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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One)
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission file number 001-39116
Katapult Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 81-4424170 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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5204 Tennyson Parkway, Suite 500 Plano, TX | | 75024 |
(Address of principal executive offices) | | (Zip Code) |
(833) 528-2785
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $0.0001 per share | KPLT | The Nasdaq Stock Market LLC |
| Redeemable Warrants | KPLTW | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☐ | | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
Emerging growth company | ☒ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Based on the closing sale price of $10.81 for our common stock on The Nasdaq Capital Market on June 30, 2021, the aggregate market value of outstanding shares of common stock held by non-affiliates was approximately $593 million. This calculation excludes shares of the registrant's common stock held by current executive officers, directors and stockholders that the registrant has concluded are affiliates of the registrant. This determination of affiliate status is not a determination for other purposes.
The number of shares of the registrant's common stock outstanding as of March 11, 2022 was 97,854,865.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Definitive Proxy Statement for our 2022 Annual Meeting, expected to be filed within 120 days of our fiscal year end, are incorporated by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
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| Notes to Consolidated Financial Statements | |
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In this report, unless otherwise stated or the context otherwise indicates, the terms "we," "us," "our," the "Company," or "Katapult" refer to Katapult Holdings, Inc. and its subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, (“Annual Report” or “Form 10-K”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this report, including statements regarding our opportunity, our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “assume” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will,” “would,” or the negative of these terms or other similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
•execution of our business strategy, including launching new product offerings and expanding information and technology capabilities;
•our market opportunity and our ability to acquire new customers and retain existing customers;
•general economic conditions in the markets where we operate, the cyclical nature of consumer spending, and seasonal sales and spending patterns of customers;
•failure to realize the anticipated benefits of the business combination with FinServ Acquisition Corp.;
•factors affecting consumer spending that are not under our control, including, among others, levels of employment, disposable consumer income, prevailing interest rates, consumer debt and availability of credit, pandemics (such as COVID-19), consumer confidence in future economic conditions and political conditions, and consumer perceptions of personal well-being and security;
•risks relating to uncertainty of our estimates of market opportunity and forecasts of market growth;
•risks related to the concentration of a significant portion of our business with a single merchant partner, or type of merchant or industry;
•the effects of competition on our future business;
•the impact of the COVID-19 pandemic and its effect on our business;
•reliability of our platform and effectiveness of our risk model;
•protection of confidential, proprietary or sensitive information, including confidential information about consumers, and privacy or data breaches, including by cyber-attacks or similar disruptions;
•ability to attract and retain employees, executive officers or directors;
•meeting future liquidity requirements and complying with restrictive covenants related to long-term indebtedness;
•effectively respond to general economic and business conditions;
•obtain additional capital, including equity or debt financing;
•enhance future operating and financial results;
•anticipate rapid technological changes;
•comply with laws and regulations applicable to our business, including laws and regulations related to rental purchase transactions;
•stay abreast of modified or new laws and regulations applying to our business, including rental purchase transactions and privacy regulations;
•maintain relationships with merchant partners;
•respond to uncertainties associated with product and service developments and market acceptance;
•anticipate the impact of new U.S. federal income tax law;
•that we have identified material weaknesses in our internal control over financial reporting which, if not corrected, could affect the reliability of our consolidated financial statements;
•successfully defend litigation;
•litigation, regulatory matters, complaints, adverse publicity and/or misconduct by employees, vendors and/or service providers; and
•other events or factors, including those resulting from civil unrest, war, foreign invasions (including the conflict involving Russia and Ukraine), terrorism, or public health crises, or responses to such events.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Form 10-K. Other sections of this Form 10-K may include additional factors that could harm our business and financial performance. Moreover, we operate
in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, events, or circumstances. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Form 10-K and the documents that we have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (ir.katapultholdings.com), our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website. The contents of our website are not incorporated into this filing. We have included our investor relations website address only as an inactive textual reference and do not intend it to be an active link to our website.
Part I
Item 1. Business
Corporate History and Background
Katapult Holdings, Inc., formerly known as FinServ Acquisition Corp. (“FinServ”), was incorporated in the state of Delaware in August 2019 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On December 18, 2020, FinServ entered into that certain Agreement and Plan of Merger, dated December 18, 2020 (the “Merger Agreement”), by and among FinServ, Keys Merger Sub 1, Inc. (“Merger Sub 1”), a wholly owned subsidiary of FinServ, Katapult Intermediate Holdings LLC (formerly known as Keys Merger Sub 2, LLC) (“Merger Sub 2”), a wholly owned subsidiary of FinServ, the entity formerly known as Katapult Holdings. Inc. (formerly known as Cognical Holdings, Inc.), a Delaware corporation (“Legacy Katapult”), and Orlando Zayas, in his capacity as the representative of all pre-closing stockholders. On June 9, 2021 (the “Closing Date”), the transactions contemplated pursuant to the Merger Agreement were consummated through the merger of Merger Sub 1 with and into Legacy Katapult, with Legacy Katapult surviving the merger as a wholly owned subsidiary of FinServ (the “First Merger”), followed immediately by the merger of the resulting company with and into Merger Sub 2, with Merger Sub 2 surviving the merger as a wholly owned subsidiary of FinServ (the “Second Merger” and collectively with the First Merger, and the other transactions contemplated by the Merger Agreement, the “Merger”). On the Closing Date, and in connection with the closing of the Merger, FinServ changed its name to Katapult Holdings, Inc. and Merger Sub 2 changed its name to Katapult Immediate Holdings LLC.
The Merger and related transactions were accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with generally accepted accounting principles in United States of America (“GAAP”). Under this method of accounting, FinServ was treated as the “acquired” company for financial reporting purposes with Legacy Katapult determined to be the accounting acquiror. This determination was primarily based on Legacy Katapult’s stockholders prior to the Merger having had a majority of the voting rights in the combined company, Legacy Katapult’s operations represented the ongoing operations of the combined company, Legacy Katapult and its former owners had the right to appoint a majority of the directors in the combined company, and Legacy Katapult's senior management represented the senior management of the combined company. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Legacy Katapult issuing stock for the net assets of FinServ, accompanied by a recapitalization. The net assets of FinServ are stated at historical cost, with no goodwill or other intangible assets recorded. See Note 1 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on the Merger and related transactions.
Our wholly owned subsidiaries are Katapult Intermediate Holdings LLC, a Delaware limited liability company formed in December 2020, Katapult Group, Inc. (formerly known as Cognical, Inc.), a Delaware corporation incorporated in March 2012, and Katapult SPV-1 LLC, a Delaware limited liability company formed in March 2019. Legacy Katapult was incorporated in the state of Delaware in 2016. Since April 2019, Katapult SPV-1 LLC has originated all of our lease agreements with customers and owns all of the leased property since April 2019.
Unless otherwise noted, “we”, “us”, “our”, “Katapult”, and the “Company” and similar terms refer to Legacy Katapult and its subsidiaries prior to the consummation of the Merger, and Katapult Holdings, Inc. and its subsidiaries after the Merger.
Company Overview
We are a next-generation platform for digital and mobile-first commerce focused on the non-prime consumer. We provide point-of-sale (POS) lease-purchase options for the underserved U.S. non-prime consumer who may be unable to access traditional financing products to purchase everyday durable goods from our e-
commerce merchant partners. Our proprietary technology solution is designed to drive engagement by our network of merchants with the underserved non-prime U.S. consumer. We believe our merchant partners benefit from higher retail conversion and greater marketing spend efficiency being able to reach this underserved segment.
The platform is designed to provide consumers a frustration-free checkout experience that is simple, easy and transparent. Consumers complete a three-step application and our fully automated approval process generates a decision in five seconds or less on average. We empower customers by providing flexibility in their lease-to-own arrangement. Customers can make payments on a weekly, bi-weekly, semi-monthly or monthly basis, and we offer transparent payment options, including allowing customers to make payments for their full renewal term, exercise an early purchase option (buyout), or return items if they have life cycle events or decide their needs change. In addition, we do not charge late fees.
Our solution is designed to enable merchants to efficiently promote and move inventory by allowing merchants to reach a previously inaccessible customer with the goal of driving incremental sales and lowering customer acquisition cost.
We have platform integrations with leading e-commerce platforms and prime lenders. Through e-commerce platform integrations with Shopify, BigCommerce, Magento, and WooCommerce, among others, we can complete initial integrations with merchants with ease. Our prime lender integrations lead to higher approval rates for merchants who have included us as a payment option, ensuring that consumers have options at the checkout and merchants make the most of every consumer site visit.
Technology is at the core of everything we do from simplifying the customer experience to driving repeat transactions. Our proprietary risk models have been built on alternative data sets, including data from over 800,000 lease-to-own transactions and over six plus years of repayments. Furthermore, the platform’s risk management models are built to utilize machine learning to incorporate additional data from new lease-purchase transactions.
From inception through December 31, 2021, we have approved more than 1.8 million customers. We had a net promoter score (NPS) of 54 as of December 31, 2021. NPS is a score that measures the likelihood of users to recommend a company’s products or services to others, and ranges from a low of negative 100 to high of positive 100, and benchmark scores can vary significantly by industry. A score greater than zero represents a company having more promoters than detractors.
For the years ended December 31, 2021, 2020, and 2019, total revenue was approximately $303.1 million, $247.2 million and $91.9 million, respectively. In 2021 we experienced revenue growth of approximately 23%. We generated net income of approximately $21.2 million and $22.5 million for the fiscal year ended December 31, 2021 and 2020, respectively. We incurred a net loss of approximately $18.8 million during the fiscal year ended December 31, 2019.
Industry Background
Our lease-purchase platform offers consumers an alternative to traditional financing of electronics, computers, home furnishings, appliances and other durable goods. Non-prime consumers typically do not have sufficient cash or credit to obtain these goods.
Lease-to-Own Transaction
A lease-to-own ("LTO") transaction is a flexible alternative for consumers to obtain and enjoy brand name merchandise with no long-term obligation. Key features of our lease-to-own transactions include:
• Access to e-commerce retailers. We are a transaction option at checkout for well-known e-commerce merchants such as Wayfair, Lenovo, Nectar, and Purple.
• Convenient payment options. Customers make payments on a weekly, bi-weekly, semi-monthly or monthly basis. Payments can be automatically charged to the customer’s authorized credit card, checking account or debit card. Additionally, customers may make additional payments and exercise cost-saving early payment options.
• No long-term commitment. Customers have the flexibility of no long-term commitment and may return the item under the terms of the lease agreement if he or she does not exercise a purchase option or renew the lease.
Virtual Lease-to-Own Market
According to management estimates, the total addressable market for the virtual lease-to-own market is estimated to be approximately $40 - $50 billion. Based on our 2021 gross originations, we believe that we currently capture less than 1% market share in this market.
Our Solution
We believe we are transforming the way non-prime consumers can purchase durable goods by providing a seamless, easy, and transparent application and checkout experience.
Consumer Features
• Lease-to-own of durable goods. We empower consumers with access to a path to ownership for new and used durable goods and accessories to support such goods with a leasable amount ranging from $100 to $3,500.
• Simple process and efficient approval. Through an easy 3-step application process requiring basic information inputs and no hard credit check, consumers receive fully-automated approval on average in less than 5 seconds.
