (ii) may be exercised for cash or on a cashless basis, so long as they are held by the Sponsor or any of its permitted transferees, and (iii) are entitled to registration rights (including the ordinary shares issuable upon exercise of the Private Placement Warrants). In addition, the Private Placement Warrants and their underlying securities will not be transferable, assignable or salable until 30 days after the consummation of SCH’s initial business combination. In connection with SCH’s initial public offering, Connaught (UK) Limited (“Connaught”) acted as financial advisor to SCH, Credit Suisse Securities (USA) LLC (“Credit Suisse”) acted as capital markets advisor to SCH, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) acted as U.S. legal advisor to SCH and Maples and Calder (“Maples”) acted as Cayman Islands legal advisor to SCH.

Since the completion of its initial public offering, SCH considered numerous potential target businesses with the objective of consummating its initial business combination. Representatives of SCH contacted and were contacted by numerous individuals and entities who presented ideas for business combination opportunities, including financial advisors and companies in the media, transportation, education, healthcare, technology, consumer services and retail sectors. SCH considered businesses that it believed had attractive long-term growth potential, were well-positioned within their industry and would benefit from the substantial intellectual capital, operational experience and network of SCH’s management team. In the process that led to identifying the VG Companies as an attractive investment opportunity, SCH’s management team evaluated over 250 potential business combination targets and made contact with representatives of 50 such potential combination targets to discuss the potential for a business combination transaction.

On October 17, 2018, Alex Usher-Smith,co-founder of Connaught, on behalf of SCH, met with James Peck, a director of Virgin Group (“Virgin”), on behalf of Virgin, at Virgin’s offices in London to introduce Mr. Usher-Smith to certain of the businesses of Virgin, including the “Virgin Galactic” business (operated by the VG Companies) and the “Virgin Orbit” business (such businesses, collectively, the “Businesses”). At the time of the meeting, Virgin was seeking new investments for the Businesses after announcing the week before that previously announced discussions with the Public Investment Fund of the Kingdom of Saudi Arabia (“PIF”), regarding a proposed investment of approximately $1 billion into the Businesses in exchange for a minority ownership stake, had been suspended in light of the disappearance of Saudi journalist Jamal Khashoggi. Mr. Peck conveyed Virgin’s objective to raise upwards of $500 million for the Businesses, with the possibility of raising funds for each of the “Virgin Galactic” business and the “Virgin Orbit” business separately. During the meeting, Mr. Usher-Smith gave a description of the structure of SCH and the potential advantages of a transaction with a special purpose acquisition company generally, and SCH in particular.

On October 17, 2018, following his meeting with Mr. Peck, Mr. Usher-Smithe-mailed Chamath Palihapitiya, Chief Executive Officer of SCH and Chairman of its board of directors, and Ian Osborne, President of SCH and a member of its board of directors, regarding the opportunity of a potential business combination

 

113


Table of Contents

transaction with respect to the Businesses, each of whom subsequently confirmed their agreement with Mr. Usher-Smith’s proposal to move forward in evaluating such opportunity.

Between October 17, 2018 and October 19, 2018, Mr. Peck contacted Evan Lovell, Virgin’s Chief Investment Officer, based in New York, via telephone, to present SCH as a prospective business combination partner and to discuss the potential benefits of a business combination transaction with SCH with respect to the Businesses. Mr. Peck then contacted Mr. Usher-Smith via telephone to communicate that, based on his call with Mr. Lovell, Virgin management would like to further discuss SCH’s interest in a potential business combination with respect to the Businesses. Mr. Usher-Smith subsequently conveyed this message to Mr. Osborne in an email summarizing his recent discussions with Mr. Peck.

On October 19, 2018, Mr. Osborne, on behalf of SCH,e-mailed representatives of Skadden regarding a potential business combination with respect to certain entities affiliated with the Virgin Group, including the “Virgin Galactic” business.

On October 23, 2018, SCH executed anon-disclosure agreement (the“Non-Disclosure Agreement”) with Virgin Management USA, Inc., which also covered certain of its parent and subsidiary entities, including V10. See “ —RelatedAgreements—Non-Disclosure Agreement” for additional information. After theNon-Disclosure Agreement was executed, V10 (an indirect parent of the entities comprising the Businesses) and its affiliates began providing preliminary confidential information to SCH related to the Businesses.

On October 24, 2018, Mr. Usher-Smith, on behalf of SCH, met with Mr. Peck at Connaught’s offices in London and Latif Peracha, a former managing director of Virgin, who joined the meeting by telephone, on behalf of Virgin, to provide additional information regarding SCH and to further discuss Virgin’s financing plans with respect to the Businesses. Following the meeting, on October 26, 2018, Mr. Usher-Smithe-mailed Mr. Palihapitiya and Mr. Osborne regarding his recent discussions with Mr. Peck and Mr. Peracha and a proposed meeting between representatives of Virgin and SCH in New York to further discuss a potential business combination transaction with respect to the Businesses.

On November 12, 2018, Mr. Usher-Smith, Adam Bain, a member of SCH’s board of directors, Benjamin Chan, a managing director of Connaught, and David Hermer, a managing director of Credit Suisse, in each case, on behalf of SCH, and Mr. Lovell, Mr. Peracha, and Mr. Peck, on behalf of Virgin, met at Virgin’s offices in New York. During the meeting, the representatives of Virgin presented information with respect to the Businesses and discussed the reasons Virgin was seeking funding for the Businesses. Also during the meeting, the representatives of SCH presented SCH as a prospective business combination partner and discussed the process of entering into a business combination transaction with a special purpose acquisition company generally and the potential merits of such a transaction with respect to Virgin’s objectives for these businesses.

On November 14, 2018, a potential business combination transaction with respect to the Businesses was added as an agenda item on thebi-monthly update calls held among SCH management, SCH’s outside advisors and the SCH directors who were able to attend such calls on any given occasion, to track the status of their evaluation of and outreach to potential business combination targets, which continued to be held on a regular basis through March 2019. During these meetings, updates regarding a potential business combination with respect to the Businesses were given and such potential transaction was regularly discussed, among other potential business combinations.

Over the next two months, representatives of SCH had multiple exchanges with representatives of Virgin to discuss Virgin’s wider ongoing fundraising process, Virgin’s priorities for any potential transaction, considerations specific to special purpose acquisition companies and the potential structure, value, timing and risks of a business combination transaction involving SCH and the Businesses. In December 2018, representatives of VG began to engage LionTree Advisors LLC (“LionTree”) and Perella Weinberg Partners LP (“PWP”) to act as joint placement agents in connection with a proposed private placement of equity or equity-

 

114


Table of Contents

linked securities representing interests in the collective businesses of Virgin Galactic, LLC and TSC, LLC. With the assistance of PWP and LionTree, representatives of Virgin explored a private fundraising process in parallel with the negotiations regarding a potential business combination with SCH. During this time, representatives of SCH and representatives of Virgin also organized a series of meetings between the respective management teams to be held in January 2019 and discussed their respective goals and desired outcomes for such meetings.

On January 11, 2019, Mr. Bain, Mr. Chan, Ben Griffiths, a director of Connaught, Mr. Palihapitiya, and Mr. Hermer, on behalf of SCH, and the management team of the “Virgin Orbit” business (including Dan Hart, its Chief Executive Officer, and Brita O’Rear, its Chief Financial Officer) and Mr. Peracha, on behalf of Virgin, met for approximately two hours at the “Virgin Orbit” offices in Long Beach, California to discuss the “Virgin Orbit” business and the potential for a business combination with SCH. The “Virgin Orbit” management team gave a presentation on the “Virgin Orbit” business and lead the representatives of SCH on a tour of the facilities.

Later on January 11, 2019, Mr. Bain, Mr. Chan, Mr. Griffiths, Mr. Palihapitiya and Mr. Hermer, on behalf of SCH, met with Mr. Peracha and the management team of the “Virgin Galactic” business (including George Whitesides, its Chief Executive Officer and a director of V10, Jon Campagna, its Chief Financial Officer, Michael Moses, the President of Virgin Galactic, LLC, and Enrico Palermo, the President of TSC, LLC), on behalf of Virgin, at the “Virgin Galactic” headquarters in Mojave, California. The “Virgin Galactic” management team gave a presentation on the “Virgin Galactic” business and lead the representatives of SCH on a tour of the facilities, which included walking them through the production floor, and provided an overview of flight operations and a flight simulation.

On January 17, 2019, Mr. Peracha sent Mr. Bain via email copies of a management presentation (which included financial information, views on competitive positioning, timing of upcoming business milestones and structure of the Businesses, including in relationship to other Virgin businesses) and a governance overview of each of the “Virgin Galactic” and “Virgin Orbit” businesses, which included information on profits and losses, cash flows and underlying key assumptions for each of the two businesses.

On January 24, 2019, representatives of SCHe-mailed an initialnon-binding letter of intent (addressed to Virgin management) to Mr. Peracha, regarding a proposed business combination with respect to the Businesses (subject to due diligence and negotiation of definitive transaction agreements). Thisnon-binding letter of intent included an initial enterprise value for the Businesses of $1.5 billion on apre-transaction, debt-free, cash-free basis and contemplated that, prior to the consummation of any business combination transaction, SCH would domesticate as a Delaware corporation. The valuation with respect to the Businesses reflected in this initial non-binding letter of intent was determined based on SCH management’s analysis of the projected EBITDA to be generated by the “Virgin Galactic” business and the “Virgin Orbit” business, taken together, in comparison to projected capital expenditures, in each case as projected by each business’ management. The value of this opening non-binding proposal implied a discount to these projections, but SCH management determined that it would be the starting point for further negotiations.

On January 28, 2019, Mr. Bain and Mr. Peracha held a call to discuss Virgin’s feedback on the proposednon-binding letter of intent. Mr. Peracha conveyed Virgin’s position that the $1.5 billion valuation was too low and that Virgin’s believed the valuation should have been closer to $2 billion given the higher valuation underlying the proposed financing with PIF and certain other factors, but they indicated that Virgin would be open to walking through the proposed methodology for valuation more closely to move forward if SCH could revert with a revised valuation within an acceptable range.

Over the course of the following week, representatives of SCH had multiple conversations and email exchanges with representatives of Virgin, to discuss valuation and certain other considerations with respect to a potential business combination transaction involving SCH and the Businesses. Such considerations included, among other things: process considerations applicable to transactions with special purpose acquisition companies (for example, with respect to required approvals, typical due diligence process and investor outreach), public

 

115


Table of Contents

company readiness and related concerns, financing options and deal certainty in light of SCH’s public shareholders having redemption rights in respect of its public shares with respect to a business combination transaction.

