RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2023

NOTE 5 — RELATED PARTY TRANSACTIONS

Founder Shares

On May 13, 2020, the Sponsor purchased 8,625,000 shares of the Company’s Class B common stock for an aggregate price of $25,000 (the “Founder Shares” or, individually, a “Founder Share”). On October 19, 2020, the Company effected a stock dividend of

one-third

of one Founder Share for each outstanding Founder Share and on December 15, 2020, the Company effected a dividend of 0.125 of one Founder Share for each outstanding Founder Share, resulting in 12,937,500 Founder Shares being issued and outstanding. All share and

per-share

amounts have been retroactively adjusted to reflect in the share capitalizations. The Founder Shares included an aggregate of up to 1,687,500 shares that were subject to forfeiture depending on the extent to which the underwriters’ over-allotment option was exercised, so that the number of Founder Shares would equal, on an

as-converted

basis, approximately twenty percent (20%) of the Company’s issued and outstanding common stock after the completion of the Initial Public Offering. In connection with the underwriters’ partial exercise of the over-allotment option and the forfeiture of the remaining over-allotment option, 437,500 Founder Shares were forfeited and 1,250,000 Founder Shares are no longer subject to forfeiture resulting in an aggregate of 12,500,000 Founder Shares outstanding at June 30, 2023 and December 31, 2022.

The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one (1) year after the completion of a Business Combination and (B) the date on which the Company completes a liquidation, merger, stock exchange, reorganization or similar transaction after a Business Combination that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding the foregoing, if the closing price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any twenty (20) trading days within any thirty (30)-trading day period commencing at least

one-hundred-fifty

(150) days after a Business Combination, the Founder Shares will be released from the

lock-up.

Administrative Services Agreement

The Company has agreed, commencing on December 18, 2020 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Sponsor a total of $30,000 per month for office space and administrative and support services. For the three and six months ended June 30, 2023, the Company incurred and accrued $90,000 and $180,000 in fees for these services. For the three and six months ended June 30, 2022, the Company incurred and accrued $90,000 and $180,000 in administrative services fees.

On November 16, 2021, the Company amended the terms of the administrative services agreement between the Company and an affiliate of the Sponsor (the “Amendment”) to reflect that, effective January 1, 2022, the $30,000 monthly payments from the Company to an affiliate of the Sponsor will accrue as a contingent liability, payable upon completion of an initial Business Combination.

Advisory Fee

The Company may engage M. Klein and Company, LLC, an affiliate of the Sponsor, or another affiliate of the Sponsor, as its lead financial advisor in connection with a Business Combination and may pay such affiliate a customary financial advisory fee in an amount that constitutes a market standard financial advisory fee for comparable transactions. There were no fees incurred for the three and six months ended June 30, 2023 and 2022.

Related Party Loans

Working Capital Loans

In order to finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor or the Company’s directors and officers may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of the Working Capital Loans may be convertible into warrants at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants. As of June 30, 2023 and December 31, 2022, $1,500,000 and $1,000,000 had been borrowed as described below.

On August 30, 2021, the Company entered into a convertible promissory note with the Sponsor pursuant to which the Sponsor agreed to loan the Company up to an aggregate principal amount of $1,500,000 (the “Convertible Promissory Note”). The Convertible Promissory Note is

non-interest

bearing and payable on the earlier of the date on which the Company consummates a Business Combination or the date that the winding up of the Company is effective. If the Company does not consummate a Business Combination, the Company may use a portion of any funds held outside the Trust Account to repay the Promissory Note; however, no proceeds from the Trust Account may be used for such repayment. Up to $1,500,000 of the Convertible Promissory Note may be converted into warrants at a price of $1.00 per warrant at the option of the Sponsor. The warrants would be identical to the Private Placement Warrants. On August 30, 2021, October 22, 2021 and February 2, 2023, the Company borrowed $500,000 on each respective date against the convertible promissory note entered into on August 30, 2021. As of June 30, 2023 and December 31, 2022, $1,500,000 and $1,000,000 had been borrowed with $0 and $500,000 remaining for withdrawal, respectively.