• Flexible repayment options. Customers can elect to lease an item for the full term, pay off the lease early, or return the item at any time during the term of the lease. To lower the total cost of the lease, during the first 90 days of the lease, customers have an option to purchase the item for a total cost-to-own of the cash price of the item plus a 5% fee in certain states. A $45 fee is also charged in certain states. After 90 days, an early purchase option is available at any time which permits customers to purchase the item for meaningfully less than the full-term cost-to-own as described below. Our customers have the flexibility of no long-term commitment and may return the item under the terms of the lease agreement if he or she does not exercise a purchase option or renew the lease. The payment term for the lease ranges from 10, 12 or 18 months. Payment frequency can be weekly, bi-weekly, semi-monthly or monthly based on a customer's pay frequency.
The total cost a customer may pay in connection with our lease-purchase transaction depends on certain factors, including, but not limited to: (1) total cost limitations, which vary across states and generally range between 2.0 and 2.25 times the cash price, referred to as the Lease Multiple, (2) the maximum length of the lease agreement term (typically 10-18 months), (3) whether the early purchase option (buyout) is exercised, and (4) whether the customer exercises their right to terminate the lease, without penalty if current, thereby ending additional renewal payment obligations. In general, during the first ninety (90) days, our customers have the ability to purchase the good for the cash price of the item plus 5% and any applicable fees (including initial fees, where applicable) and taxes. After ninety (90) days, but prior to reaching the maximum renewal term, the customer may exercise the purchase option at a discount on the remaining lease renewal payments (typically 55–65% of the remaining renewal payments).
Customers may renew through the maximum term at which point they will have paid approximately 2 times the cash price to own the item. Customers have the option to terminate the lease at any time with no penalty or
further obligation (other than the lease cost already incurred). Upon termination, the customer must return the durable good that had been leased, which can be returned to us or the merchant if within the merchant's return period. Lease-purchase transactions, unlike credit or a loan, are not subject to variable interest rates and do not include finance charges. Below is an illustrative timeline depicting the total cost a customer would pay at certain points during the life of the transaction:
Merchant Features
• Marketing capabilities. We enable merchants to offer non-prime consumers a lease-purchase option at point of sale, which is coupled with Katapult tools and digital resources to attract, identify and educate consumers on the Katapult option for paying over time.
• Analytics. We provide merchants with insightful analytics that help them understand performance and activity associated with non-prime applications. The platform also offers other key insights into customers’ shopping habits to help merchants optimize customer conversion and customer acquisition costs.
• Client success support. Our client success team partners with merchants to analyze and interpret the insights delivered through the merchant platform. Our team conducts in-depth user experience analyses of merchant online storefronts, providing custom recommendations for the ideal mix and display of our product offerings to present to customers in order to optimize average order values and conversion rates.
• Simple integration and highly customizable solution. Our off-the-shelf, custom integration options are designed to provide seamless flexibility to merchants seeking efficient and effective rollouts of digital POS solutions.
• Developer documentation. Our developer portal contains extensive developer documentation that makes it easy for developers to integrate via turnkey solutions, custom application programming interfaces ("API"), hosted programs, or other integrations.
We believe that merchants realize the following benefits from our platform:
• More customers. Merchants add incremental customers from the non-prime segment who otherwise might not be shopping on their site.
• Better conversion. Merchants have the potential to increase customer conversion when they offer our platform as it provides customers an alternative financing solution.
• High rate of repeat customers. Our easy-to-use platform has generated a loyal following of repeat customers (defined as customers who have originated more than one lease with Katapult over their lifetime). During the fiscal year ended December 31, 2021, 41% of our gross originations were completed with repeat customers.
• Ease of integration. Our direct API allows for fast integration with minimal investment with merchants able to easily connect the platform to their existing online shopping cart. Moreover, we provide a dedicated integration team to ensure efficient rollouts.
Merchant Partners
We are party to an agreement with Wayfair Inc., dated November 24, 2020, whereby we provide Wayfair customers with lease-purchase options for certain Wayfair products directly on Wayfair’s customer website (the "Wayfair Agreement"). We originated approximately 63%, 70% and 60% of our gross originations for the years ended December 31, 2021, 2020 and 2019, respectively through the Wayfair Agreement. We originally entered into a retailer agreement with Wayfair in September 2018, which was superseded by the Wayfair Agreement. The Wayfair Agreement continues for successive two-year terms and may be terminated by either party at any time and for any reason provided that the terminating party provides written notice sixty days prior to the date of termination. The Wayfair Agreement does not prohibit Wayfair from offering LTO options from our competitors. The Wayfair Agreement allows us to benefit from Wayfair’s broad range of product offerings and market ourselves to a larger audience of consumers who may seek alternative payment options
As of December 31, 2021, we had over 150 total merchants on the platform. Our top ten merchants in the aggregate represented approximately 90%, 90% and 87% of our total gross originations for the fiscal years ended December 31, 2021, 2020 and 2019, respectively.
Developer-First Approach to Integration
Our platform is designed to be easy and seamless to integrate regardless of integration method:
• Platform plug-in: Our API is fast and easy to integrate with a number of e-commerce platforms, including Shopify, Magento, WooCommerce and BigCommerce. Integrations with these platforms allow merchants to offer the Katapult lease purchase as an option at checkout, process our charges in their respective order management systems, and gain access to the Katapult's platform-based analytics software while maintaining control over the customer experience.
• Direct API: Our API enables merchants to fully control the placement and experience of our offering, which we believe aids the seamless integration of our lease-purchase option into the merchant’s existing infrastructure.
• Waterfall partnerships: A waterfall is where the application will flow from the prime lender to other financing and lease-purchase options automatically; this gives the consumer the best option for their situation. Our technology supports sophisticated integration with these partners with the goal of ensuring a smooth and efficient customer transaction experience during application and checkout.
Our Technology and Risk Assessment Model
Native E-Commerce Solution
We were born and bred to be an e-commerce solution for consumers and we believe we are the only non-prime consumer POS lease-purchase platform focused on e-commerce. We offer a fully-digital, seamless and differentiated platform driven by proprietary technology and risk models that have been developed over several years.
Technology, Engineering Talent and Product Architecture
Our proprietary technology platform is essential to our core operations. We utilize modern, cutting-edge technology including sophisticated behavioral machine learning models and cloud-based computing designed to offer a seamless digital consumer experience on the front end as well as a constantly evolving real-time decision engine on the back end. In order to build these proprietary, innovative and secure products, we place a significant emphasis on identifying and employing talented and driven technology-focused professionals and engineers.
Data Driven
Our proprietary technology platform combined with data collection, accumulation and analysis provide us with meaningful insights that allow the business to perform better. As additional data from new transactions is continuously incorporated into the risk assessment models, algorithms and business practices, we are able to improve our risk assessment model, algorithms and business practices over time. We believe this allows us to further mitigate repayment and fraud risk. Additionally, we leverage customer preference and activity data to identify opportunities for repeat business, new customer offerings and general performance enhancements.
We use a complex set of proprietary approval and existing customer modeling to achieve low levels of fraud and high payment performance, with the goal of protecting consumers, merchants, and us. The platform checks approximately 100 transaction attributes and up to 2,000 data points in aggregate across the fraud detection and risk models, from a minimum of seven user inputs consumers provide and data acquired from other sources.
Proprietary Risk Assessment Models
Our proprietary, end-to-end technology platform has been designed and built to handle the volume and data from e-commerce transactions. The system is non-FICO based, relying on internally developed scoring and analytics to identify appropriate customers for our lease-purchase offering. Our behavioral learning-based risk models are designed to effectively price risk and provide customized recommendations. The platform considers data beyond traditional credit scores, such as lease history, behavioral biometrics and mobile device information to predict repayment ability, and leverages this with real-time response data.
Lean and Scalable Model
Compared to brick-and-mortar non-prime options, we have been successful in addressing the non-prime consumer through POS solutions on e-commerce merchant websites.
As compared to brick and mortar non-prime options, we believe our model focused on the e-commerce POS lease-purchase option is efficient and scalable for the following reasons:
• Over time as transaction volume grows, we are positioned to achieve more operating leverage. Our model is primarily driven by a technology platform that does not require significant increases in operating overhead to support sales growth.
• We have no inventory risk and offer a drop-ship option. We do not have the costs associated with buying, storing and shipping inventory. Instead, goods are shipped directly to consumers.
Our Growth Strategies
We believe we have several strong levers for growth including the opportunity to increase market share of the e-commerce durable goods market. We estimate that we capture less than 1% of the virtual lease-to-own market, based on our 2021 gross originations.
We believe we will significantly benefit from increasing e-commerce adoption, deepening relationships with existing merchants, and further partner expansion. New merchants and partner POS integrations, as well as product enhancements and new product diversification also present additional areas of potential growth. In addition, data analytics services and merchant co-marketing initiatives and dynamic consumer scoring models are other potential avenues to drive growth.
Our multi-pronged growth strategy is designed to create opportunities that drive value for consumers and merchants. Near-term areas of focus include expanding to higher-frequency transactions, expanding customer reach, and expanding merchant reach.
Significant levers for continued organic growth
• Deepen relationships with existing merchants. Currently, our transactions represent a modest percentage of the average transaction volume for merchants on the platform. We believe we can increase our share of existing merchants’ overall transaction volumes with our technology, by proactively building relationships with merchants and our customer base through dedicated sales and customer success teams.
• Partner expansion. We have identified thousands of eligible merchants offering durable goods that could benefit from access to our platform. We plan to pursue business relationships with eligible merchants on these platforms, as well as identify and integrate our platform into new or emerging systems and networks to attract additional merchant communities. We have expanded our sales and business development teams to pursue these merchants.
• New merchant and partner POS integrations. We have the opportunity to increase the number of integrated merchants on the network through our dedicated sales team and referral relationships.
• Product enhancements and new product diversification. We plan to enhance our current product offering and diversify with new product development with the goal of helping merchants increase conversion rates, repeat transaction rates and customer satisfaction.
Expand Consumer Reach
• Add more consumers to the network. As more consumers join the network, our risk models become more efficient and robust, thereby positioning us to reach more non-prime consumers reliably. Merchant co-marketing initiatives intend to attract new consumers to try lease-to-own as a payment preference.
• Drive repeat use. We aim to continue driving repeat use of our platform by treating customers with respect, identifying consumer needs and focusing on customer satisfaction, paired with delivering data analytics to merchants to support shopping behaviors.
• Innovate on new product solutions. We are focused on innovating and bringing new financial partnerships and products to market for non-prime consumers.
Competition
We compete with national, regional and local operators of lease-to-own stores, virtual lease-to-own companies, traditional and e-commerce retailers (including many that offer layaway programs and/or installment payment options), traditional and online sellers of new and used merchandise, and various types of consumer finance
companies that may enable customers to shop at traditional or online retailers, as well as with rental stores that do not offer their customers a purchase option.
Sales and Marketing
Our marketing strategy includes brand marketing, communications, and co-marketing campaigns that we collaborate on with our merchant partners. Brand marketing increases awareness among consumers and merchants, helping them understand the benefits of our platform. We utilize dedicated sales teams and leverage strategic partnerships with other platforms to expand our merchant and consumer base.