On February 5, 2019, representatives of SCHe-mailed a revisednon-binding letter of intent (addressed to Virgin management) to Mr. Peracha. Thisnon-binding letter of intent included a revised enterprise value for both of the Businesses of $2.0 billion on apre-transaction, debt-free, cash-free basis (includinga $200 millionearn-out opportunity tied to stock price performance, to be paid out within five years after the closing of the proposed business combination) and a secondary repurchase of up to $100 million (whereby the post-combination company would use up to $100 million in cash to repurchase shares of its common stock issued to V10 in the proposed business combination at a price of $10.00 per share).

Over the following month, representatives of SCH had multiple exchanges with representatives of Virgin to discuss valuation (includingearn-out and secondary repurchase features), governance matters with respect to the combined company (including regarding appropriate board leadership) and to organize anin-person meeting between Richard Branson, on behalf of Virgin, and Mr. Bain or Mr. Palihapitiya, on behalf of SCH, to discuss vision for the future of the Businesses before progressing to the next stage of negotiations.

On February 17, 2019, Mr. Bain and Mr. Branson met for several hours at Mr. Branson’s property on Necker Island in the British Virgin Islands to discuss the terms of the proposed business combination and the reasons and motivations behind the decision of the SCH management team to pursue a transaction with these Virgin entities. During the meeting, Mr. Branson conveyed a preference on behalf of Virgin management for a potential business combination transaction involving SCH and the “Virgin Galactic” business only (including the VG Companies but not the entities comprising the “Virgin Orbit” business), which was based on, among other things, the view of Virgin management that the “Virgin Galactic” business and the “Virgin Orbit” business were distinct enough that a combined public company could lead to inefficiencies in the development in one or both businesses.

Over the following two weeks, representatives of SCH worked with representatives of Credit Suisse to explore the merits and potential terms of a business combination involving the “Virgin Galactic” business only, whereby only the VG Companies would be acquired. SCH management considered a range of potential valuations for the VG Companies only, based on an analysis of the projected EBITDA to be generated by the “Virgin Galactic” business in comparison to projected capital expenditures, as projected by VG management.

On March 2, 2019, representatives of SCHe-mailed the first version of anon-binding letter of intent (addressed to Virgin management) to Mr. Peracha, providing for the acquisition of the VG Companies only. Thisnon-binding letter of intent also included an updated valuation of $850 million (with noearn-out opportunity) and a secondary repurchase of up to $150 million, representing slightly less than half of the amount of the prior proposed valuation for the Businesses as a whole, pending additional discussions between the parties regarding appropriate valuation of each of the Businesses, when considered separately. The value of this opening non-binding proposal for the VG Companies only was determined by reference to the lower end of the range of valuations considered by SCH management and implied a substantial discount to VG management’s projections, with an expectation that projections would be further refined upon continued diligence on the VG Companies only and with the understanding that this proposal would be the starting point for further negotiations.

Over the course of two days beginning on March 4, 2019, following additionale-mail exchanges between representatives of SCH and representatives of Virgin regarding the terms of the proposed business combination, including the appropriate valuation for the VG Companies only, Mr. Bain, Mr. Palihapitiya and Mr. Hermer, on behalf of SCH, heldin-person meetings with Mr. Branson, Mr. Lovell and Mr. Peracha, on behalf of Virgin, while the latter were attending an event held by LionTree in Park City, Utah, to discuss structure, value and timing of a potential business combination on such revised terms in order to determine a path forward for the parties, if any, towards such a transaction.

 

116


Table of Contents

Later on March 5, 2019, following further discussion of the revisednon-binding letter of intent among the parties, Mr. Bain, on behalf of SCH,e-mailed a revisednon-binding letter of intent (addressed to Virgin management) to Mr. Peracha in respect of an acquisition of the VG Companies only. This revisednon-binding letter of intent included a revised enterprise value for the VG Companies of $1.2 billion on apre-transaction, debt-free, cash-free basis (including a $150 millionearn-out opportunity) and a secondary repurchase of up to $150 million.

Over the following three weeks, representatives of SCH and representatives of Virgin engaged in multiple conversations and held multiple meetings to address, among other things: (i) Virgin’s private fundraising process being conducted through LionTree and PWP in parallel with the negotiations regarding a potential business combination transaction with SCH and corresponding risk for such potential transaction and (ii) concerns of the management of the VG Companies regarding transaction timing expectations. During this time, the parties also continued discussions around valuation considerations and methodology, treatment of current V10 stock options and pro forma ownership of the combined company and exchanged multiple drafts of thenon-binding letter of intent.

In addition, during the weeks of March 11 and March 18, 2019, Mr. Bain held individual calls with members of SCH’s board of directors to discuss the terms of the proposed business combination with VG to be included in a revisednon-binding letter of intent.

During the first week of April 2019, Mr. Palihapitiya, on behalf of SCH, and Mr. Whitesides, on behalf of V10, entered into anon-binding letter of intent, effective as of April 3, 2019 (the “LOI”), regarding a potential business combination transaction (subject to due diligence and negotiation of definitive agreements) with VG, providing apre-transaction value for the VG Companies of $1.3 billion on cash-free, debt-free basis (with noearn-out opportunity) and a secondary repurchase of up to $200 million. The LOI contemplated that the board of directors of the post-combination company would consist of seven members: four of whom would be appointed by VG (one of whom would serve as the Chairman of the board of directors), two of whom would be appointed by SCH and one independent member to be mutually agreed by the parties.

Pursuant to thenon-binding letter of intent, each of V10 and SCH agreed that the period from the date thereof until the earliest of (i) their mutual agreement in writing to terminate the obligations contained in the LOI, (ii) June 15, 2019 and (iii) the date that SCH proposed any change to the terms contemplated by thenon-binding letter of intent that is adverse to VG or its stockholders in any material respect (the “Exclusivity Period”), VG would not and would direct its representatives acting on its behalf not to, solicit or initiate any inquiry, indication of interest, proposal or offer from any publicly traded special purpose acquisition company (other than SCH or any of SCH’s subsidiaries), participate in any discussions or negotiations with another special purpose acquisition company regarding, or enter into any understanding, arrangement, agreement in principal or other commitment with such an entity relating to, an issuance or sale of VG equity interests or an asset sale, merger or other business combinations of the VG Companies to or with another special purpose acquisition company.

The LOI contemplated that a newly-formed subsidiary of SCH would merge with and into a subsidiary of V10, which would be a newly-formed holding company (formed to hold the VG Companies) and that, as consideration for the proposed business combination, all equity interests of the VG Companies would automatically be converted into newly issued common shares of SCH valued at $10.00 per share in such merger and, subject to redemptions by SCH’s public shareholders, SCH would use up to $200 million to effect a secondary purchase of such newly issued common shares from VG stockholders after the closing of the proposed business combination. As a result, continuing stockholders of VG were expected to own approximately 56.1% of the common shares of the combined company while shareholders of SCH would own 43.9% of the combined company after closing of the proposed business combination. Pursuant to the LOI, the closing of the proposed business combination would be conditioned on SCH holding at least $400 million in cash in trust after satisfying its redemption obligations to its public shareholders (provided that SCH would have the right to purchase

 

117


Table of Contents

additional shares of SCH at a price of $10.00 per share to satisfy this condition, either along or together with any amount funded by the Sponsor, which would be required to contribute (or raise to be contributed) at least $25 million (if such amount, together with any amount funded by V10, would satisfy such condition).

On April 10, 2019, representatives of Skadden were provided with access to the virtual data room of VG and began conducting legal due diligence review of certain of the legal materials contained therein, including, among others, information and documents relating to: governance matters (including the organizational documents of the VG Companies and board minutes), the separation of the small satellite launch business now known as the “Virgin Orbit” business from the “Virgin Galactic” business, third party arrangements with customers and suppliers, intellectual property owned or used by VG, real property, employee compensation and benefits, labor and employment matters, environmental matters and export control and security matters. In addition, Jenner & Block LLP (“Jenner”) was subsequently engaged to conduct a due diligence review regarding FAA matters and issues relating to commercial spaceflight. Also on this date, representatives of Credit Suisse, on behalf of SCH, and George Howard, an investment manager at Virgin, on behalf of Virgin, met in Los Angeles, California to discuss certain financial information of the VG Companies in connection with SCH’s financial due diligence review.

On April 17, 2019, Mr. Bain, Mr. Palihapitiya and representatives of Credit Suisse, on behalf of SCH, and Mr. Whitesides, Mr. Palermo and Mr. Campagna, on behalf of the VG Companies, and Mr. Howard, on behalf of Virgin, met at the “Virgin Galactic” headquarters in Mojave, California to discuss investor presentations and the market opportunities for the “Virgin Galactic” business.

On April 30, 2019, representatives of Skadden, on behalf of SCH, held a legal due diligence call with members of Virgin and VG’s management team (including James Cahillane, Virgin Group U.S. General Counsel, Mr. Whitesides, Mr. Campagna, Vanessa Chandler, Virgin Galactic, LLC General Counsel, and Jeri Looney, TSC, LLC General Counsel), covering Skadden’s initial legal due diligence questions and requests after an initial review of the materials provided in the data room.

During the first two weeks of May 2019, SCH’s directors were advised on the status of the proposed business combination with VG, including pursuant to a telephonic meeting of (i) the full board of directors of SCH, held on May 7, 2019, during which management of SCH provided an update to the board of directors regarding the status of the proposed business combination and the various work streams relating to the target entities (including due diligence and the drafting of the definitive agreements) and solicited feedback and answered questions from SCH’s directors related thereto and (ii) the audit committee of the board of directors of SCH, held on May 9, 2019, during which the status of the proposed business combination with VG was further discussed in closed session with Mr. Palihapitiya, who also answered additional questions from committee members regarding timeline of the business combination and anticipated requirements with respect to public filings, among other things.

Also during the first two weeks of May 2019, representatives of Credit Suisse, on behalf of SCH, began contacting a limited number of potential and existing institutional investors of SCH, each of whom agreed to maintain the confidentiality of the information received pursuant to customarynon-disclosure agreements, to discuss the proposed business combination and such investors’ potential interest. Beginning on May 13, 2019, representatives of SCH, the VG Companies and Credit Suisse, as well as Mr. Howard, on behalf of Virgin, participated in variousin-person meetings with certain of these existing and potential investors of SCH.