The Company assessed the provisions of the Convertible Promissory Note under

ASC470-20.

The derivative component of the obligation is initially valued and classified as a derivative liability. The conversion option was valued using an option pricing framework, which is considered to be a Level 3 fair value measurement and based on the following assumptions (see Note 9):


	June 30, 2023			December 31, 2022			October 22, 2021 Borrowing (Initial Measurement)			August 30, 2021 Borrowing (Initial Measurement)
Underlying warrant value	$	0.0000		$	0.0000		$	0.1607		$	0.2228
Exercise price	$	1.00		$	1.00		$	1.00		$	1.00
Holding period		0.46			.33			0.25			0.25
Risk-free rate %		4.05	%		3.94	%		1.33	%		0.91	%
Volatility %		0.1	%		1.0	%		15.5	%		17.7	%
Dividend yield %		0.0	%		0.0	%		0.0	%		0.0	%

The following table presents the change in the fair value of conversion option liability for the three and six months ended June 30, 2023 and 2022.


Fair value as of January 1, 2023	$	—
Change in fair value		—

Fair value as of June 30, 2023	$	—


Fair value as of January 1, 2022	$	145,441
Change in fair value		(138,741	)

Fair value as of March 31, 2022		6,700
Change in fair value		(6,700	)

Fair value as of June 30, 2022	$	—

The debt discount is being amortized to interest expense as a

non-cash

charge over the term of the Convertible Promissory Note, which was assumed to mature in August 2022, the Company’s expected Business Combination date. The Company does not have an estimate as to when the Business Combination will occur, the debt discount has been amortized using the initial estimate of August 2022. There was no remaining balance of the debt discount as of June 30, 2023 and December 31, 2022. The conversion option had no value as of the February 2, 2023 $500,000

draw and March 31, 2023 measurement. As such, no debt discount was recorded.

On November 16, 2021, the Company entered into a promissory note (the “Promissory Note”), bearing interest of 1.0% per annum with the sponsor, pursuant to which the Sponsor agreed to loan the Company up to an aggregate principal amount of $1,000,000. Any borrowed amounts against the Promissory Note are due upon a successful Business Combination or SPAC dissolution, if funds are available. As of this filing, there is $1,000,000 available for withdrawal under the Promissory Note.

Extension Promissory Note

On March 7, 2023, the Sponsor agreed to make monthly deposits directly to the Trust Account in the amount of $250,000 following the approval and implementation of the Extension Amendment Proposal. Such

contributions

will be made pursuant to

the Extension Promissory Note issued by the Company to the Sponsor. The Extension Promissory Note provides up to $2,250,000. The Extension Promissory Note is due at the completion of a Business Combination. Contributions are paid monthly beginning on March 17, 2023 until the earliest to occur of (i) the consummation of the Business Combination, (ii) December 17, 2023 and (iii) if a Business Combination is not consummated, the date of liquidation of the Trust Account, as determined in the sole discretion of our board of directors. The Extension Promissory Note will mature on the earlier of (1) the date we consummate a Business Combination and (2) the date that the winding up of the Company is effective. As of June 30, 2023, the Extension Promissory Note had a balance of $1,000,000 with $1,250,000 available for withdrawal.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 2
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480990/946-20-50-2

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
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-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480990/946-20-50-5

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
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-URI https://asc.fasb.org//1943274/2147480990/946-20-50-6

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
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-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481062/946-235-50-2

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
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-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481062/946-235-50-2

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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-SubTopic 10
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-Publisher FASB
-URI https://asc.fasb.org//1943274/2147483326/850-10-50-1

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
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-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.6-07(2)(e))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147483575/946-220-S99-1

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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-Publisher FASB
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Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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Reference 12: http://www.xbrl.org/2003/role/disclosureRef
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-URI https://asc.fasb.org//1943274/2147483326/850-10-50-1

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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-Section 50
-Paragraph 1
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147483326/850-10-50-1

+ Details

Churchill Capital Corp V 10-Q