Seasonality
We experience seasonal fluctuations in our revenue as a result of consumer spending patterns. Historically, our revenue is moderately seasonal and strongest during the first quarter primarily due to historically gradually increases in the fourth quarter as a result of the holiday season, as well as the receipt by our customers in the first quarter of federal and state income tax refunds. Our customers will more frequently exercise the early purchase option on their existing lease agreements or purchase merchandise during the first quarter of the year. Adverse events that occur during these months could have a disproportionate effect on our financial results for the fiscal year.
Employees and Human Capital Resources
Human Capital Oversight
Our employees are critical to our success. As of December 31, 2021, we had 130 employees primarily located in the United States. We also engage a small number of consultants and contractors to supplement our permanent workforce. To date, we have not experienced any work stoppages and maintain good working relationships with our employees. None of our employees are subject to a collective bargaining agreement or are represented by a labor union at this time.
At Katapult, our people are our most valuable resource and critical to our success. We believe in an open and collaborative work environment which encourages employees to be accountable and take ownership in their performance and development. Our executive management team creates a culture and environment where every team member can achieve success. The Compensation Committee of our board of directors is engaged in the oversight of our employees, work environment, and compensation practices, and receives regular updates from management on progress and developments, and our executive management team and Compensation Committee receive regular reports on progress against our annual human resources goals.
We offer competitive compensation to attract and retain top talent. Our total compensation packages generally include market-competitive salary, bonus, sales commissions and equity awards. We strive to provide competitive compensation packages to all employee positions consistent with skill level, geographic location and experience. At least annually, we review our compensation practices internally and with the assistance of a third-party compensation consultant.
Regulatory
Government Regulation
Our operations are governed by the requirements of numerous federal and state laws, and by the agencies that interpret and enforce those laws. This summary is not intended to be a complete summary of the laws referred to below or of all the laws regulating our operations.
There are currently 46 states, plus the District of Columbia, that have enacted lease-purchase statutes which set forth core requirements for our personal property lease-purchase transactions. These laws dictate our obligations with regard to consumer disclosures, pricing maximums, fees, and marketing, among other requirements. These laws
may change, or the agencies charged with overseeing these laws may issue future guidance on the interpretation of these laws that is new, unforeseen, or otherwise conflicts with our current practices. Violations of these state lease-purchase laws can result in material penalties. We are unable to predict the nature or effect on our operations or earnings of unknown future legislation, regulations, agency interpretations and guidance, or judicial or administrative decisions concerning the laws governing our operations, and there can be no assurance that future laws, regulations, interpretations or decisions will not have a material adverse effect on our operations, earnings or financial condition.
We are also required to be licensed in certain states in order to engage in lease-purchase transactions. While we hold required licenses, such licensing requirements could unexpectedly change which in turn could impact our operations.
Regarding federal law, at the present time, no federal law specifically regulates the core lease-purchase transaction offered by us. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) does not regulate leases with terms of less than 90 days. Katapult’s lease-purchase transactions carry terms of, at most, month-to-month, and therefore are less than 90 days, such that the transactions do not fall within the transactions specifically covered by Dodd-Frank. These issues notwithstanding, various aspects of our business are governed by federal laws and regulations. For example, the Federal Trade Commission (“FTC”) oversees business practices that are unfair, deceptive or fraudulent to consumers, including within the lease-purchase industry. As such, we seek to ensure that we comply with FTC rules and regulations relating to our operations and we pursue compliance management practices to do so; however, any violation of such rules or regulations could have a material adverse impact on our operations.
Also, state and federal regulatory authorities, including state attorneys general offices, state agencies such as the California Department of Financial Protection and Innovation, and the FTC, are increasingly focused on the consumer financial marketplace and personal property leasing generally. At any time, these agencies could initiate new investigations or otherwise take action that could result in significant adverse changes in the regulatory landscape for the lease-purchase industry in which we operate. We cannot predict whether any state attorneys general, state consumer protection agency, or federal regulatory agency will direct investigations or regulatory initiatives towards us or our industry in the future, or what the impact of any such future action(s) might be.
In the ordinary course of our business, we may process personal or sensitive data. Accordingly, we are, or may become, subject to numerous data privacy and security obligations, including federal, state, local, and foreign laws, regulations, guidance, and industry standards related to data privacy, security, and protection. Such obligations may include, without limitation, the Federal Trade Commission Act, the Telephone Consumer Protection Act of 1991, the California Consumer Privacy Act of 2018 (“CCPA”), and the Payment Card Industry Data Security Standard (“PCI DSS”). In addition, several states within the United States have enacted or proposed data privacy laws. For example, Virginia passed the Consumer Data Protection Act, and Colorado passed the Colorado Privacy Act.
The CCPA is an example of the increasingly stringent and evolving regulatory frameworks related to personal data processing that may increase our compliance obligations and exposure for any noncompliance. The CCPA imposes obligations on covered businesses to provide specific disclosures related to a business’s collecting, using, and disclosing personal data and to respond to certain requests from California residents related to their personal data (for example, requests to know of the business’s personal data processing activities, to delete the individual’s personal data, and to opt out of certain personal data disclosures). Also, the CCPA provides for civil penalties and a private right of action for data breaches which may include an award of statutory damages. In addition, the California Privacy Rights Act of 2020 (“CPRA”), effective January 1, 2023, will expand the CCPA. The CPRA will, among other things, give California residents the ability to limit use of certain sensitive personal data, establish restrictions on personal data retention, expand the types of data breaches that are subject to the CCPA’s private right of action, and establish a new California Privacy Protection Agency to implement and enforce the new law. U.S. federal and state consumer protection laws require us to publish statements that accurately and fairly describe how we handle personal data and choices individuals may have about the way we handle their personal data.
As a Company, we seek to ensure that all employees act in a legal, ethical and dignified manner and carry out the Company’s business consistent with such standards and consistent with the laws discussed above. See the section titled “Risk Factors” for additional information about the laws and regulations to which we may become subject and about the risks to our business associated with such laws and regulations.
Intellectual Property
Intellectual property and proprietary rights are important to the success of our business. We rely on a combination of patent, copyright, trademark, and trade secret laws in the United States, as well as license agreements, confidentiality procedures, non-disclosure agreements, and other contractual protections, to establish and protect our intellectual property and proprietary rights, including our proprietary technology, software, know-how, and brand. However, these laws, agreements, and procedures provide only limited protection. As of December 31, 2021, we owned three registered trademarks and two trademark applications in the United States.
Although we take steps to protect our intellectual property and proprietary rights, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, or the reverse engineering of our technology and other proprietary information, including by third-parties who may use our technology or other proprietary information to develop services that compete with ours.
See the section titled “Risk Factors” for a more comprehensive description of risks related to our intellectual property and proprietary rights.
Available Information
Our principal executive offices are located at Katapult Holdings, Inc., 5204 Tennyson Parkway, Suite 500, Plano, TX 75024, and Katapult’s telephone number is (833) 528-2785. Our website address is www.katapult.com. Information contained on or accessible through our website is not a part of this Annual Report, and the inclusion of our website address in this Annual Report is an inactive textual reference only.
We make available on our website, free of charge, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). We also make available on our website our Code of Business Conduct and Ethics, our corporate governance principles, and the charters for the Audit, Compensation and Nominating and Corporate Governance Committees of our board of directors. The SEC maintains an internet site, www.sec.gov, containing reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.
Item 1A. Risk Factors
Our business is subject to a number of risks of which you should be aware before making a decision to invest in our securities. The summarized risks described below are not the only risks that we face. The following summarized risks as well as risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially and adversely affect our business, results of operations, financial condition, earnings per share, cash flow or the trading price of our common stock. These summarized risks include, among others, the following:
Risks Related to Our Business, Strategy and Growth
•A large percentage of our gross originations is concentrated with Wayfair and we may be unable to attract additional merchant partners as well as retain and grow our relationships with our existing merchant partners.
•Our success depends on the effective implementation and continued execution of our strategies.
•The success of our business is dependent on factors affecting consumer spending that are not under our control.
•Unexpected changes caused by macro conditions, such as inflation could cause our proprietary algorithms and decisioning tools used in approving customers to no longer be indicative of customer's ability to perform.
•Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
•We rely on the accuracy of third-party data, and inaccuracies in such data could adversely impact our approval process.
•The success and growth of our business depends upon our ability to continuously innovate and develop new products and technologies.
•To the extent that we seek to grow through future acquisitions, or other strategic investments or alliances, we may not be able to do so effectively.
Risks Related to Our Indebtedness
•We have substantial indebtedness, which reduce our capability to withstand adverse developments or business conditions.
•Our credit facility includes restrictive covenants, which could limit our flexibility and our ability to make distributions.
•A change in control as defined by our credit agreement could accelerate our obligation to pay our outstanding indebtedness, and we may not have sufficient liquid assets at that time to repay these amounts.
Financial Risks Related to Our Business
•We have a history of operating losses and may not sustain profitability in the future.
•Our revenue and operating results may fluctuate, which could result in a decline in our profitability and make it more difficult for us to grow our business.
•We rely on card issuers or payment processors which could put us at risk of suspensions or terminations of our registrations.
•We have experienced rapid growth, which may be difficult to sustain and which may place significant demands on our operational, administrative, and financial resources.
•Our ability to use our net operating loss carry forwards and certain other tax attributes may be limited.
Risks Related to Our Technology and Our Platform
•Our results depend on more prominent presentation, integration, and support of our platform by our merchants.
•Real or perceived software errors, failures, bugs, defects, or outages could have adverse effects.
•Any significant disruption in, or errors in, service on our platform or relating to vendors could prevent us from processing transactions on our platform or posting payments and have a material and adverse effect.
•Our ability to protect our confidential, proprietary, or sensitive information, including the confidential information of consumers on our platform, may be adversely affected by cyber-attacks, employee or other internal misconduct, computer viruses, physical or electronic break-ins, or similar disruptions.
•We may be at risk of identity fraud, which may adversely affect the performance of the lease-to-own transactions facilitated through our platform.
Legal and Compliance Risks
•Failure or perceived failure to comply with existing or future laws, regulations, contracts, self-regulatory schemes, standards, and other obligations related to data privacy and security (including security incidents) could harm our business. Compliance or the actual or perceived failure to comply with such obligations could increase the costs of our products or services, limit their use or adoption, and otherwise negatively affect our operating results and business.
•We are subject to securities litigation, which is expensive and could divert management attention and adversely impact our business.
•Our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting in connection with the audit of our financial statements as of and for the fiscal years ended December 31, 2021, 2020 and 2019, and we may identify additional material weaknesses in the future.
•Changes to tax laws or exposure to additional tax liabilities may have a negative impact on our operating results.
•We may be subject to legal proceedings from time to time which seek material damages.
Operational Risks Related to Our Business
•Failure to effectively manage our costs could have a material adverse effect on our profitability.
•Negative publicity about us or our industry could adversely affect our business, results of operations, financial condition, and future prospects.
•Misconduct and errors by our employees, vendors, and service providers could harm our business and reputation.
•The loss of the services of any of our executive officers could materially and adversely affect our business, results of operations, financial condition, and future prospects.
•Our business depends on our ability to attract and retain highly skilled employees.
•The COVID-19 pandemic has impacted our working environment and diverted personnel resources and any prolonged effects of the pandemic may adversely impact our operations and employees.