On May 16, 2019, Mr. Bain, on behalf of SCH, sent an initial draft of the Merger Agreement with respect to the proposed business combination (which draft had been prepared by Skadden) to Mr. Lovell, Mr. Howard and Mr. Cahillane, on behalf of Virgin. The final documentation, including with respect to transaction structure, post-closing recourse and certain other terms and conditions that were not fully addressed in thenon-binding letter of intent, required additional negotiation.

 

118


Table of Contents

On May 22, 2019, Mr. Bain and representatives of Credit Suisse, on behalf of SCH, met in New York with Mr. Lovell, Mr. Cahillane and Mr. Howard, on behalf of Virgin, regarding feedback from the meetings with institutional investors, including the generally positive response received regarding a potential business combination transaction involving SCH and VG.

On May 28, 2019, Mr. Palihapitiya, on behalf of SCH, held a call with Mr. Branson, on behalf of Virgin, to discuss the status of negotiations between the parties of the terms of the proposed business combination, to determine next steps to resolving the outstanding business issues and tore-affirm their mutual desire to move forward towards a definitive transaction agreement for the proposed business combination.

On May 30, 2019, V10 engaged The Klein Group, LLC (“Klein”), an affiliate of M. Klein and Company, LLC, as its financial advisor to provide strategic advice and assistance in connection with a potential merger transaction with a “blank check” company or an investment transaction, including an initial public offering of Virgin Galactic, LLC and TSC, LLC, collectively.

On June 8, 2019, representatives of Skadden, on behalf of SCH,e-mailed to representatives of Latham and Watkins, LLP (“Latham”), on behalf of Virgin, initial drafts of certain ancillary agreements, including the Stockholders’ Agreement and the Registration Rights Agreement based on the terms of thenon-binding letter of intent, updated by subsequent discussions. The final documentation, including with respect to the governance rights and limitations of the majority stockholder in the post-combination company, the board composition and related governance matters and certain registration rights to be granted to the parties by the post-combination company, the details of which were not fully addressed in thenon-binding letter of intent and required additional negotiation.

During the week of June 10, 2019, Mr. Palihapitiya and representatives of Credit Suisse, on behalf of SCH, held a call with Mr. Lovell and a representative of Klein, on behalf of Virgin, to further discuss certain process points with respect to transacting with a special purpose acquisition company generally and approach to management of the proposed business combination in accordance with the parties’ respective objectives for the combined business after the closing of the proposed business combination. Also during this time, representatives of SCH proposed amending the LOI to extend the period of exclusivity thereunder from June 15, 2019 to July 8, 2019, in order to allow the parties sufficient time to finalize the terms of any definitive documentation for the proposed business combination and the parties held multiple discussions on this and other proposed changes to the terms of the LOI.

On June 14, 2019, representatives of Skadden, on behalf of SCH,e-mailed to representatives of Latham, on behalf of Virgin, a proposed amended and restated LOI (“A&R LOI”), which provided for, among other things, an additional $100 millionco-investment by the Sponsor or one of its affiliates (the parties later agreed that Mr. Palihapitiya would consummate thisco-investment in his individual capacity) in the form of a secondary purchase of shares issued to V10 in the proposed business combination (at a price of $10 per share), certain changes to the proposed composition of the board of directors of the post-combination company, an extension of the exclusivity period end date from June 15, 2019 to July 1, 2019 and a signing date of July 1, 2019. Over the course of the next two days, the parties held multiple calls to discuss these and other changes to the terms of the proposed business combination as set forth in the A&R LOI and exchanged multiple drafts of the A&R LOI.

On June 15, 2019, Mr. Palihapitiya and Mr. Branson held a call and verbally agreed to the terms of a revised version of the A&R LOI, which provided for, among other things: (i) a $100 millionco-investment in the form of a secondary purchase of shares issued to V10 in the proposed business combination (at a price of $10 per share), some or all of the proceeds of which V10 may (x) repurpose as a primary sale by SCH to the Sponsor or (y) reinvest by purchasing additional shares of SCH common stock, in each case, at a price of $10 per share; (ii) a seven-member board of directors of the combined company after the consummation of the proposed business combination, three of whom would be appointed by VG, three of whom would be appointed by SCH (to initially include Mr. Bain and Mr. Palihapitiya, who would also initially serve as the Chairman of the board of directors,

 

119


Table of Contents

until a permanent independent chairperson reasonably acceptable to the Sponsor is identified and nominated by V10, at which time such person would become the chairperson of the board of directors and one of the three directors appointed by SCH would resign) and one independent director to be mutually agreed between the parties; (iii) a continual “force the vote provision” to be included in the definitive transaction agreements, with no termination right for any other potential business combination until the expiration of SCH’s time period for consummating a business combination (including any extension thereof to the extent obtained); and (iv) an extension of the exclusivity period end date from June 15, 2019 to July 8, 2019 and a signing date of July 8, 2019. In addition, the A&R LOI contemplated that, following the consummation of the proposed business combination (assuming (x) a $100 million secondary purchase by the Sponsor or one of its affiliates of shares issued to V10 in the proposed business combination (at a price of $10 per share), (y) no reinvestment by V10 by purchasing additional shares of SCH common stock using the proceeds of any such secondary purchase and (z) a $200 million repurchase by SCH of shares issued to V10 in the proposed business combination), if none of SCH’s public shareholders exercise their redemption rights with respect to SCH’s public shares, then shareholders of SCH and the Sponsor would own approximately 48.6% of the pro forma common shares of the combined company while continuing stockholders of the VG Companies would own 51.4% of the pro forma common shares of the combined company. Such version of the A&R LOI was executed shortly thereafter by each of Mr. Bain, on behalf of SCH, and Mr. Whitesides, on behalf of V10, to be effective as of June 15, 2019.

On June 16, 2019, Mr. Palihapitiya and Mr. Branson held a call to express their mutual support for the proposed business combination on the terms set forth in the A&R LOI andre-affirmed their respective commitment to building a successful combined business together.

On June 21, 2019, Mr. Howard, on behalf of Virgin, sent an email to Mr. Bain, on behalf of SCH, which contained the high-level terms of an employee incentive program proposal for the combined company, which the parties continued to negotiate through the week of July 1, 2019. On July 3, 2019, representatives of Lathame-mailed to representatives of Skadden an initial draft of the 2019 Plan. From that date until July 8, 2019, the parties continued to negotiate the terms of the 2019 Plan, pursuant to which certain stock options and restricted stock units would be granted from and after the consummation of the proposed business combination. During this time, representatives of Skadden alsoe-mailed to representatives of Latham an initial draft of an award agreement in respect of grants of restricted stock unit awards to certain of SCH’s independent directors under the 2019 plan (the “Director RSU Awards”), the terms of which the parties also continued to negotiate through July 8, 2019. See “Incentive Award Plan Proposal” for additional information.

On June 22, 2019, Richard Barker, a representative of Virgin Enterprises Limited, the trademark licensing entity of Virgin (“VEL”),e-mailed to representatives of Skadden a draft Deed of Novation, Amendment and Restatement (the “Novation Deed”), relating to an existing trademark license agreement (granting to an affiliate of V10 certain rights to use certain VIRGIN marks that are legally and beneficially owned by VEL), which would be novated to SCH and amended and restated in full in the form attached as an annex thereto (the “Amended TMLA”) with effect from and after the consummation of the proposed business combination. Representatives of VEL (including, among others, Bill Budd) and representatives of Bird and Bird LLP (intellectual property counsel to Virgin), on behalf of VEL, and representatives of Skadden, on behalf of SCH, continued to negotiate the Novation Deed and Amended TMLA through the week of June 24, 2019, exchanging multiple drafts prior to their execution of the Novation Deed on July 9, 2019. See “—Related Agreements—Trademark License Agreement” for additional information.

On June 22, 2019, representatives of Lathame-mailed a proposed tax structuring plan document to representatives of Skadden, which outlined the current transaction structure of the Mergers as well as the currentPre-Closing Restructuring Plan.

On June 26, 2019, representatives of Latham,e-mailed to representatives of Skadden an initial draft of the Sponsor Support Agreement, which Skadden forwarded to a representative of Cooley LLP (“Cooley”), on behalf of Mr. Palihapitiya in his individual capacity, which the parties continued to negotiate through the week of

 

120


Table of Contents

July 1, 2019, exchanging multiple drafts prior to their execution of the Sponsor Support Agreement on July 9, 2019. See “ —Related Agreements—Sponsor Support Agreement” for additional information.

On June 26, 2019, following additional discussions among the parties, representatives of Latham, on behalf of Virgin,e-mailed to representatives of Skadden, on behalf of SCH, a revised version of the Merger Agreement, which did not contemplate any post-closing recourse or purchase price adjustments and reflected Virgin’s position on several other matters relating to transaction expenses and proposed closing conditions of the parties. However, such draft did not reflect the final transaction structure of the Mergers or address certain benefits-related matters that were still under discussion between the parties and were subject to change.

From that date through July 1, 2019, the parties discussed, over the course of multiple calls and email exchanges, certain issues with respect to the proposed business combination and the terms of the Merger Agreement, including those relating to, among other things: purchase price adjustments and working capital, transaction structure and othertax-related matters, indemnity, closing conditions (including the Minimum Cash Condition), Customer Deposits, transaction expenses, scope of representations and warranties and potential for representation and warranty insurance and thePre-Closing Restructuring.

On June 27, 2019, representatives of SCH and V10 entered into anon-disclosure agreement with Aon plc (“Aon”), a broker of representation and warranty insurance, pursuant to which, shortly thereafter, SCH began providing Aon with confidential information regarding SCH, VG and the proposed business combination for the purposes of obtaining quotes from prospective carriers for a potential R&W Insurance Policy.

On June 27, 2019, representatives of Skadden, on behalf of SCH, emailed an initial draft Purchase Agreement to representatives of Latham and Cooley, on behalf of VG and Mr. Palihapitiya, respectively, providing for the $100 millionCo-investment (conditioned upon the Closing). The parties continued to negotiate the Purchase Agreement throughout the week and during the week of July 1, 2019, exchanging multiple drafts prior to signing on July 9, 2019. See “ —Related Agreements—Purchase Agreement” for additional information.

On June 30, 2019, Mr. Howard, on behalf of VG,e-mailed to representatives of Skadden, copies of draft financial statements for the VG Companies only (i.e., which were not consolidated with the “Virgin Orbit” business or any other assets or enterprises not being acquired as part of the proposed business combination), but noted that audited financial statements would not be available until a few weeks after the proposed signing date for the Merger Agreement in the second week of July 2019.

On July 1, 2019, following further discussion of the draft agreement among the parties, representatives of Skaddene-mailed to representatives of Latham and Cooley, a revised version of the Merger Agreement.