Other Risks
•Our management has limited experience in operating a public company.
•We will continue to incur increased costs as a result of operating as a public company, and our management will devote substantial time to new compliance initiatives.
•Future sales, or the perception of future sales, by us or our stockholders in the public market could cause the market price for our Common Stock to decline.
•The price of our securities may change significantly in the future and you could lose all or part of your investment as a result.
A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our securities could decline.
Risks Relating to Our Business and Industry
Risks Related to Our Business, Strategy and Growth
A large percentage of our gross originations is concentrated with a single merchant partner, and the loss of this merchant partner or any other key merchant relationship or partner would materially and adversely affect our business, results of operations, financial condition, and future prospects.
We depend on continued relationships with Wayfair and other key merchant partners. Our top merchant partner, Wayfair, represented approximately 63%, 70% and 60% of our gross origination dollars for the fiscal years ended December 31, 2021, 2020 and 2019, respectively. Our top ten merchant partners in the aggregate represented approximately 90%, 90%, and 87% of our gross origination dollars for the fiscal years ended December 31, 2021, 2020 and 2019, respectively. There can be no guarantee that these relationships will continue or, if they do continue, that these relationships will continue to be successful. There is a risk that we may lose merchants for a variety of reasons, including a failure to meet key contractual or commercial requirements, or if merchant partners shift to in-house solutions (including providing a service competitive to us) or competitor providers.
The concentration of a significant portion of our business and transaction volume with a single merchant or a limited number of merchants exposes us disproportionately to events, circumstances, or risks such single merchant, such as Wayfair, or other key merchants, such as risk impacting their industry, business and results of operations related to COVID-19, supply chain issues (including availability of raw materials from Russia and Ukraine), consumer spending changes, inflation, access to capital markets, labor shortages or other risks they may be facing with respect to their industry, business or results of operations. For example, supply chain issues due to disruptions from the COVID-19 pandemic and inflation have been and could continue to negatively impact our merchant partners. If our key merchant partners, in particular Wayfair, are unable to acquire new customers or retain existing customers or are negatively impacted by the ongoing COVID-19 supply chain disruptions this would impact our results of operations, financial condition and future prospects.
The loss of Wayfair as a merchant partner, in particular, would materially and adversely affect our business, results of operations, financial condition, and future prospects. In addition, a material modification in the merchant agreement with Wayfair or a significant merchant partner could affect our results of operations, financial condition, and future prospects.
We also depend on continued relationships with key partners that assist in obtaining and maintaining our relationships with merchants. There is a risk that e-commerce platforms with which we partner (such as Shopify, BigCommerce, WooCommerce, and Magneto) may limit or prevent Katapult from being offered as a payment option at checkout. We also face the risk that our key partners could become competitors of our business.
If Wayfair or another key merchant partner chooses to no longer partner with us or choose to partner with a competitor, this loss would materially and adversely affect our business, results of operations, financial condition and future prospects.
If we are unable to attract additional merchant partners and retain and grow our relationships with our existing merchant partners, our results of operations, financial condition, and prospects would be materially and adversely affected.
Our continued success is dependent on our ability to maintain our relationship with our existing merchant partners and grow our gross originations (which we define as the retail price of the merchandise associated with lease-purchase agreements entered into through the Katapult platform and do not represent revenue earned) from those existing merchant partners through their e-commerce platforms, and also to expand our merchant partner base. Our ability to retain and grow our relationships with merchant partners depends on the willingness of our merchant partners to partner with us. The attractiveness of our platform to merchant partners depends upon, among other things, our brand and reputation, ability to sustain our value proposition to merchant partners for consumer acquisition, the attractiveness to merchant partners of our digital and data-driven platform, the services, products and customer decisioning standards offered by our competitors; and our ability to perform under, and maintain, our merchant partner agreements.
In addition, competition for smaller merchant partners has intensified significantly in recent years, with many such merchant partners simultaneously offering several products and services that compete directly with the products and services offered by us. Having a diversified mix of merchant partners is important to mitigate risk associated with changing consumer spending behavior, economic conditions and other factors that may affect a particular type of retailer. If we fail to retain any of our larger merchant partners or a substantial number of our smaller merchant partners, if we do not acquire new merchant partners, if we do not continually grow our gross originations from our merchant partners, or if we are not able to retain a diverse mix of merchant partners, our results of operations, financial condition, and prospects would be materially and adversely affected.
Our success depends on the effective implementation and continued execution of our strategies.
We are focused on our mission to provide innovative lease financing solutions to non-prime consumers and to enable everyday transactions at the merchant point of sale.
Growth of our business, including through the launch of new product offerings, requires us to invest in or expand our information and technology capabilities, engage and retain experienced management, and otherwise incur additional costs. Our inability to address these concerns or otherwise to achieve targeted results associated with our initiatives could adversely affect our results of operations, or negatively impact our ability to successfully execute future strategies, which may result in an adverse impact on our business and financial results.
The success of our business is dependent on factors affecting consumer spending that are not under our control.
Consumer spending is affected by general economic conditions and other factors including levels of employment, disposable consumer income, prevailing interest rates, consumer debt and availability of credit, costs of fuel, inflation, recession and fears of recession, war and fears of war (including the conflict involving Russia and Ukraine), pandemics (such as COVID-19), inclement weather, tariff policies, tax rates and rate increases, timing of receipt of tax refunds, consumer confidence in future economic conditions and political conditions, and consumer perceptions of personal well-being and security. With respect to availability of credit, our business may be adversely impacted by, among other issues, where other consumer finance companies increase the availability of credit to our target consumer market. Unfavorable changes in factors affecting discretionary spending for non-prime consumers could reduce demand for our products and services resulting in lower revenue and negatively impacting the business and our financial results.
Inflation has recently increased at the fastest pace in nearly 40 years. Food, energy, residential rent, and other costs have increased, reflecting a tight labor market and supply chain issues. In addition to reducing demand for our products, high levels of inflation may unfavorably impact our customers' ability to make the payments they owe us, resulting in increased customer payment delinquencies and lease merchandise write-offs and decreased gross margins.
Unexpected changes caused by macro conditions, such as inflation could cause our proprietary algorithms and decisioning tools used in approving customers to no longer be indicative of our customer's ability to perform.
We believe our proprietary lease decisioning processes to be a key to the success of our business. The decisioning processes assume behavior and attributes observed for prior customers, among other factors, are indicative of performance by our future customers. Unexpected changes in behavior caused by macro conditions, including, for example, widespread and prolonged supply chain disruptions, the expiration of government stimulus payments and/or the significant increase in inflation in the U.S. which has reached levels not seen in 40 years, the U.S. economy experiencing a prolonged recession and/or job losses or increased job absenteeism for hourly employees who are our customers, related to the COVID-19 pandemic and changes in customer behavior relating thereto, may lead to increased incidence and costs related to impairment of property held for lease. Due to the nature and novelty of the crisis, and levels of inflation not experienced in decades, our decisioning process will likely require frequent adjustments and the application of greater management judgment in the interpretation and adjustment of the results produced by our decisioning tools. These decisioning tools may be unable to accurately predict and respond to the impact of a prolonged economic downturn or changes to customer behaviors, which in turn may limit the ability of our business to manage risk, avoid charge-offs and may result in insufficient reserves.
If we fail to maintain customer satisfaction and trust in our brand, our business, results of operations, financial condition, and prospects would be materially and adversely affected.
We provide an additional option for consumers seeking to purchase durable goods from e-commerce merchant partners. If consumers do not trust our brand or do not have a positive experience, they will not use our products and services and be unable to attract or retain merchant partners. In addition, our ability to attract new consumers and merchant partners is highly dependent on our reputation and on positive recommendations from our existing customers and merchant partners. Any failure to maintain a consistently high level of customer service, or a market perception that we do not maintain high-quality customer service, would adversely affect our reputation and the number of positive customer referrals that we receive and the number of new and repeat customers. As a result, our business, results of operations, financial condition, and prospects would be materially and adversely affected.
If we are unable to attract new consumers and retain and grow our relationships with our existing consumers, our results of operations, financial condition, and prospects would be materially and adversely affected.
Our continued success depends on our ability to generate repeat use and increased gross originations from existing customers and to attract new consumers to our platform. Our ability to retain and grow our relationships with our consumers depends on the willingness of consumers to use our products and services. The attractiveness of our data-driven platform to consumers depends upon, among other things, the number and variety of our merchant partners and the mix of products and services available through our platform, our brand and reputation, customer experience and satisfaction, trust and perception of the value we provide, technological innovation, and the services, products and customer decisioning standards offered by our competitors. If we fail to retain our relationship with existing customers, if we do not attract new consumers to our platform, products and services, or if we do not continually expand usage, repeat customers and gross originations, our results of operations, financial condition, and prospects would be materially and adversely affected.
We operate in a highly competitive industry, and their inability to compete successfully would materially and adversely affect our results of operations, financial condition, and prospects.
We operate in a highly competitive industry. We face competition from a variety of businesses and new market entrants, including competitors with lease-to-own products for e-commerce goods and other types of digital payment platforms. We face competition from virtual lease-to-own companies, e-commerce retailers (including those that offer layaway programs and title or installment lending), online sellers of used merchandise, and various types of consumer finance companies that may enable our customers to shop at online retailers, as well as with online rental stores that do not offer their customers a purchase option. These competitors may have significantly greater financial and operating resources, greater name recognition and more developed products and services,
which may allow them to grow faster. Greater name recognition, or better public perception of a competitor’s reputation, may help the competitor divert market share. Some competitors may be willing to offer competing products on an unprofitable basis (or may have looser decisioning standards or be willing to relax their decisioning standards) in an effort to gain market share, which could compel us to match their pricing strategy or lose business. Moreover, prime lenders may loosen their underwriting standards and provide credit to non-prime consumers, which would impact the credit quality of our customers and our business and results of operations. In addition, some of our competitors may be willing to lease certain types of products that we will not agree to lease, enter into customer leases that have services, as opposed to goods, as a significant portion of the lease value, or engage in other practices related to pricing, compliance, and other areas that we will not, in an effort to gain market share at our expense. Our business relies heavily on relationships with our merchant partners. An increase in competition could cause our merchant partners to no longer offer our product and services in favor of our competitors, or to offer our product and the products of our competitors simultaneously, which could slow growth in our business and limit or reduce profitability. Merchant partners could also develop their own in house product that competes with our product. Furthermore, virtual lease to own competitors may deploy different business models, such as direct-to-consumer strategies, that forego reliance on merchant partner relationships that may prove to be more successful.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Our market opportunity estimates, including the size of the virtual lease to own market, and expectations about market growth are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Even if the markets in which we compete meet our size estimates and growth expectations, our business could fail to grow for a variety of reasons, which could adversely affect our results of operations.
We rely on the accuracy of third-party data, and inaccuracies in such data could adversely impact our approval process.
We use data from third parties as part of our proprietary risk model used to assess whether a consumer qualifies for a lease purchase option from a merchant. We are reliant on these third parties to ensure that the data they provide is accurate. Inaccurate data could cause us to not approve transactions that otherwise would have been approved, or instead, approve transactions that would have otherwise been denied and may lead to a higher incidence of bad debts and could have an adverse impact on our results of operations and financial condition.
The success and growth of our business depends upon our ability to continuously innovate and develop new products and technologies.