On July 2, 2019, representatives of Lathame-mailed to representatives of Skadden an initial draft of the U.S. Transition Services Agreement, which the parties continued to negotiate throughout the week, exchanging multiple drafts. See “ —Related Agreements—UK Transition Services Agreement” for additional information.

On July 2, 2019, representatives of Latham communicated to representatives of Skadden that a press release to be published announcing the proposed business combination immediately after signing was being drafted by representatives of FTI Consulting Inc., engaged on behalf of Virgin, in cooperation with representatives of Credit Suisse, on behalf of SCH.

Also on July 2, 2019, representatives of Skadden provided a preliminary high level due diligence report to SCH’s management. The report provided a summary of matters reviewed during the course of Skadden’s due diligence review, which with respect to the VG Entities, involved, among other things, reviewing legal material posted to the virtual data room, discussing certain legal due diligence matters and posingfollow-up questions to VG management telephonically (including on a legal due diligence call held by members of VG’s management on June 18, 2019), and included certain supplemental information provided by representatives of the VG Companies in response to Skadden’s written supplemental due diligence questions, including those submitted to VG on May 6, 2019, June 22, 2019 and June 25, 2019.

 

121


Table of Contents

On July 4, 2019, following further discussion of the draft agreement among the parties, representatives of Lathame-mailed to representatives of Skadden and Cooley a revised version of the Merger Agreement.

From July 4, 2019 until signing on July 9, 2019, the parties discussed, over the course of multiple calls and email exchanges, certain issues with respect to the Merger Agreement’s terms, including those relating to, among other things: transaction structure and othertax-related matters, indemnity, conditions to Closing (including the Minimum Cash Condition and conditions regarding, among other things, certain equityholder approvals, cash required to be held by the VG Companies at Closing, absence of a material adverse effect, VG’s performance of covenants and thePre-Closing Restructuring), termination rights of the parties, alternative acquisition proposals, regular funding of the VG Companies during the Interim Period, scope of representations and warranties and the R&W Insurance Policy, transaction expenses and post-Closing director and officer indemnification and insurance coverage. During this time and in connection with such discussions, the parties also exchanged multiple drafts of the Merger Agreement.

On July 4, 2019, representatives of Lathame-mailed to representatives of Skadden an initial draft of the UK Transitional Services Agreement, which the parties continued to negotiate throughout the week, exchanging multiple drafts. See “ —Related Agreements—UK Transition Services Agreement” for additional information.

After market close on July 8, 2019, SCH’s board of directors held a meeting by teleconference and representatives of Skadden and a representative of Maples telephonically attended the meeting. At the meeting, the senior management of SCH provided an overview of the proposed business combination and the target companies (including the rationale for the combined business) and updated SCH’s board of directors regarding the final negotiations of the terms of the proposed business combination. A representative of Maples gave a presentation to the board of directors on the directors’ fiduciary duties under Cayman law. SCH’s board of directors with the assistance of Skadden discussed and reviewed the proposed business combination, including the target companies, the terms and conditions of the Merger Agreement and the key ancillary agreements (copies of all of which were provided to the Board in advance of the meeting), the potential benefits of, and risks relating to the proposed business combination and the reasons for entering into the Merger Agreement and the proposed timeline for finalizing the definitive transaction agreements and announcing the proposed business combination. See “ —SCH’s Board of Directors Reasons for Approval of the Business Combination” for additional information related to the factors considered by SCH’s board of directors in approving the Business Combination. Following discussion, SCH’s board of directors unanimously determined, among other things, that the BCA Proposal is in the best interests of SCH and its shareholders and recommended that its shareholders vote “FOR” the proposal.

On July 8, 2019, at the same telephonic meeting of SCH’s board of directors, in connection with the discussion of the terms and conditions of the Merger Agreement, SCH’s board of directors also discussed seeking an extension of the time period SCH had to complete its initial business combination (as contemplated by the Merger Agreement), after which discussion, the board of directors unanimously determined (i) that it was in the best interests of SCH and its shareholders to (A) extend the date before which SCH must complete a business combination from September 18, 2019 to the December 18, 2019 under the Cayman Constitutional Documents, and (B) extend the date on which the trustee must liquidate the trust account if SCH has not completed its initial business combination from September 18, 2019 to December 18, 2019 and (ii) to recommend to the SCH shareholders that they vote to adopt such amendments.

On July 9, 2019, the parties finalized the transaction documents (or forms thereof) with respect to the Business Combination based on the terms previously agreed upon by the parties and approved by their respective boards of directors, including the Purchase Agreement, the Sponsor Support Agreement, the form of Stockholders’ Agreement, the form of Registration Rights Agreement, the forms of the US and UK Transition Services Agreements, the Deed of Novation and Amended TMLA, the 2019 Plan (including the Director RSU Awards), the Proposed Organizational Documents, which were also negotiated in connection with the Merger Agreement, and the proposed materials in respect of the public announcement of the Business Combination,

 

122


Table of Contents

including a press release. SCH, V10, the VG Companies and the Merger Subs subsequently executed the Merger Agreement. The Merger Agreement also provided that SCH would domesticate as a Delaware corporation prior to the Closing.

Concurrent with the execution of the Merger Agreement, SCH also entered into the Purchase Agreement, the Sponsor Support Agreement and the Deed of Novation and Amended TMLA. See “ —Related Agreements” for additional information.

Also on July 9, 2019, SCH issued a press release announcing the execution of the Merger Agreement, which it filed with a Current Report on Form8-K along with an investor presentation providing information on VG and the proposed Business Combination.

On July 11, 2019, SCH filed a Current Report on Form8-K with the executed Merger Agreement, the Purchase Agreement and the Sponsor Support Agreement.

On September 9, 2019, SCH held an extraordinary general meeting whereby the SCH shareholders approved the Extension Amendment.

SCH’s Board of Directors’ Reasons for the Business Combination

On July 8, 2019, the SCH board of directors (i) approved the Merger Agreement and related transaction agreements and the transactions contemplated thereby, (ii) determined that the Business Combination is in the best interests of SCH and its shareholders, and (iii) recommended that SCH’s shareholders approve and adopt the Business Combination.

In evaluating the Business Combination and making these determinations and this recommendation, the SCH board of directors consulted with SCH’s senior management and considered a number of factors.

The SCH board of directors and management also considered the general criteria and guidelines that SCH believed would be important in evaluating prospective target businesses as described in the prospectus for SCH’s initial public offering. The SCH board of directors also considered that they could enter into a business combination with a target business that does not meet those criteria and guidelines. In the prospectus for its initial public offering, SCH stated that it intended to focus primarily on acquiring a company or companies with the following criteria and guidelines in part:

 

 (i)

are in the technology industry and can benefit from the extensive networks and insights SCH has built (SCH also expects to evaluate targets in related industries that can use technology to drive meaningful operational improvements and efficiency gains, or enhance their strategic positions by using technology solutions to differentiate offerings);

 

 (ii)

are ready to operate in the scrutiny of public markets, with strong management, corporate governance and reporting policies in place;

 

 (iii)

will likely be well received by public investors and are expected to have good access to the public capital markets;

 

 (iv)

are at an inflection point, such as those requiring additional management expertise, innovation to develop new products or services, improvement of financial performance or growth through a business combination;

 

 (v)

have significant embedded and/or underexploited expansion opportunities;

 

 (vi)

exhibit unrecognized value or other characteristics that SCH believes have been misevaluated by the market based on SCH’s company-specific analysis and due diligence review (for a potential target company, this process will include, among other things, a review and analysis of the company’s capital structure, quality of earnings, potential for operational improvements, corporate governance, customers, material contracts, and industry background and trends); and

 

123


Table of Contents
 (vii)

will offer attractive risk-adjusted equity returns for our shareholders. Financial returns will be evaluated based on (1) the potential for organic growth in cash flows, (2) the ability to accelerate growth, including through the opportunity forfollow-on acquisitions and (3) the prospects for creating value through other value creation initiatives. Potential upside from growth in the target business’ earnings and an improved capital structure will be weighed against any identified downside risks.

In considering the Business Combination, the SCH board of directors determined that the Business Combination was an attractive business opportunity that met the vast majority of the criteria and guidelines above, although not weighted or in any order of significance.

SCH’s board of directors considered a wide variety of factors in connection with their respective evaluations of the Business Combination. In light of the complexity of those factors, SCH’s board of directors as a whole did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it took into account in reaching their respective decisions. Individual members of SCH’s board of directors may have given different weight to different factors. This explanation of SCH’s reasons for the board of directors’ approval of the Business Combination, and all other information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements.”

In particular, the SCH board of directors considered the following factors:

 

  

The VG Companies and the Business Combination. The SCH board of directors considered the following factors related to the VG Companies and the Business Combination:

 

 a.

Potential Public Investor Enthusiasm for Spaceflight. Since the advent of space exploration, there has been limited means for public investors to invest in the economic and strategic value of human spaceflight. Against this backdrop, the Business Combination with the VG Companies will create the world’s first and only publicly traded commercial human spaceflight company. VGH, Inc. will provide investors the opportunity to invest in commercial space travel and the potential value related to opening space to many tens of thousands of new astronauts.

 

 b.

Experienced and Proven Management Team. The VG Companies’ management team has extensive experience in key aspects of the aerospace industry. The senior management team represents some of the most experienced and recognized leaders in flight operations, technical manufacturing as well as general management. Led by their Chief Executive Officer, George Whitesides, a former Chief of Staff for the National Aeronautics and Space Agency, the VG Companies became the first commercial space company to put a human into space. We expect that the VG Companies’ executives will continue with the combined company following the Business Combination. For additional information regarding VGH, Inc.’s executive officers, see the section entitled “Management of VGH, Inc. Following the Business Combination—Executive Officers.”

 

 c.

Attractive Entry Valuation. VGH, Inc. will have an anticipated initial enterprise value of $1.5 billion implying a 2.5x multiple of 2023 projected revenue and a 5.5x multiple of 2023 projected EBITDA as VGH, Inc.’s commercial operations are expected to achieve scale. This represents approximately a 1.5x multiple of invested capital based on over $1 billion of capital investment to date. After the completion of the Business Combination, the majority of the net cash from SCH’s trust account is expected to be held on VGH, Inc.’s balance sheet to fund operations and support continued growth.

 

 d.

Valuable Proprietary Intellectual Property. Over the course of the last 14 years, the VG Companies have developed an extensive portfolio of proprietary technologies that are embodied in the highly specialized vehicles that they have developed to enable commercial spaceflight. These technologies are largely embodied in proprietaryknow-how and trade secrets. In addition, the VG Companies seek to further protect their technologies with patents and patent applications when possible and consistent with its overall strategy to safeguard intellectual property.

 

124


Table of Contents
 e.

Vertically Integrated Go To Market Strategy. The VG Companies are vertically integrated, meaning they design, develop, manufacture, test and operate the critical components of their mission, including the spaceships and carrier aircraft themselves. These internal capabilities enable the VG Companies to build and optimize their spaceflight systems for a dynamic customer experience and with other critical capabilities, such as reusability and efficiency, are expected to facilitate a go to market strategy and drive the long-term profitability and value of the VG Companies.

 

 f.

Robust Manufacturing Pipeline. The VG Companies have two additional SpaceShipTwo vehicles under construction and expect to expand the fleet to a total of five SpaceShipTwo vehicles in service by the end of 2023, which will enable an increase in the flight rate to meet customer demand.

 

 g.

Attractive Business Model. The VG Companies have several capabilities that will allow them to scale rapidly to meet customer demand – among these are the design and implementation of reusable vehicles. For example, a single spaceship is designed to be reused for hundreds of cycles, with primarily only its rocket motor fuel cartridge and oxidizer being changed in between flights. These design features meaningfully reduce the operational cost of each spaceflight over time and allows for short turnaround times between flights. Over time, the VG Companies expect to have the ability to leverage their suite of proprietary technologies and reusable design to lower costs and allow lower ticket prices, while preserving profitability and meeting the demand for human spaceflight in a market where most other alternatives are extremely expensive.

 

 h.

First Purpose-Built Commercial Spaceport.The VG Companies will operate from Spaceport America in New Mexico. Spaceport America is a more than $200.0 million facility built by the New Mexico government and leased to the VG Companies at an attractive annual rate. The spaceport is located on 27 square miles of desert landscape, with access to 6,000 square miles of restricted airspace running from the ground to space. The restricted airspace facilitates frequent and consistent flight scheduling and the desert climate and its relatively predictable weather provides favorable launch conditions year-round. The facilities were built with the operational requirements and customers of the VG Companies in mind, with comprehensive consideration of its practical function, while also providing the basis for the Virgin Galactic experience. The VG Companies believe that this model will allow them to achieve high operational flight rates and can be used to scale to meet demand without significant additional capital outlays for physical plant and ground infrastructure. Similar models could also be used to facilitate international expansion in the future.

 

 i.

High Growth Industry. The space race is shifting quickly from public-sector financing to private-sector financing. With this shift comes a more bottom-line focus on costs and utilization that creates the opportunity for an entirely new ecosystem of disruptive and profitable companies. According to an October 2018 article from the U.S. Chamber of Commerce, the commercial space market will grow 6% per year from $385.0 billion in 2017 to at least $1.5 trillion by 2040, reaching 5% of U.S. gross domestic product. Commercial spaceflight is expected to capture an important portion of this market as it will also allow for applications beyond initial use, including scientific research.

 

 j.

Strong Competitive Position. The VG Companies’ differentiated technology and capabilities, its horizontaltake-off and landing design, experienced management team, iconic brand, vertically-integrated design and manufacturing capabilities and extensive customer base separate them from the competition. VSS Unity, the VG Companies’ spaceship, was the first, and as of July 2019 remains the only, vehicle built for recurring commercial spaceflight service to have put humans into space. The VG Companies’ inaugural spaceflight in December 2018 was also the first and only space launch from U.S. soil since 2011 that carried human crew members. During its second spaceflight in February 2019, VSS Unity became the first vehicle built for commercial service to not only carry pilots but crew members, as well. We believe that the additional capital provided by

 

125


Table of Contents
 the Business Combination will provide VGH, Inc. with the support needed to reach broad commercialization. Additionally, the VG Companies have the licenses they need from the FAA to begin commercial operations once they have completed a validation and testing process to the FAA’s satisfaction.

 

 k.

Competitive Dynamics. The VG Companies’ position within the emerging commercial human spaceflight market is reinforced by significant barriers to entry for potential competitors as well as key differences in safety and customer experience. The VG Companies are the only commercial space company to date to take a horizontaltake-off and landing approach, which mimics traditional aircraft in how the spaceship leaves the ground and returns to earth. The VG Companies provide a piloted experience where two highly trained pilots will take passengers to space. Because their spaceship’s rocket motor can be shut off at any time during flight, the VG Companies can conduct a safe abort at various phases of the flight mission. We are aware of only one competitor with a similar investment of time and money in suborbital commercial human spaceflight, which is taking a different approach to its launch architecture.

 

 l.

Iconic, Widely Recognized Brand. Virgin is an iconic, widely recognized brand with significant brand strength and high awareness and a track record of creating memorable experiences.

 

 m.

Demonstrated Willingness to Pay. Individuals, including those of high net worth, increasingly value experiences and the VG Companies offer a unique value proposition relative to comparably priced ultra-luxury travel and transportation experiences. As of June 30, 2019, the VG Companies had reservations for 603 spaceflights and approximately $80.0 million in deposits. Additionally, there have been more than 3,000 flight reservation inquiries since SpaceShipTwo’s first spaceflight in December 2018. The VG Companies have had high retention rates despite deposits being refundable during the development program. We believe that the market for exclusive, experiential products will continue to expand quickly and represents a significant opportunity for future growth.

 

 n.

Expansive Future Opportunities. The VG Companies have developed an extensive set of vertically integrated aerospace development capabilities and technologies. In the future, they expect to explore the application of those proprietary technologies and capabilities in areas such as design, engineering, composites manufacturing, high-speed vehicles and production for other commercial and government uses. Among other potential opportunities, the VG Companies believe their technology could be used to develop supersonic and hypersonic vehicles that drastically reduce travel time forpoint-to-point international travel.

 

  

Best Available Opportunity. The SCH board of directors determined, after a thorough review of other business combination opportunities reasonably available to SCH, that the proposed Business Combination represents the best potential business combination for SCH based upon the process utilized to evaluate and assess other potential acquisition targets, and the SCH board of directors’ belief that such processes had not presented a better alternative.

 

  

Continued Ownership By Sellers. The SCH board of directors considered that the VG Companies’ equityholder would be receiving a significant amount of VGH, Inc. common stock as its consideration and would be the largest stockholder of VGH, Inc. The SCH board considered this as a strong sign of confidence in VGH, Inc. following the Business Combination and the benefits to be realized as a result of the Business Combination.

 

  

Results of Due Diligence. The SCH board of directors considered the scope of the due diligence investigation conducted by SCH’s senior management and outside advisors and evaluated the results thereof and information available to it related to the VG Companies, including:

 

  

extensive meetings and calls with Virgin Group and the VG Companies’ management team regarding its operations and projections and the proposed transaction;

 

  

severalin-person visits to the VG Companies’ facilities in Mojave, California; and

 

126


Table of Contents
  

review of materials related to the VG Companies made available by such companies, including financial statements, material contracts, key metrics and performance indicators, benefit plans, intellectual property matters, labor matters, information technology, privacy and personal data, litigation information, environmental matters, export control and security matters, FAA and other regulatory matters and other legal and business diligence.

 

  

Terms of the Merger Agreement. The SCH board of directors reviewed and considered the terms of the Merger Agreement, the Purchase Agreement and the other related agreements, including the parties’ conditions to their respective obligations to complete the transactions contemplated therein and their ability to terminate the agreement. See “BCA Proposal—Related Agreements” for detailed discussions of the terms and conditions of these agreements.

The SCH board of directors also identified and considered the following factors and risks weighing negatively against pursuing the Business Combination, although not weighted or in any order of significance:

 

  

Potential Inability to Complete the Merger.The SCH board of directors considered the possibility that the Business Combination may not be completed and the potential adverse consequences to SCH if the Business Combination is not completed, in particular the expenditure of time and resources in pursuit of the Business Combination and the loss of the opportunity to participate in the transaction. They considered the uncertainty related to the Closing primarily outside of the control of the parties to the transaction, including the need for antitrust approval. Moreover, if SCH does not obtain shareholder approval at the extraordinary general meeting, VG can continually obligate SCH to hold additional extraordinary general meetings to vote on the Condition Precedent Proposals until the earlier of such shareholder approval being obtained and December 18, 2019, the date by which SCH must cease all operations and begin to windup if SCH has not completed a business combination. This could limit SCH’s ability to seek an alternative business combination that SCH shareholders may prefer after such initial vote. The Merger Agreement also includes an exclusivity provision that prohibits SCH from soliciting other initial business combination proposals, which restricts SCH’s ability to consider other potential initial business combinations until the earlier of the termination of the Merger Agreement or the consummation of the Business Combination.

In addition, the SCH board of directors considered the risk that the current public shareholders of SCH would redeem their public shares for cash in connection with consummation of the Business Combination, thereby reducing the amount of cash available to VGH, Inc. following the consummation of the Business Combination and potentially requiring VG to waive certain conditions under the Merger Agreement in order for the Business Combination to be consummated. The Minimum Cash Condition is for the sole benefit of VG except that this condition may not be waived by VG if the Trust Amount is less than $200.0 million. As of June 30, 2019, without giving effect to the Extension Amendment Redemptions and any future redemptions that may occur, the trust account had approximately $712.5 million in U.S. Treasury Bills. Further, the SCH board of directors considered the risk that current public shareholders would exercise their redemption rights is mitigated because the VG Companies will be acquired at an attractive aggregate purchase price.

 

  

The VG Companies’ Business Risks. The SCH board of directors considered that SCH shareholders would be subject to the execution risks associated with VGH, Inc. if they retained their public shares following the Closing, which were different from the risks related to holding public shares of SCH prior to the Closing. In this regard, the SCH board of directors considered that there were risks associated with successful implementation of VGH, Inc.’s long term business plan and strategy and VGH, Inc. realizing the anticipated benefits of the Business Combination on the timeline expected or at all. The SCH board of directors considered that the failure of any of these activities to be completed successfully may decrease the actual benefits of the Business Combination and that SCH shareholders may not fully realize these benefits to the extent that they expected to retain the public shares following the completion of the Business Combination. For additional description of these risks, please see “Risk Factors.”