Our solution is a technology-driven platform that relies on innovation to remain competitive. The process of developing new technologies and products is complex, and we build our own technology, using the latest in artificial intelligence and machine learning (“AI/ML”), cloud-based technologies, and other tools to differentiate our products and technologies. In addition, our dedication to incorporating technological advancements into our platform requires significant financial and personnel resources and talent. Our development efforts with respect to these initiatives could distract management from current operations and could divert capital and other resources from other growth initiatives important to our business. We operate in an industry experiencing rapid technological change and frequent product introductions. We may not be able to make technological improvements as quickly as demanded by our consumers and merchants, which could harm our ability to attract consumers and merchants. In addition, we may not be able to effectively implement new technology-driven products and services as quickly as competitors or be successful in marketing these products and services to consumers and merchants. If we are unable to successfully and timely innovate and continue to deliver a superior merchant and consumer experience, the demand for our products and technologies may decrease and our growth, business, results of operations, financial condition, and future prospects could be materially and adversely affected.
Further, we use AI/ML in many aspects of our business, including fraud, credit risk analysis, and product personalization. The AI/ML models that we use are trained using various data sets. If the AI/ML models are
incorrectly designed, the data we use to train them is incomplete, inadequate, or biased in some way, or we do not have sufficient rights to use the data on which our AI/ML models rely, the performance of our products, services, and business, as well as our reputation, could suffer or we could incur liability through the violation of laws, third-party privacy, or other rights, or contracts to which we are a party.
Our failure to accurately predict the demand or growth of our new products and technologies also could have a material and adverse effect on our business, results of operations, financial condition, and future prospects. New products and technologies are inherently risky, due to, among other things, risks associated with: the product or technology not working, or not working as expected; consumer and merchant acceptance; technological outages or failures; and the failure to meet consumer and merchant expectations. As a result of these risks, we could experience increased claims, reputational damage, or other adverse effects, which could be material. The profile of potential consumers using our new products and technologies also may not be as attractive as the profile of the consumers that we currently serve, which may lead to higher levels of delinquencies or defaults than we have historically experienced. Additionally, we can provide no assurance that we will be able to develop, commercially market, and achieve acceptance of our new products and technologies. In addition, our investment of resources to develop new products and technologies and make changes or updates to our platform may either be insufficient or result in expenses that exceed the revenue actually generated from these new products. Failure to accurately predict demand or growth with respect to our new products and technologies could have a material and adverse effect on our business, results of operations, financial condition, and future prospects.
To the extent that we seek to grow through future acquisitions, or other strategic investments or alliances, we may not be able to do so effectively.
We may in the future seek to grow our business by exploring potential acquisitions or other strategic investments or alliances. We may not be successful in identifying businesses or opportunities that meet our acquisition or expansion criteria. In addition, even if a potential acquisition target or other strategic investment is identified, we may not be successful in completing such acquisition or integrating such new business or other investment. We may face significant competition for acquisition and other strategic investment opportunities from other well-capitalized companies, many of which have greater financial resources and greater access to debt and equity capital to secure and complete acquisitions or other strategic investments, than we do. As a result of such competition, we may be unable to acquire certain assets or businesses, or take advantage of other strategic investment opportunities that we deem attractive; the purchase price for a given strategic opportunity may be significantly elevated; or certain other terms or circumstances may be substantially more onerous.
Any delay or failure on our part to identify, negotiate, finance on favorable terms, consummate, and integrate any such acquisition or other strategic investment opportunity could impede our growth. Additional risks relating to potential acquisitions include difficulties in integrating the operations, systems, technologies, products and personnel of the acquired businesses, diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations, the potential loss of key employees, vendors and other business partners of the businesses we acquire; and increased amounts of debt incurred in connection with such activities or dilutive issuances of our common stock.
There is no assurance that we will be able to manage our expanding operations effectively or that we will be able to continue to grow, and any failure to do so could adversely affect our ability to generate revenue and control our expenses. Furthermore, we may be responsible for any legacy liabilities of businesses we acquire or be subject to additional liability in connection with other strategic investments. The existence or amount of these liabilities may not be known at the time of acquisition, or other strategic investment, and may have an adverse effect on our business, results of operations, financial condition, and future prospects.
Risks Related to Our Indebtedness
We have substantial indebtedness, which reduce our capability to withstand adverse developments or business conditions.
We have incurred substantial indebtedness, and as of December 31, 2021, the total aggregate indebtedness under the senior secured term loan and revolving loan facility, (the "credit facility") of Katapult SPV-1 LLC (the "Borrower") was approximately $113.6 million of principal outstanding. We, together with our wholly-owned subsidiary, Katapult Group, Inc., have guaranteed the obligations of the Borrower under the credit facility. Our payments on our outstanding indebtedness are significant in relation to our revenue and cash flow, which exposes us to significant risk in the event of downturns in our business (whether through competitive pressures or otherwise), our industry or the economy generally, since our cash flows would decrease but our required payments under our indebtedness would not. Economic downturns may impact our ability to comply with the covenants and restrictions in our credit agreement governing the credit facility and may impact our ability to pay or refinance our indebtedness as it comes due, which would adversely affect our business, results of operations and financial condition.
Our overall leverage and the terms of our credit facility could also:
•make it more difficult for us to satisfy obligations;
•limit our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions;
•limit our ability to refinance our indebtedness on terms acceptable to us or at all;
•limit our ability to adapt to changing market conditions;
•restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
•require us to dedicate a significant portion of our cash flow from operations to paying the principal and interest on our indebtedness, thereby limiting the availability of our cash flow to fund future capital expenditures, working capital and other corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and in our industry generally; and
•place us at a competitive disadvantage compared with competitors that have a less significant debt burden.
In addition, the credit facility, secured by a pledge over all of the assets of the Borrower is guaranteed by us and our wholly-owned subsidiary, Katapult Group, Inc., which in turn is secured by a pledge over all of our assets and the assets of Katapult Group, Inc.
The credit agreement governing our senior secured term loan and revolving loan facility includes restrictive covenants and financial maintenance covenants, which could restrict our operations or ability to pursue our growth strategies or initiatives. Failure to comply with these covenants could result in an acceleration of repayment of the indebtedness under the credit facility, which would have a material adverse effect on our business, financial condition and results of operations.
The credit agreement governing our senior secured term loan and revolving loan facility contains customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the credit facility; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Non-scheduled repayments of certain amounts under our credit facility are subject to prepayment penalties, which would limit our ability to pay or refinance our credit facility. Our ability to meet these covenants could be affected by events beyond our control, and we may be unable to satisfy them which would prevent us from pursuing certain growth strategies or initiatives due to this limitation. These or other limitations could decrease our operating flexibility and our ability to achieve our operating objectives.
The credit agreement governing our credit facility also requires us to maintain the following financial covenants:
•Minimum Trailing Twelve Month Adjusted EBITDA: As of the end of each fiscal month, the TTM Adjusted EBITDA (as defined in the credit agreement) must not be less than (i) during the period on and after October 1, 2021 and until (and including) June 30, 2023, ($15,000,000), (ii) during the period on and after July 1, 2023 and until (and including) December 31, 2023, $0.00, and (iii) at all times thereafter, $20,000,000.
•Minimum Tangible Net Worth: As of the end of each fiscal month, the Tangible Net Worth (as defined in the credit agreement) of Katapult Holdings, Inc. and its subsidiaries, on a consolidated basis, must be greater than or equal to the sum of (i) $(18,500,000) plus (ii) the greater of (A) zero dollars and (B) fifty percent of all aggregate Parent Consolidated Net Income (as defined in the credit agreement) since April 30, 2019 (as determined in accordance with GAAP.
•Minimum Liquidity: As of any date of determination, Katapult Holdings, Inc. must not permit Liquidity (as defined in the credit agreement) to be less than $50 million of cash and cash equivalents on hand.
•Compliance with Total Advance Rate: At the end of each fiscal month and as of the making of any advance under the credit agreement, the Total Advance Rate (as defined in the credit agreement) must not exceed (i) from the period on or after October 1, 2021 to and including December 31, 2022, 140%, (ii) from January 1, 2023 to and including December 31, 2023, 130% and (iii) at all times thereafter, 120%. If at any time during which a Total Advance Rate Reserve Account is in place (as defined in the credit agreement), the Total Advance Rate exceeds the applicable rate for any of the foregoing periods, the borrower may cure such Default (as defined in the credit agreement) by depositing funds in the Total Advance Rate Reserve Account in an amount necessary to reduce the Total Advance Rate to the maximum permitted rate for such period; provided that borrower's right to cure a Default may be exercised no more than a total of five (5) times. On March 14, 2022, the borrower, Katapult Holdings, and Katapult Group, Inc. entered into the thirteenth amendment to the credit agreement to amend the number of times the borrower can cure a default with respect to compliance with the Total Advance Rate covenant from two to five. As of the date of this report, the borrower has exercised its right to cure such a default two times.
Failure to comply with any of these covenants or other obligation or agreement under the credit agreement that is not cured within the specified period under the credit agreement would result in an event of default under the agreement. In such event, if we are unable to negotiate with our lenders for a waiver or dispensation under the agreement, we would not be able to borrow under the credit agreement and our lenders would have the right to terminate the loan commitments under the credit agreement and accelerate repayment of all obligations under the credit agreement that would become due and payable immediately, which would have a material adverse effect on our business, results of operations and financial position. If we do not have sufficient liquid assets to repay amounts outstanding under the credit facility, the lenders have the right to foreclose their liens against all of our assets and take possession and sell any such assets to reduce any such obligations.
Our ability to timely raise capital in the future may be limited, or may be unavailable on acceptable terms, if at all.
The failure to raise capital when needed could harm our business, operating results and financial condition. Debt or equity issued to raise additional capital may reduce the value of our common stock. We cannot be certain when or if the operations of our business will generate sufficient cash to fund our ongoing operations or the growth of our business. We intend to make investments to support and grow our business and may require additional funds to respond to business challenges, including the need to develop or enhance our technology, expand our sales and marketing efforts or develop new products. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results and financial condition. If we incur additional debt, the debt holders could have rights senior to holders of our common stock and/or existing debt to make claims on our assets. The terms of any additional debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because the decision to issue securities in the future offering will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future issuances of debt or equity securities. As a result, stockholders will bear the risk of future issuances of debt or equity securities reducing the value of their common stock and diluting their interest.
A change in control as defined by our credit agreement could accelerate our obligation to pay our outstanding indebtedness, and we may not have sufficient liquid assets at that time to repay these amounts.
Under our credit facility, all of the outstanding loans are required to be prepaid in full (together with accrued and unpaid interest and prepayment premium) and the revolving loan commitment will terminate if a Change of Control (as defined in the credit agreement) occurs that is not approved by the lenders’ administrative agent under the credit agreement. A Change of Control includes the occurrence of the following: (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 35% or more of the equity securities of Katapult Holdings, Inc. entitled to vote for members of the board of directors (on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right), and (ii) certain changes in the composition of our board of directors occurs during a twenty-four month period which were not recommended or approved by at least a majority of directors who were directors at the beginning of such twenty-four month period.
As of December 31, 2021, we had $62.0 million of principal outstanding under the revolving portion of our credit facility. In addition, we had borrowings under our term loan of $51.7 million as of December 31, 2021.