 

127


Table of Contents
  

Post-Business Combination Corporate Governance; Terms of the Stockholders’ Agreement. The SCH board of directors considered the corporate governance provisions of the Merger Agreement, the Stockholders’ Agreement, the Registration Rights Agreement and the Proposed Organizational Documents and the effect of those provisions on the governance of the Company following the Closing. In particular, they considered that Vieco US will individually control shares representing a majority of VGH, Inc.’s total outstanding shares of common stock upon completion of the Business Combination. Even if Vieco US were to control less than a majority of the common stock, it will be able to influence the outcome of corporate actions so long as it owns a significant portion of common stock. Vieco US and Mr. Palihapitiya will have the right to designate directors to the board of directors of VGH, Inc. for as long as they hold certain amounts of shares of the VGH, Inc. common stock and will have a right to approve or reject certain transactions involving VGH, Inc. The SCH board of directors was aware that these rights are not generally available to shareholders of SCH, including shareholders that may hold a large number of shares, or directors of SCH. See “BCA Proposal—Related Agreements” for detailed discussions of the terms and conditions of these agreements.

 

  

Limitations of Review. The SCH board of directors considered that they were not obtaining an opinion from any independent investment banking or accounting firm that the price SCH is paying to acquire the VG Companies is fair to SCH or its shareholders from a financial point of view. In addition, the SCH senior management and SCH’s outside counsel reviewed only certain materials in connection with their due diligence review of the VG Companies. Accordingly, the SCH board of directors considered that SCH may not have properly valued such business.

 

  

No Survival of Remedies for Breach of Representations, Warranties or Covenants of the VG Companies.The SCH board of directors considered that the terms of the Merger Agreement provide that SCH will not have any surviving remedies against Vieco US after the Closing to recover for losses as a result of any inaccuracies or breaches of the VG representations, warranties or covenants set forth in the agreement. To mitigate against this, SCH determined to acquire a R&W Insurance Policy on satisfactory terms prior to the Closing with respect to certain of the representations and warranties of VG contained in the Merger Agreement. However, the R&W Insurance Policy has certain exclusions and deductibles. As a result, SCH shareholders could be adversely affected by, among other things, a decrease in the financial performance or worsening of financial condition of the VG Companies prior to the Closing, whether determined before or after the Closing, without any ability to reduce the number of shares to be issued in the Business Combination or recover for the amount of any damages. The SCH board of directors determined that this structure was appropriate and customary in light of the fact that several similar transactions include similar terms, SCH was planning to obtain such R&W Insurance Policy on satisfactory terms and the current owner of the VG Companies will be the majority equityholder in VGH, Inc.

 

  

Litigation. The SCH board of directors considered the possibility of litigation challenging the Business Combination or that an adverse judgment granting permanent injunctive relief could enjoin consummation of the Business Combination.

 

  

Fees and Expenses. The SCH board of directors considered the fees and expenses associated with completing the Business Combination.

 

  

Diversion of Management. The SCH board of directors considered the potential for diversion of management and employee attention during the period prior to the completion of the Business Combination, and the potential negative effects on the VG Companies’ business.

 

  

Interests of SCH’s Directors and Executive Officers. The SCH board of directors considered the potential additional or different interests of SCH’s directors and executive officers, as described in the section entitled “BCA ProposalInterests of SCH’s Directors and Executive Officers in the Business Combination.” However, SCH’s board of directors concluded that the potentially disparate interests would be mitigated because (i) these interests were disclosed in the prospectus for SCH’s initial public offering and are included in this proxy statement/prospectus, (ii) these disparate interests would exist

 

128


Table of Contents
 

with respect to a business combination by SCH with any other target business or businesses and (iii) a significant portion of the consideration to SCH’s directors and executive officers was structured to be realized based on the future performance of the VGH, Inc. common stock.

Based on its review of the forgoing considerations, the SCH board of directors concluded that the potentially negative factors associated with the Business Combination were outweighed by the potential benefits that it expects SCH shareholders will receive as a result of the Business Combination. The SCH board of directors realized that there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons.

The preceding discussion of the information and factors considered by the SCH board of directors is not intended to be exhaustive but includes the material factors considered by the SCH board of directors. In view of the complexity and wide variety of factors considered by the SCH board of directors in connection with its evaluation of the Business Combination, the SCH board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the different factors that it considered in reaching its decision. In addition, in considering the factors described above, individual members of the SCH board of directors may have given different weight to different factors. The SCH board of directors considered this information as a whole and overall considered the information and factors to be favorable to, and in support of, its determinations and recommendations.

This explanation of the SCH board of directors’ reasons for its approval of the Business Combination, and all other information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements.”

Projected Financial Information

The VG Companies provided SCH with its internally prepared forecasts for each of the years in the four year period ending December 31, 2023. The VG Companies do not, as a matter of general practice, publicly disclose long-term forecasts or internal projections of their future performance, revenue, financial condition or other results. However, in connection with the proposed Business Combination, management of the VG Companies prepared the financial projections set forth below to present key elements of the forecasts provided to SCH. The VG Companies forecasts were prepared solely for internal use and not with a view toward public disclosure, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information.

The inclusion of financial projections in this proxy statement/prospectus should not be regarded as an indication that SCH, our board of directors, or their respective affiliates, advisors or other representatives considered, or now considers, such financial projections necessarily to be predictive of actual future results or to support or fail to support your decision whether to vote for or against the Business Combination Proposal. The financial projections are not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus, including investors or holders, are cautioned not to place undue reliance on this information. You are cautioned not to rely on the projections in making a decision regarding the transaction, as the projections may be materially different than actual results. We will not refer back to the financial projections in our future periodic reports filed under the Exchange Act.

The financial projections reflect numerous estimates and assumptions with respect to general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the VG Companies’ business, all of which are difficult to predict and many of which are beyond the VG Companies’ and SCH’s control. The financial projections are forward looking statements that are inherently subject significant uncertainties and contingencies, many of which are beyond the VG Companies’ control. The various

 

129


Table of Contents

risks and uncertainties include those set forth in the “Risk Factors,” “The VG Companies’ Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Cautionary Note Regarding Forward-Looking Statements” sections of this proxy statement/prospectus, respectively. As a result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. Since the financial projections cover multiple years, such information by its nature becomes less reliable with each successive year. These financial projections are subjective in many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments.

Furthermore, the financial projections do not take into account any circumstances or events occurring after the date they were prepared. None of the VG Companies’ independent registered accounting firm, SCH’s independent registered accounting firm or any other independent accountants, have compiled, examined or performed any procedures with respect to the financial projections included below, nor have they expressed any opinion or any other form of assurance on such information or their achievability, and they assume no responsibility for, and disclaim any association with, the financial projections. Nonetheless, a summary of the financial projections is provided in this proxy statement/prospectus because they were made available to SCH and our board of directors in connection with their review of the proposed transaction.

EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL SECURITIES LAWS, BY INCLUDING IN THIS PROXY STATEMENT/PROSPECTUS A SUMMARY OF THE FINANCIAL PROJECTIONS FOR THE VG COMPANIES, SCH UNDERTAKES NO OBLIGATIONS AND EXPRESSLY DISCLAIMS ANY RESPONSIBILITY TO UPDATE OR REVISE, OR PUBLICLY DISCLOSE ANY UPDATE OR REVISION TO, THESE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THESE FINANCIAL PROJECTIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE SHOWN TO BE IN ERROR OR CHANGE.

The key elements of the projections provided by management of the VG Companies to SCH, which assume a June 2020 commencement of commercial operations, are summarized in the table below:

 

($ in millions)

  2020E   2021E   2022E   2023E 

Total Revenue

  $31   $210   $398   $590 

Gross Profit

   4    131    285    431 

EBITDA(1)

   (104   12    146    274 

Capital expenditures (including spaceship construction)

   (52   (59   (60   (54

 

(1)

Earnings Before Interest, Taxes, Depreciation and Amortization.

Projected revenue is based on a variety of operational assumptions, including vehicles in service, monthly flight rates, passengers flown and revenue per customer. The projections assume a June 2020 commencement of commercial operations, with five vehicles in service by 2023. Assumed overall monthly flight rates increase over the plan period, reaching a peak of approximately five flights per vehicle per month by 2022. Similarly, each flight is assumed to hold five or six customers by 2021.

Projected profitability is driven by expected rocket motor and fuel costs, customer expenses, flight operational expenses and other general and administrative expenses. Annual capital expenditure is primarily based on the assumed costs of ongoing vehicle construction.

EBITDA, a non-GAAP measure, is an addition, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to

 

130


Table of Contents

cash flows from operating activities as a measure of liquidity. Not all of the information necessary for a quantitative reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measures is available without unreasonable efforts at this time.

Satisfaction of 80% Test

It is a requirement under the Cayman Constitutional Documents that any business acquired by SCH have a fair market value equal to at least 80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for an initial business combination. Based on the financial analysis of the VG Companies generally used to approve the transaction, the SCH board of directors determined that this requirement was met. The board determined that the consideration being paid in the Business Combination, which amount was negotiated at arms-length, were fair to and in the best interests of SCH and its shareholders and appropriately reflected the VG Companies’ value. In reaching this determination, the board concluded that it was appropriate to base such valuation in part on qualitative factors such as management strength and depth, competitive positioning, customer relationships, and technical skills, as well as quantitative factors such as its potential for future growth in revenue and profits. SCH’s board of directors believes that the financial skills and background of its members qualify it to conclude that the acquisition of the VG Companies met this requirement.

Interests of SCH’s Directors and Executive Officers in the Business Combination

When you consider the recommendation of SCH’s board of directors in favor of approval of the BCA Proposal, you should keep in mind that the Sponsor and SCH’s directors and executive officers have interests in such proposal that are different from, or in addition to, those of SCH shareholders and warrant holders generally. These interests include, among other things, the interests listed below:

 

  

If SCH does not consummate a business combination by December 18, 2019 (or if such date is further extended at a duly called extraordinary general meeting, such later date), it would cease all operations except for the purpose of winding up, redeeming all of the outstanding public shares for cash and, subject to the approval of its remaining shareholders and its board of directors, dissolving and liquidating, subject in each case to its obligations under the Cayman Islands Companies Law to provide for claims of creditors and the requirements of other applicable law. In such event, the 17,250,000 SCH Class B ordinary shares owned by the Sponsor would be worthless because following the redemption of the public shares, SCH would likely have few, if any, net assets and because the Sponsor has agreed to waive its rights to liquidating distributions from the trust account with respect to the Sponsor if SCH fails to complete a business combination within the required period. The Sponsor purchased the SCH Class B ordinary shares prior to SCH’s initial public offering for approximately $0.0001 per share and certain SCH directors and executive officers, including Chamath Palihapitiya and Ian Osborne, have an economic interest in such shares. The 15,750,000 shares of VGH, Inc. common stock that the Sponsor will hold following the Mergers (including after giving effect to the Domestication), if unrestricted and freely tradable, would have had aggregate market value of $172.0 million based upon the closing price of $10.92 per share of public share on the NYSE on October 8, 2019, the most recent practicable date prior to the date of this proxy statement/prospectus. Given such shares of VGH, Inc. common stock will be subject to certain restrictions, including those described above, SCH believes such shares have less value.