If any specified change in control occurs and the lenders accelerate these obligations, we may not have sufficient liquid assets to repay amounts outstanding under this agreement.
The phase-out, replacement or unavailability of LIBOR and/or other interest rate benchmarks could adversely affect our indebtedness.
The interest rates applicable to our existing credit facility are based on, and the interest rates applicable to certain debt obligations we may incur in the future may be based on, a fluctuating rate of interest determined by reference to the London Interbank Offered Rate (“LIBOR”). In July 2017, the U.K.’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. In November 2020, the FCA announced that it would continue to publish LIBOR rates through June 30, 2023 for all US dollar settings except the 1 week and the 2-month U.S. Dollar settings. In response to concerns regarding the future of LIBOR, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (the “ARRC”) to identify alternatives to LIBOR. The ARRC has recommended a benchmark replacement waterfall to assist issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation. The initial steps in the ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement. Additionally, it is uncertain if LIBOR will cease to exist after calendar year 2023, or whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for LIBOR.
There can be no assurance that we will be able to reach any agreement on a replacement benchmark, and there can be no assurance that any agreement we reach will result in effective interest rates at least as favorable to us as our current effective interest rates. The failure to reach an agreement on a replacement benchmark, or the failure to reach an agreement that results in an effective interest rate at least as favorable to us as our current effective interest rates, could result in a significant increase in our debt service obligations, which could adversely affect our financial condition and results of operations. In addition, the overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR, which could have an adverse impact on our ability to refinance, reprice or amend our credit facility or incur additional indebtedness, on favorable terms or at all.
Financial Risks Related to Our Business
We have a history of operating losses and may not sustain profitability in the future.
We generated net income of approximately $21.2 million during the year ended December 31, 2021 and net income of approximately $22.5 million in the fiscal year ended December 31, 2020. We incurred a net loss of approximately $18.8 million in the fiscal year ended December 31, 2019. As of December 31, 2021, our accumulated deficit was approximately $36.8 million. We anticipate that our operating expenses will increase in the foreseeable future as we seek to continue to grow our business, attract consumers, merchants, and funding sources, and further enhance and develop our products and platform. As we expand our offerings to additional markets, our offerings in these markets may be less profitable than the markets in which we currently operate. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. We may incur net losses in the future and may not maintain profitability on a quarterly or annual basis.
Our revenue and operating results may fluctuate, which could result in a decline in our profitability and make it more difficult for us to grow our business.
Our revenue and operating results may vary from quarter to quarter and by season. Periods of decline could result in an overall decline in profitability and make it more difficult for us to make payments on our indebtedness and grow our business. We expect our quarterly results to fluctuate in the future due to a number of factors, including general economic conditions in the markets where we operate, the cyclical nature of consumer spending, and seasonal sales and spending patterns of customers.
We rely on card issuers or payment processors. If we fail to comply with the applicable requirements of Visa or other payment processors, those payment processors could seek to fine us, suspend us or terminate our registrations, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
We rely on card issuers or payment processors, and must pay a fee for this service. From time to time, payment processors such as Visa may increase the interchange fees that they charge for each transaction using one of their cards. The payment processors routinely update and modify their requirements. Changes in the requirements, including changes to risk management and collateral requirements, may impact our ongoing cost of doing business and we may not, in every circumstance, be able to pass through such costs to our merchants or associated participants. Furthermore, if we do not comply with the payment processors’ requirements (e.g., their rules, bylaws, and charter documentation), the payment processors could seek to fine us, suspend us or terminate our registrations that allow us to process transactions on their networks. The termination of our registration due to failure to comply with the applicable requirements of Visa or other payment processors, or any changes in the payment processors’ rules that would impair our registration, could require us to stop utilizing payment services from Visa or other payment processors, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
We have experienced rapid growth, which may be difficult to sustain and which may place significant demands on our operational, administrative, and financial resources. Raising additional funds to sustain our growth by issuing securities may cause dilution to existing stockholders and raising funds through lending arrangements may restrict our operations.
Since inception we have experienced significant transaction volume and revenue growth. Our revenue has increased year-over-year since 2018. We have a relatively limited operating history at our current scale, and our growth in recent periods exposes us to increased risks, uncertainties, expenses, and difficulties. If we are unable to maintain at least our current level of operations using cash flow, our business, results of operations, financial condition, and future prospects would be materially and adversely affected.
If in the future we need to raise additional capital by issuing equity securities, our existing stockholders’ ownership will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
Any debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets as well as prohibitions on our ability to create liens, pay dividends, redeem our stock, or make investments. If we are unable to raise additional funds through equity or debt financings when needed, it could affect the results of our operations, financial condition, and future prospects.
Our ability to use our net operating loss carry forwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change", generally defined as a greater than 50.0% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. The completion of the Business Combination may trigger an “ownership change” limitation. We have not completed a formal study to determine if any “ownership changes” within the meaning of IRC Section 382 have occurred. If “ownership changes” within the meaning of Section 382 of the Code have occurred, and if we earn net taxable income, our ability to use our net operating loss carryforwards and other tax credits generated since inception to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us and could require us to pay U.S. federal income taxes earlier than would be required if such limitations were not in effect. Similar rules and limitations may apply for state income tax purposes.
Risks Relating to Our Technology and Our Platform
Our results depend on more prominent presentation, integration, and support of our platform by our merchants.
We depend on our merchants, which generally accept most major credit cards and other forms of payment, to present our platform as a payment option and to integrate our platform into their website or in their store, such as by prominently featuring our platform on their websites or in their stores and not just as an option at website checkout. We do not have any recourse against merchants when they do not prominently present our platform as a payment option. The failure by our merchants to effectively present, integrate, and support our platform, or to effectively explain lease-to-own transactions to potential customers, would have a material and adverse effect on our business, results of operations, financial condition, and future prospects.
Real or perceived software errors, failures, bugs, defects, or outages could adversely affect our business, results of operations, financial condition, and future prospects.
Our platform and our internal systems rely on software that is highly technical and complex. In addition, our platform and our internal systems depend on the ability of such software to store, retrieve, process, and manage immense amounts of data. As a result, undetected errors, failures, bugs, or defects may be present in such software or occur in the future in such software, including open source software and other software we license in from third parties, especially when updates or new products or services are released.
Any real or perceived errors, failures, bugs, or defects in the software may not be found until our consumers use our platform and could result in outages or degraded quality of service on our platform that could adversely impact our business (including through causing us not to meet contractually required service levels), as well as negative publicity, loss of or delay in market acceptance of our products and services, and harm to our brand or weakening of our competitive position. In such an event, we may be required, or may choose, to expend significant additional resources in order to correct the problem. Any real or perceived errors, failures, bugs, or defects in the software we rely on could also subject us to liability claims, impair our ability to attract new
consumers, retain existing consumers, or expand their use of our products and services, which would adversely affect our business, results of operations, financial condition, and future prospects.
We are subject to stringent and changing obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers; and other adverse business consequences.
In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, “processing”) personal data and other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property, and sensitive third-party data. For example, we process the personal data of consumers, including Social Security Numbers. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations that govern the processing of personal data by us and on our behalf.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. For example, the Telephone Consumer Protection Act (“TCPA”) imposes specific requirements relating to marketing to individuals using technology such as telephones, mobile devices, and text messages. TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the Federal Communications Commission or fines of up to $1,500 per violation imposed through private litigation or by state authorities. Class action suits are the most common method for private enforcement.
Additionally, the California Consumer Privacy Act of 2018 (“CCPA”) imposes obligations on covered businesses. These obligations include, but are not limited to, providing specific disclosures in privacy notices and affording California residents certain rights related to their personal data. The CCPA allows for statutory fines for noncompliance (up to $7,500 per violation) and includes a private right of action for certain data breaches. In addition, it is anticipated that the California Privacy Rights Act of 2020 (“CPRA”), effective January 1, 2023, will expand the CCPA. Additionally, the CPRA establishes a new California Privacy Protection Agency to implement and enforce the CPRA, which could increase the risk of enforcement. Other states have enacted data privacy laws. For example, Virginia passed the Consumer Data Protection Act, and Colorado passed the Colorado Privacy Act, both of which become effective in 2023. Several states and localities have also enacted measures related to the use of artificial intelligence and machine learning in products and services. In addition, data privacy and security laws have been proposed at the federal, state, and local levels in recent years, which could further complicate compliance efforts.
In addition, privacy advocates and industry groups have proposed, and may propose, standards with which we are legally or contractually bound to comply. For example, we may also be subject to the Payment Card Industry Data Security Standard (“PCI DSS”). The PCI DSS requires companies to adopt certain measures to ensure the security of cardholder information, including using and maintaining firewalls, adopting proper password protections for certain devices and software, and restricting data access. Noncompliance with PCI-DSS can result in penalties ranging from $5,000 to $100,000 per month by credit card companies, litigation, damage to our reputation, and revenue losses. We may also rely on vendors to process payment card data, and those vendors may be subject to PCI DSS, and our business may be negatively affected if our vendors are fined or suffer other consequences as a result of PCI DSS noncompliance.
Increasingly, some aspects of our business may be reliant on our ability to have our products and services be accepted by or compatible with a third-party platform, and any inability to do so could negatively impact our business. For example, Google has announced that it intends to phase out third-party cookies in its Chrome browser, which could make it more difficult for us to target advertisements. Individuals may increasingly resist our collecting, using, and sharing of personal data to deliver targeted advertising. Individuals are becoming more aware of options related to consent, “do not track” mechanisms, and “ad-blocking” software, any of which could materially impact our ability to collect personal data and deliver relevant promotions or media. As a result, we may be required to change the way we market our products. Any of these developments could impair our ability to reach new or existing customers or otherwise negatively affect our operations. In addition, the CCPA grants California residents
the right to opt-out of a company’s sharing of personally identifiable information for advertising purposes in exchange for money or other valuable consideration.
Our obligations related to data privacy and security are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires significant resources and may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. In addition, these obligations may require us to change our business model. Our business model materially depends on our ability to process personal data, so we are particularly exposed to the risks associated with the rapidly changing legal landscape. For example, we may be at heightened risk of regulatory scrutiny, and any changes in the regulatory framework could require us to fundamentally change our business model.
Although we endeavor to comply with all applicable data privacy and security obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our business operations and compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations, or contractual obligations could result in adverse effects, including inability to or interruption in our ability to operate our business and proceedings against us by governmental entities or others. If we fail, or are perceived to have failed, to address or comply with data privacy and security obligations, we could face significant consequences. These consequences may include, but are not limited to, government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-related claims); additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data.
Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations; interruptions or stoppages of data collection needed to train our algorithms; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.
Any significant disruption in, or errors in, service on our platform or relating to vendors, including events beyond our control, could prevent us from processing transactions on our platform or posting payments and have a material and adverse effect on our business, results of operations, financial condition, and future prospects.