 

  

Chamath Palihapitiya, SCH’s Chief Executive Officer and Chairman of the board of directors of SCH, is expected to be Chairperson of the board of directors of VGH, Inc. after the consummation of the Business Combination. As such, in the future, Mr. Palihapitiya will receive any cash fees, stock options, stock awards or other remuneration that VGH, Inc.’s board of directors determines to pay to him.

 

  

Adam Bain and James Ryans, current directors of SCH, are expected to be directors of VGH, Inc. after the consummation of the Business Combination (it is also anticipated that Dr. Ryans will serve as the

 

131


Table of Contents
 

chairperson of the audit committee of the board of directors of VGH, Inc. after the consummation of the Business Combination). As such, in the future, Mr. Bain and Dr. Ryans will receive any cash fees, stock options, stock awards or other remuneration that VGH, Inc.’s board of directors determines to pay to them.

 

  

SCH’s existing directors and officers will be eligible for continued indemnification and continued coverage under SCH’s directors’ and officers’ liability insurance after the Mergers and pursuant to the Merger Agreement.

 

  

If SCH is unable to complete the Business Combination within the prescribed time frame (pursuant to the Cayman Constitutional Documents), or upon the exercise of a redemption right in connection with the Business Combination, SCH will be required to provide for payment of claims of creditors that were not waived that may be brought against SCH within the 10 years following redemption. In order to protect the amounts held in the trust account, the Sponsor has agreed that it will be liable to SCH if and to the extent any claims by a third party (other than our independent auditors) for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $10.00 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of SCH’s initial public offering against certain liabilities, including liabilities under the Securities Act.

 

  

A party related to our Sponsor and certain of our officers and directors has advanced funds to us for working capital purposes, including $0.8 million as of June 30, 2019. These outstanding advances have been documented in the Promissory Note, pursuant to which SCH may borrow up to $3.5 million from the Sponsor (including those amounts which are currently outstanding). The Promissory Note is non-interest bearing, unsecured and due and payable in full on the earlier of December 18, 2019 and the date SCH consummates its initial business combination. If we do not complete our initial business combination within the required period, we may use a portion of our working capital held outside the trust account to repay such advances and any other working capital advances made to us, but no proceeds held in the trust account would be used to repay such advances and any other working capital advances made to us, and such related party may not be able to recover the value it has loaned us and any other working capital advances it may make.

 

  

Following consummation of the Business Combination, the Sponsor, SCH’s officers and directors and their respective affiliates would be entitled to reimbursement for certainout-of-pocket expenses incurred by such persons in connection with activities on behalf of SCH, and repayment of any other loans, if any, and on such terms as to be determined by SCH from time to time, made by the Sponsor or certain of SCH’s officers and directors to finance transaction costs in connection with an intended initial business combination. However, if SCH fails to consummate a business combination within the required period, Sponsor and SCH’s officers and directors and their respective affiliates will not have any claim against the trust account for reimbursement.

 

  

In connection with the Purchase Agreement, if Vieco US elects to have Mr. Palihapitiya purchase shares of VGH, Inc. common stock (i) in a Primary Purchase, Mr. Palihapitiya will be issued up to 10,000,000 newly issued shares of VGH, Inc. common stock (depending on the size of the Primary Purchase as elected by Vieco US) or (ii) in a Secondary Purchase, Mr. Palihapitiya will be purchasing up to 10,000,000 shares of VGH, Inc. common stock from Vieco US (depending on the size of the Secondary Purchase as elected by Vieco US), in each case, at a price of $10.00 per share. It is anticipated that, following the Business Combination, if Vieco US elects that Mr. Palihapitiya purchase the maximum number of shares in a Secondary Purchase, after giving effect to the 3,771,178 public shares redeemed in connection with the Extension Amendment, at an assumed price approximating

 

132


Table of Contents
 

$10.33 per share (which price is based on trust account figures as of June 30, 2019), and also assuming that (x) no additional public shareholders exercise their redemption rights in connection with the Business Combination assuming consummation of the transactions contemplated by the Purchase Agreement and (y) VGH, Inc. will repurchase 17,359,126 shares of VGH, Inc. common stock from Vieco US in a Repurchase pursuant to the Merger Agreement), the Sponsor and related parties (including Mr. Palihapitiya) are expected to collectively own approximately 13.2% of outstanding VGH, Inc. common stock. Outstanding shares of VGH, Inc. common stock held by the Sponsor excludes the 1,500,000 shares of VGH, Inc. common stock underlying the Director RSU Awards that will be granted in connection with the Business Combination. The restricted stock units will vest at the Closing but will not settle into shares of VGH, Inc. common stock until a date, selected by VGH, Inc., that occurs between January 1 and December 31 of the year following the Closing.

 

  

Pursuant to the Stockholders’ Agreement, Mr. Palihapitiya will have the right to designate two directors to the Board of VGH, Inc. and such directors may have the power collectively to withhold approval in respect of future transactions between VGH, Inc. and its subsidiaries, on the one hand and Vieco US or its affiliates, on the other.

 

  

Pursuant to the Registration Rights Agreement, the Sponsor, Mr. Palihapitiya and Vieco US will have customary registration rights, including demand and piggy-back rights, subject to cooperation andcut-back provisions with respect to the shares of VGH, Inc. common stock and warrants held by such parties.

 

  

The Proposed Certificate of Incorporation will contain a provision that expressly elects not to be governed by Section 203 (Delaware’s “interested stockholder” statute) of the Delaware General Corporation Law.

The Sponsor has agreed to vote in favor of the Business Combination, regardless of how our public shareholders vote. Unlike some other blank check companies in which the initial shareholders agree to vote their shares in accordance with the majority of the votes cast by the public shareholders in connection with an initial business combination, the Sponsor and each officer and director of SCH have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement. As of the date of this proxy statement/prospectus, the Sponsor owns 20.9% of the issued and outstanding ordinary shares.

At any time at or prior to the Business Combination, during a period when they are not then aware of any material nonpublic information regarding us or SCH’s securities, the Sponsor, Mr. Palihapitiya, Vieco US, the VG Companies or their directors, officers, advisors or respective affiliates may purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire public shares or vote their public shares in favor of the Condition Precedent Proposals. Such a purchase may include a contractual acknowledgement that such shareholder, although still the record holder of SCH’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, Mr. Palihapitiya, Vieco US, the VG Companies or their directors, officers, advisors or respective affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholder would be required to revoke their prior elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood of (1) the satisfaction of the requirement that holders of a majority of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the BCA Proposal, the Director Election Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the Repurchase Proposal and the Adjournment Proposal, (2) the satisfaction of the requirement that the holders of at leasttwo-thirds of the ordinary shares, represented in person or by proxy and entitled to vote at the extraordinary general meeting, vote in favor of the Domestication Proposal and the Organizational Documents Proposals,

 

133


Table of Contents

(3) the satisfaction of the requirement that the Minimum Cash Condition is satisfied, (4) otherwise limiting the number of public shares electing to redeem and (5) SCH’s net tangible assets (as determined in accordance with Rule 3a51(g)(1) of the Exchange Act) being at least $5,000,001.

Entering into any such arrangements may have a depressive effect on the ordinary shares (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination).

If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the extraordinary general meeting and would likely increase the chances that such proposals would be approved. SCH will file or submit a Current Report on Form8-K to disclose any material arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals to be put to the extraordinary general meeting or the redemption threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

The existence of financial and personal interests of one or more of SCH’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of SCH and its shareholders and what he, she or they may believe is best for himself or themselves in determining to recommend that shareholders vote for the proposals. In addition, SCH’s officers have interests in the Business Combination that may conflict with your interests as a shareholder.

Expected Accounting Treatment of the Business Combination

The Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, SCH has been treated as the “acquired” company for financial reporting purposes. This determination was primarily based on current shareholders of the VG Companies having a relative majority of the voting power of the combined entity, the operations of the VG Companies prior to the acquisition comprising the only ongoing operations of the combined entity, and senior management of the VG Companies comprising the majority of the senior management of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements of the VG Companies with the acquisition being treated as the equivalent of the VG Companies issuing stock for the net assets of SCH, accompanied by a recapitalization. The net assets of SCH will be stated at historical cost, with no goodwill or other intangible assets recorded.

Regulatory Matters

Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain transactions may not be consummated unless information has been furnished to the Antitrust Division of the Department of Justice (“Antitrust Division”) and the FTC and certain waiting period requirements have been satisfied. Each of (x) the Business Combination and (y) the transactions contemplated by the Purchase Agreement are subject to these requirements and may not be completed until the expiration of a30-day waiting period following the two filings of the required Notification and Report Forms with the Antitrust Division and the FTC or until early termination is granted. On July 23, 2019, V10, SCH and the VG Companies filed the required forms under the HSR Act with respect to the Business Combination with the Antitrust Division and the FTC and requested early termination. On August 9, 2019, both SCH and the VG Companies received notice that early termination had been granted.

At any time before or after consummation of the Business Combination (or the transactions contemplated by the Purchase Agreement), notwithstanding termination of the respective waiting periods under the HSR Act, the

 

134


Table of Contents

applicable competition authorities in the United States or any other applicable jurisdiction could take such action under applicable antitrust laws as such authority deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Business Combination (or the transactions contemplated by the Purchase Agreement, as applicable), conditionally approving the Business Combination (or the transactions contemplated by the Purchase Agreement, as applicable) upon divestiture of VGH, Inc.’s assets, subjecting the completion of the Business Combination (or the transactions contemplated by the Purchase Agreement, as applicable) to regulatory conditions or seeking other remedies. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. SCH cannot assure you that the Antitrust Division, the FTC, any state attorney general or any other government authority will not attempt to challenge the Business Combination (or the transactions contemplated by the Purchase Agreement, as applicable) on antitrust grounds, and, if such a challenge is made, SCH cannot assure you as to its result.

Although no approvals of the FAA are required prior to closing, the FAA may engage in a policy review with other U.S. government agencies, with regard to foreign ownership in particular, to ensure the validity and continuation of all existing government licenses, registrations, permits, and pending applications post-closing.

None of SCH or the VG Companies are aware of any material regulatory approvals or actions that are required for completion of the Business Combination other than the expiration or early termination of the waiting period under the HSR Act and registration under ITAR. It is presently contemplated that if any such additional regulatory approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Vote Required for Approval

The approval of the BCA Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of a majority of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. Abstentions and brokernon-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the extraordinary general meeting.

The BCA Proposal is conditioned on the approval of each of the Condition Precedent Proposals. Therefore, if each of the Condition Precedent Approvals is not approved, the BCA Proposal will have no effect, even if approved by holders of ordinary shares.

Resolution

The full text of the resolution to be passed is as follows:

RESOLVED, as an ordinary resolution, that the Company’s entry into the Merger Agreement, dated as of July 9, 2019, as amended on October 2, 2019, as amended, (the “Merger Agreement”) by and among Vieco 10 Limited, a company limited by shares under the laws of the British Virgin Islands (“V10”), Vieco USA, Inc., a Delaware corporation and wholly owned subsidiary of V10, (“Vieco US”), Foundation Sub 1, Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH (“Merger Sub A”), Foundation Sub 2, Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH (“Merger Sub B”), Foundation Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of SCH (“Merger Sub LLC” and, collectively with Merger Sub A and Merger Sub B, the “Merger Subs”), TSC Vehicle Holdings, Inc., a Delaware corporation and an indirect wholly owned subsidiary of V10 (“Company A”), Virgin Galactic Vehicle Holdings, Inc., a Delaware corporation and an indirect wholly owned subsidiary of V10 (“Company B”), and VGH, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of V10 (“Company LLC” and, collectively with Company A and Company B, the “VG Companies” and, together with Vieco US, “VG”) (a copy of which is attached to the proxy statement/prospectus as Annex A) pursuant to which, among other things, following the Domestication of SCH to Delaware as described below: (x) Merger Sub A will merge with

 

135


Table of Contents

and into Company A, with Company A surviving the merger as a wholly owned subsidiary of VGH, Inc. (“Corp Merger A”), (y) Merger Sub B will merge with and into Company B, with Company B surviving the merger as a wholly owned subsidiary of VGH, Inc. (“Corp Merger B”) and (z) Merger Sub LLC will merge with and into Company LLC, with Company LLC surviving the merger as a wholly owned subsidiary of VGH, Inc. (the “LLC Merger” and, collectively with Corp Merger A and Corp Merger B, the “Mergers”), in each case in accordance with the terms and subject to the conditions of the Merger Agreement, be approved, ratified and confirmed in all respects.”

Recommendation of SCH’s Board of Directors

THE SCH BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SCH SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE BCA PROPOSAL.

The existence of financial and personal interests of one or more of SCH’s directors may result in a conflict of interest on the part of such director (s) between what he, she or they may believe is in the best interests of SCH and its shareholders and what he, she or they may believe is best for himself or themselves in determining to recommend that shareholders vote for the proposals. In addition, SCH’s officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “BCA Proposal—Interests of SCH’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

 

136


Table of Contents

DOMESTICATION PROPOSAL

Overview

As discussed in this proxy statement/prospectus, if the BCA Proposal is approved, then SCH is asking its shareholders to approve the Domestication Proposal. Under the Merger Agreement, the approval of the Domestication Proposal is also a condition to the consummation of the Mergers. If, however, the Domestication Proposal is approved, but the BCA Proposal is not approved, then neither the Domestication nor the Mergers will be consummated.

As a condition to Closing the Mergers, the board of directors of SCH has unanimously approved a change of SCH’s jurisdiction of incorporation by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware. In accordance with SCH’s Plan of Domestication (included as an exhibit to the registration statement of which this proxy statement/prospectus is a part), to effect the Domestication, SCH will file a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and file a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which SCH will be domesticated and continue as a Delaware corporation.

As a result of and upon the effective time of the Domestication, (1) each of the then issued and outstanding SCH Class A ordinary shares will convert automatically, on aone-for-one basis, into a share of VGH, Inc. common stock, (2) each of the then issued and outstanding SCH Class B ordinary shares will convert automatically, on aone-for-one basis, into a share of VGH, Inc. common stock; provided, however, that with respect to the SCH Class B ordinary shares held by the Sponsor, in connection with the Domestication the Sponsor will instead receive upon the conversion of the SCH Class B ordinary shares held by it, a number of shares of VGH, Inc. common stock equal to (x) the number of SCH Class B ordinary shares held by it as of immediately prior to the Domestication minus (y) after giving effect to the Domestication, the number of shares of VGH, Inc. common stock underlying the Director RSU Awards that are outstanding as of immediately prior to the Domestication, (3) each then issued and outstanding SCH warrant will convert automatically into a VGH, Inc. warrant, pursuant to the Warrant Agreement and (4) each SCH unit will convert automatically into a VGH, Inc. unit, with each VGH, Inc. unit representing one share of VGH, Inc. common stock andone-third of one VGH, Inc. warrant.

The Domestication Proposal, if approved, will approve a change of SCH’s jurisdiction of incorporation from the Cayman Islands to the State of Delaware. Accordingly, while SCH is currently governed by the Cayman Islands Companies Law, upon the Domestication, VGH, Inc. will be governed by the DGCL. We encourage shareholders to carefully consult the information set out below under “Comparison of Corporate Governance and Shareholder Rights.” Additionally, we note that if the Domestication Proposal is approved, then SCH will also ask its shareholders to approve the Organizational Documents Proposals (discussed below), which, if approved, will replace SCH’s current memorandum and articles of association under the Cayman Islands Companies Law with a new certificate of incorporation and bylaws of VGH, Inc. under the DGCL. The Proposed Organizational Documents differ in certain material respects from the Cayman Constitutional Documents and we encourage shareholders to carefully consult the information set out below under “Organizational Documents Proposals,” the Cayman Constitutional Documents of SCH, attached hereto as Annex E and the Proposed Organizational Documents of VGH, Inc., attached hereto as Annex F and Annex G.

Reasons for the Domestication

Our board of directors believes that there are significant advantages to us that will arise as a result of a change of our domicile to Delaware. Further, our board of directors believes that any direct benefit that the DGCL provides to a corporation also indirectly benefits its stockholders, who are the owners of the corporation.

 

137


Table of Contents

The board of directors of SCH believes that there are several reasons why a reincorporation in Delaware is in the best interests of SCH and its shareholders. As explained in more detail below, these reasons can be summarized as follows:

 

  

Prominence, Predictability, and Flexibility of Delaware Law. For many years, Delaware has followed a policy of encouraging incorporation in its state and, in furtherance of that policy, has been a leader in adopting, construing, and implementing comprehensive, flexible corporate laws responsive to the legal and business needs of corporations organized under its laws. Many corporations have chosen Delaware initially as a state of incorporation or have subsequently changed corporate domicile to Delaware. Because of Delaware’s prominence as the state of incorporation for many major corporations, both the legislature and courts in Delaware have demonstrated the ability and a willingness to act quickly and effectively to meet changing business needs. The DGCL is frequently revised and updated to accommodate changing legal and business needs and is more comprehensive, widely used and interpreted than other state corporate laws. This favorable corporate and regulatory environment is attractive to businesses such as ours.

 

  

Well-Established Principles of Corporate Governance. There is substantial judicial precedent in the Delaware courts as to the legal principles applicable to measures that may be taken by a corporation and to the conduct of a company’s board of directors, such as under the business judgment rule and other standards. Because the judicial system is based largely on legal precedents, the abundance of Delaware case law provides clarity and predictability to many areas of corporate law. We believe such clarity would be advantageous to VGH, Inc., its board of directors and management to make corporate decisions and take corporate actions with greater assurance as to the validity and consequences of those decisions and actions. Further, investors and securities professionals are generally more familiar with Delaware corporations, and the laws governing such corporations, increasing their level of comfort with Delaware corporations relative to other jurisdictions. The Delaware courts have developed considerable expertise in dealing with corporate issues, and a substantial body of case law has developed construing Delaware law and establishing public policies with respect to corporate legal affairs. Moreover, Delaware’s vast body of law on the fiduciary duties of directors provides appropriate protection for VGH, Inc.’s stockholders from possible abuses by directors and officers.

 

  

Increased Ability to Attract and Retain Qualified Directors. Reincorporation from the Cayman Islands to Delaware is attractive to directors, officers, and stockholders alike. VGH, Inc.’s incorporation in Delaware may make VGH, Inc. more attractive to future candidates for our board of directors, because many such candidates are already familiar with Delaware corporate law from their past business experience. To date, we have not experienced difficulty in retaining directors or officers, but directors of public companies are exposed to significant potential liability. Thus, candidates’ familiarity and comfort with Delaware laws—especially those relating to director indemnification (as discussed below)—draw such qualified candidates to Delaware corporations. Our board of directors therefore believes that providing the benefits afforded directors by Delaware law will enable VGH, Inc. to compete more effectively with other public companies in the recruitment of talented and experienced directors and officers. Moreover, Delaware’s vast body of law on the fiduciary duties of directors provides appropriate protection for our stockholders from possible abuses by directors and officers.

The frequency of claims and litigation pursued against directors and officers has greatly expanded the risks facing directors and officers of corporations in carrying out their respective duties. The amount of time and money required to respond to such claims and to defend such litigation can be substantial. While both Cayman and Delaware law permit a corporation to include a provision in its governing documents to reduce or eliminate the monetary liability of directors for breaches of fiduciary duty in certain circumstances, we believe that, in general, Delaware law is more developed and provides more guidance than Cayman law on matters regarding a company’s ability to limit director liability. As a result, we believe that the corporate environment afforded by Delaware will enable the surviving corporation to compete more effectively with other public companies in attracting and retaining new directors.

 

138


Table of Contents

Expected Accounting Treatment of the Domestication

There will be no accounting effect or change in the carrying amount of the consolidated assets and liabilities of the Company as a result of the Domestication. The business, capitalization, assets and liabilities and financial statements of VGH, Inc. immediately following the Domestication will be the same as those of SCH immediately prior to the Domestication.

Vote Required for Approval

The approval of the Domestication Proposal requires a special resolution under Cayman Islands Companies Law, being the affirmative vote of holders of at leasttwo-thirds of the ordinary shares represented in person or by proxy and entitled to vote thereon and who vote at the extraordinary general meeting. Abstentions and brokernon-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the extraordinary general meeting.

The Domestication Proposal is conditioned on the approval of each of the Condition Precedent Proposals. Therefore, if each of the Condition Precedent Approvals is not approved, the Domestication Proposal will have no effect, even if approved by holders of ordinary shares.

Resolution

The full text of the resolution to be passed is as follows:

RESOLVED, as a special resolution, that the Company be