We use vendors, such as our cloud computing web services provider, virtual card processing companies, and third-party software providers, in the operation of our platform. The satisfactory performance, reliability, and availability of our technology and our underlying network and infrastructure are critical to our operations and reputation and the ability of our platform to attract new and retain existing merchants and consumers. We rely on these vendors to protect their systems and facilities against damage or service interruptions from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm these systems, criminal acts, and similar events. If our arrangement with a vendor is terminated or if there is a lapse of service or damage to its systems or facilities, we could experience interruptions in our ability to operate our platform. We also may experience increased costs and difficulties in replacing that vendor and replacement services may not be available on commercially reasonable terms, on a timely basis, or at all. Any interruptions or delays in our platform availability, whether as a result of a failure to perform on the part of a vendor, any damage to one of our vendor’s systems or facilities, the termination of any of our third-party vendor agreements, software failures, our or our vendor’s error, natural disasters, terrorism, other man-made problems, security breaches, whether accidental or willful, or other factors, could harm our relationships with our merchants and consumers and also harm our reputation.
In addition, we source certain information from third parties. For example, our risk scoring model is based on algorithms that evaluate a number of factors and currently depend on sourcing certain information from third parties. In the event that any third-party from which we source information experiences a service disruption, whether as a result of maintenance, natural disasters, terrorism, or security breaches, whether accidental or willful, or other factors, the ability to score and decision lease-to-own applications through our platform may be adversely impacted. Additionally, there may be errors contained in the information provided by third parties. This may result in the
inability to approve otherwise qualified applicants through our platform, which may adversely impact our business by negatively impacting our reputation and reducing our transaction volume.
To the extent we use or are dependent on any particular third-party data, technology, or software, we may also be harmed if such data, technology, or software becomes non-compliant with existing regulations or industry standards, becomes subject to third-party claims of intellectual property infringement, misappropriation, or other violation, or malfunctions or functions in a way we did not anticipate. Any loss of the right to use any of this data, technology, or software could result in delays in the provisioning of our products and services until equivalent or replacement data, technology, or software is either developed by us, or, if available, is identified, obtained, and integrated, and there is no guarantee that we would be successful in developing, identifying, obtaining, or integrating equivalent or similar data, technology, or software, which could result in the loss or limiting of our products, services, or features available in our products or services.
In addition, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage. These factors could prevent us from processing transactions or posting payments on our platform, damage our brand and reputation, divert the attention of our employees, reduce our revenue, subject us to liability, and cause consumers or merchants to abandon our platform, any of which could have a material and adverse effect on our business, results of operations, financial condition, and future prospects.
If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers; and other adverse consequences.
In the ordinary course of our business, we may collect, store, use, disclose, process, transfer, receive, generate, make accessible, protect, secure, dispose of, transmit and share (collectively, “processing”) proprietary, confidential and sensitive data, including personally identifiable information, intellectual property, and trade secrets (collectively, “sensitive information”). We may rely upon third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, third-party providers of cloud-based infrastructure, virtual card processing, encryption and authentication technology, employee email, and other functions. We may share or receive sensitive information with or from third parties. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place.
Cyberattacks, malicious internet-based activity, and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect. These threats come from a variety of sources, including traditional computer “hackers,” threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. The automated nature of our business and our reliance on digital technologies may make us an attractive target for, and potentially vulnerable to cyber-attacks. We and the third parties upon which we rely may be subject to a variety of evolving threats, including but not limited to: computer malware (including as a result of advanced persistent threat intrusions), malicious code (such as viruses and worms), social engineering (including phishing attacks), ransomware attacks, denial-of-service attacks (such as credential stuffing), personnel misconduct or error, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunication failures, earthquakes, fires, floods, and other similar threats.
Ransomware attacks, including by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-
party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems (including our products or services) or the third-party information technology systems that support us and our services. We are incorporated into the supply chain of a large number of companies worldwide and, as a result, if our products are compromised, a significant number of companies could be simultaneously affected. The potential liability and associated consequences we could suffer as a result of such a large-scale event could be catastrophic and result in irreparable harm.
The COVID-19 pandemic and our remote workforce poses increased risks to our information technology systems and data, as more of our employees work from home, utilizing network connections outside our premises. Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Any of the previously identified or similar threats could cause a security incident or other interruption. A security incident or other interruption could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our platform, products, or services.
We may expend significant resources or modify our business activities to try to protect against security incidents. Certain data privacy and security obligations may require us to implement and maintain specific security measures, industry-standard or reasonable security measures to protect our information technology systems and sensitive information.
While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We may be unable in the future to detect vulnerabilities in our information technology systems (including our products) because such threats and techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred. Despite our efforts to identify and remediate vulnerabilities, if any, in our information technology systems (including our products), our efforts may not be successful. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.
Any actual or perceived failure to comply with legal and regulatory requirements applicable to us, including those relating to information security, or any failure to protect the information that we collect from our consumers and merchants, including personally identifiable information, from cyber-attacks, or any such actual or perceived failure by our originating bank partners, may result in, among other things, revocation of required licenses or registrations, loss of approved status, private litigation, regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal liability, and constraints on our ability to continue to operate.
Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include: interruptions into our operations (including availability of data), litigation (including class claims), an obligation to notify regulators and affected individuals, the triggering of indemnification and other contractual obligations, government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive data (including personal data); negative publicity; reputational damage; loss of consumers and ecosystem partners;, monetary fund diversions; financial loss; and other similar harms. Additionally, our originating bank partners also operate in a highly regulated environment, and many laws and regulations that apply directly to our originating bank partners are indirectly applicable to us through our arrangements with our originating bank partners. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to
mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
While we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may adversely affect the performance of the lease-to-own transactions facilitated through our platform.
There is risk of fraudulent activity associated with our platform, consumers, and third parties handling consumer information. Our resources, technologies, and fraud prevention tools may be insufficient to accurately detect and prevent fraud. We bear the risk of loss for lease-to-own transactions facilitated through our platform. The level of fraud related charge-offs on the lease-to-own transactions facilitated through our platform could be adversely affected if fraudulent activity were to significantly increase.
We bear the risk of consumer fraud in a transaction involving us, a consumer, and a merchant, and we generally have no recourse to the merchant to collect the amount owed by the consumer. Significant amounts of fraudulent cancellations or chargebacks and the potential cost of remediation could adversely affect our business or financial condition. High profile fraudulent activity or significant increases in fraudulent activity could also lead to regulatory intervention, negative publicity, and the erosion of trust from our consumers and merchants, and could materially and adversely affect our business, results of operations, financial condition, future prospects, and cash flows.
Legal and Compliance Risks
Our business is subject to the requirements of various federal, state and local laws and regulations, which can require significant compliance costs and expose us to government investigations, significant additional costs, fines or other monetary penalties or settlements, and compliance-related burdens.
Our business is subject to extensive federal, state and local laws and regulations and an increased risk of regulatory actions as a result of the highly regulated nature of our industry and the focus of state and federal enforcement agencies on the lease-to-own industry in particular. Any adverse change in applicable laws or regulations, the passage of unfavorable new laws or regulations, or the manner in which any applicable laws and regulations are interpreted or enforced could dictate changes to our business practices that may be materially adverse to the Company. Further, our transactions are subject to various federal and state laws and regulations which may result in significant compliance costs as well as expose us to litigation. In particular, our rental-purchase transactions and the consumer-facing operations related thereto, such as collections and marketing, are subject to various other federal, state and/or local consumer protection laws. These laws, as well as the rental-purchase statutes under which we operate, provide various remedies in connection with violations, including restitution and other monetary penalties and sanctions which in certain circumstances can be significant.
We cannot determine with any degree of certainty whether any new laws or regulations will be enacted, or whether government agencies will initiate new or different interpretations of existing laws. The impact of new laws and regulations, or modifications by regulators concerning the interpretation or enforcement of existing laws, on our business is not known; however, any such changes could materially and adversely impact our business.
The laws and regulations applicable to our operations are subject to agency, administrative and/or judicial interpretation. Some of these laws and regulations have been enacted only recently and/or may not yet have been interpreted or may be interpreted infrequently. As a result of non-existent or sparse interpretations, ambiguities in these laws and regulations may create uncertainty with respect to the requirements of any applicable laws and regulations. Any ambiguity under a law or regulation to which we are subject may lead to regulatory investigations, governmental enforcement actions and private causes of action, such as class action lawsuits, with respect to our compliance with such laws or regulations.
Federal and state agencies have increased their focus on consumer financial products and services. State law enforcement agencies and regulators appear to have increased their scrutiny of entities operating within the
personal property rental-purchase, or “lease-to-own”, industry. For example, the California Department of Financial Protection and Innovation (“DFPI”) has issued subpoenas and is conducting investigations into practices of entities operating within the personal property rental-purchase industry. Similarly, state attorneys general also appear to have increased their scrutiny of the industry. As of the date of this filing, the Company has not received investigatory demands from California DFPI or state attorneys general. However, there can be no assurance that the
Company will not be included in future actions of the same or similar nature and, if it is, that it would not lead to an enforcement action, consent order, or substantial costs, including legal fees, fines, penalties, and remediation expenses.
We are subject to securities litigation, which is expensive and could divert management attention and adversely impact our business.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. For example, in August 2021, a putative securities class action complaint was filed against us and certain of our officers. The case is still pending. See Part II, Item 8. Note 14 - Commitments and Contingencies in this Annual Report on Form 10-K for more information. Litigation of this type is expensive and could result in substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation, which could have an adverse effect on our business, financial condition, results of operations or prospects. Any adverse determination in litigation could also subject us to significant liabilities.
Our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting in connection with the audit of our financial statements as of and for the fiscal years ended December 31, 2021, 2020, and 2019 and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate any material weaknesses or if we otherwise fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.
In connection with the audit of our financial statements for the fiscal years ended December 31, 2021, 2020 and 2019, our independent registered public accounting firm identified certain control deficiencies in the design and implementation of our internal control over financial reporting that in aggregate constituted material weaknesses. 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 financial statements will not be prevented or detected on a timely basis. Our evaluation was based on the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control — Integrated Framework (2013).
The material weaknesses identified during the December 31, 2020 and 2019 audits relate to (i) an insufficient number of personnel with an appropriate level of GAAP knowledge and experience to create the proper control environment for effective internal control over financial reporting and to ensure that oversight processes and procedures in applying nuanced guidance to complex accounting transactions for financial reporting are adequate, (ii) a lack of control in place to perform a review of the depreciation, cost of property sold, and impairment expense curves, specifically associated with evaluating the accuracy and completeness of the underlying data supporting the curves, or reconcile the expense amounts per the curves to the general ledger, (iii) a lack of controls in place to review journal entries, reconcile journal entries to underlying support and evaluate if journal entries are in compliance with GAAP before the entries are manually posted, (iv) an incomplete implementation of the information and communication component of the COSO framework, specifically with respect to user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to its financial applications and data to appropriate company personnel and (v) a lack of controls in place surrounding the accounting of warrants from FinServ. As of December 31, 2021, the material weaknesses identified in (ii), (iv) and (v) above were remediated.
As part of our plan to remediate the remaining material weaknesses, we are performing a full review of our internal control procedures. We have implemented, and plan to continue to implement, new controls and new processes. We cannot assure you that the measures that we have taken, and that will be taken, to remediate these
material weaknesses will, in fact, remedy the material weaknesses or will be sufficient to prevent future material weaknesses from occurring. We also cannot assure you that we have identified all of our existing material weaknesses.
In light of the control deficiencies and the resulting material weaknesses that were identified, we believe that it is possible that, had we and our independent registered public accounting firm performed an assessment or audit, respectively, of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified.
When evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. If we are unable to remediate our existing material weakness or identify additional material weaknesses and are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
If we discover a material weakness in our internal control over financial reporting that we are unable to remedy or otherwise fail to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to report our financial results on a timely and accurate basis and the market price of our common stock may be adversely affected.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In addition to the material weaknesses in internal control over financial reporting identified in connection with the audit of our financial statements for the fiscal year ended December 31, 2021, subsequent testing by us or our independent registered public accounting firm, which has not performed an audit of our internal control over financial reporting, may reveal additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. To comply with Section 404, we expect to incur substantial cost, expend significant management time on compliance-related issues and hire additional accounting, financial, and internal audit staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. Any failure to maintain effective disclosure controls and procedures or internal control over financial reporting could have an adverse effect on our business and operating results, and cause a decline in the price of our common stock.
Changes to tax laws or exposure to additional tax liabilities may have a negative impact on our operating results.
Continued developments in U.S. tax reform and changes to tax laws and rates in other jurisdictions where we do business could adversely affect our results of operations and cash flows. It is also possible that provisions of U.S. tax reform could be subsequently amended in a way that is adverse to us.
In addition, we may undergo tax audits in various jurisdictions in which we operate. Although we believe that our income tax provisions and accruals are reasonable and in accordance with generally accepted accounting principles in the United States, and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audits and any related litigation, could be materially different from our historical income tax provisions and accruals. The results of a tax audit or litigation could materially affect our operating results and cash flows in the periods for which that determination is made. In addition, future period net income may be adversely impacted by litigation costs, settlements, penalties and interest assessments.
We are subject to legal proceedings from time to time which seek material damages. The costs we incur in defending ourselves or associated with settling any of these proceedings, as well as a material final judgment or decree against us, could materially adversely affect our financial condition by requiring the payment of the settlement amount, a judgment or the posting of a bond.
We are subject to legal proceedings which seek material damages. For example, in April 2021, Daiwa Corporate Advisory Services filed a complaint against us for breach of contract with respect to transactions in connection with our Merger. In addition, in August 2021, a putative securities class action complaint was filed against us and certain of our officers. These cases are still pending. See “Part II, Item 8. Note 14 - Commitments and Contingencies” in this Annual Report on Form 10-K for more information. The costs we incur in defending ourselves or associated with settling any of these proceedings, as well as a material final judgment or decree against us, could materially adversely affect our financial condition by requiring the payment of the settlement amount, a judgment or the posting of a bond.
In addition, others in our industry have defended class action lawsuits alleging various regulatory violations and have paid material amounts to settle such claims. If we are named in any such class action lawsuits or other legal proceedings, significant settlement amounts or final judgments could materially and adversely affect our liquidity and capital resources.
To attempt to limit costly and lengthy consumer, employee and other litigation, including class actions, we require our customers and employees to sign arbitration agreements, including class action waivers. In addition to opt-out provisions contained in such agreements, recent judicial and regulatory actions have attempted to restrict or eliminate the enforceability of such agreements and waivers. If we are not permitted to use arbitration agreements and/or class action waivers, or if the enforceability of such agreements and waivers is restricted or eliminated, we could incur increased costs to resolve legal actions brought by customers, employees and others, as we would be forced to participate in more expensive and lengthy dispute resolution processes.
Operational Risks Related to Our Business
Failure to effectively manage our costs could have a material adverse effect on our profitability.
Certain elements of our cost structure are largely fixed in nature. Consumer spending remains uncertain, which makes it more challenging for us to maintain or increase our operating margins. The competitive environment in our industry and increasing price transparency means that the focus on achieving efficient operations is greater than ever. As a result, we must continuously focus on managing our cost structure. Failure to manage our overall cost of operations, labor and benefit rates, advertising and marketing expenses, operating leases, data costs, payment processing costs, cost of capital, or indirect spending could materially adversely affect our profitability.
Negative publicity about us or our industry could adversely affect our business, results of operations, financial condition, and future prospects.
Negative publicity about us or our industry, including the transparency, fairness, user experience, quality, and reliability of our platform or lease-to-own platforms in general, effectiveness of our risk model, our ability to effectively manage and resolve complaints, our privacy and security practices, litigation, regulatory activity, misconduct by our employees, funding sources, service providers, or others in our industry, the experience of consumers and investors with our platform or services or lease-to-own platforms in general, even if inaccurate, could adversely affect our reputation and the confidence in, and the use of, our platform, which could harm our reputation and cause disruptions to our platform. For instance, in October 2020, a data breach broker purported to offer customer records from a number of companies, including us, for sale on a hacker forum. Although we determined with third party firms and our internal team that the compromised data was limited to non-sensitive information, we cannot guarantee that this publicity or any similar publicity in the future will not have a negative effect on our business or reputation. Any such reputational harm could further affect the behavior of consumers, including their willingness to utilize lease-to-own programs through our platform or to make payments on their leases. As a result,
our business, results of operations, financial condition, and future prospects would be materially and adversely affected.
Misconduct and errors by our employees, vendors, and service providers could harm our business and reputation.
We are exposed to many types of operational risk, including the risk of misconduct and errors by our employees, vendors, and other service providers. Our business depends on our employees, vendors, and service providers to process a large number of increasingly complex transactions, including transactions that involve significant dollar amounts and lease-to-own transactions that involve the use and disclosure of personally identifiable information and business information. We could be adversely affected if transactions were redirected, misappropriated, or otherwise improperly executed, personal and business information was disclosed to unintended recipients, or an operational breakdown or failure in the processing of other transactions occurred, whether as a result of human error, a purposeful sabotage or a fraudulent manipulation of our operations or systems. In addition, the manner in which we store and use certain personal data and interact with consumers and merchants through our platform is governed by various federal and state laws. If any of our employees, vendors, or service providers take, convert, or misuse funds, documents, or data, or fail to follow protocol when interacting with consumers and merchants, we could be liable for damages and subject to regulatory actions and penalties. We could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents, or data, or the failure to follow protocol, and therefore be subject to civil or criminal liability. For example, our operations are subject to certain laws generally prohibiting companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, such as the U.S. Foreign Corrupt Practices Act, and similar anti-bribery laws in other jurisdictions. Violations by our employees, contractors or agents of policies and procedures we have implemented to ensure compliance with these laws could subject us to civil or criminal investigations in the U.S. and in other jurisdictions, could lead to substantial civil and criminal, monetary and non-monetary penalties, and related shareholder lawsuits, could cause us to incur significant legal fees, and could damage our reputation. It is not always possible to identify and deter misconduct or errors by employees, vendors, or service providers, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses. Any of these occurrences could result in our diminished ability to operate our business, potential liability to consumers and merchants, inability to attract future consumers and merchants, reputational damage, regulatory intervention, and financial harm, which could negatively impact our business, results of operations, financial condition, and future prospects.
The loss of the services of any of our executive officers could materially and adversely affect our business, results of operations, financial condition, and future prospects.
The experience of our executive officers are valuable assets to us. Our executive officers have significant experience in the financial technology industry and would be difficult to replace. Competition for senior executives in our industry is intense, and we may not be able to attract and retain qualified personnel to replace or succeed any of our executive officers. Failure to retain any of our executive officers could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
Our business depends on our ability to attract and retain highly skilled employees.
Our future success depends on our ability to identify, hire, develop, motivate, and retain highly qualified personnel for all areas of our organization, in particular, a highly experienced sales force, data scientists, and engineers. Competition for these types of highly skilled employees, is extremely intense. Trained and experienced personnel are in high demand and may be in short supply. Many of the companies with which we compete for experienced employees have greater resources than we do and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in training our employees, which increases their value to competitors that may seek to recruit them. We may not be able to attract, develop, and maintain the skilled workforce necessary to operate our business, and labor expenses may increase as a result of a shortage in the supply of qualified personnel. If we are unable to maintain and build our highly experienced sales force, or are unable to continue to attract experienced engineering and technology personnel, as well as other qualified employees, our business, results of operations, financial condition, and future prospects could be materially and adversely affected.
The COVID-19 pandemic has impacted our working environment and diverted personnel resources and any prolonged effects of the pandemic may adversely impact our operations and employees.
We have had to expend, and expect to continue to expend, personnel resources to respond to the COVID-19 pandemic, including to develop and implement internal policies and procedures and track changes in laws. Any prolonged diversion of personnel resources may have an adverse effect on our operations. Our staff continues to work in a mainly remote environment. Over time such remote operations may decrease the cohesiveness of our teams and our ability to maintain our culture, both of which are critical to our success. Additionally, a remote working environment may impede our ability to undertake new business projects, to foster a creative environment, to hire new team members, and to retain existing team members. Such effects may adversely affect the productivity of our team members and overall operations, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
Additional Risks Relating to Ownership of Company Securities
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
Currently, our common stock and public warrants are publicly traded on the Nasdaq Capital Market ("Nasdaq"). In order to continue listing our securities on the Nasdaq, we will be required to maintain certain financial, distribution and stock price levels.
If Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
•a limited availability of market quotations for our securities;
•reduced liquidity for our securities;
•a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our 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.” Since our common stock and public warrants are listed on the Nasdaq, they are covered securities. Although the states are preempted from regulating the sale of its securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If we are no longer listed on the Nasdaq, our securities would not be covered securities and it would be subject to regulation in each state in which it offers its securities, including in connection with the initial business combination.
The price of our securities may change significantly in the future and you could lose all or part of your investment as a result.
The trading price of our common stock and public warrants is likely to be volatile and the trading price of our securities have experienced extreme volatility and a significant decline. The securities markets have experienced significant volatility as a result of the COVID-19 pandemic and other factors. Market volatility, as well as general economic, market, or political conditions, could reduce the market price of shares of our common stock regardless of our operating performance. Our operating results have been below and could continue to be below the expectations of public market analysts and investors due to a number of potential factors, including:
•results of operations that vary from the expectations of securities analysts and investors;
•results of operations that vary from those of our competitors;
•the impact of the COVID-19 pandemic and its effect on our business and financial conditions;
•changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;
•declines in the market prices of stocks generally;
•strategic actions by us or our competitors;
•announcements by us or our competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments;
•any significant change in our management;
•changes in general economic or market conditions or trends in our industry or markets;
•changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
•future sales of our common stock or other securities;
•investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives;
•the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;
•litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors;
•guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;
•the development and sustainability of an active trading market for our stock;
•actions by institutional or activist stockholders;
•changes in accounting standards, policies, guidelines, interpretations or principles; and
•other events or factors, including those resulting from natural disasters, war (including the conflict involving Russia and Ukraine), acts of terrorism or responses to these events.
These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock or public warrants is low.
Our management has limited experience in operating a public company.
Our executive officers have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage our transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of our management’s time may be devoted to these activities which will result in less time being devoted to our management and growth. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the U.S. The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the U.S. may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company which will increase our operating costs in future periods.
We will continue to incur increased costs as a result of operating as a public company, and our management will continue to devote substantial time for new compliance initiatives.
As a public company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, and these expenses may increase even more after we are no longer an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended. The Sarbanes-Oxley Act, the
Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel will need to continue to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. The increased costs will impact our financial position. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be forced to accept reduced policy limits or incur substantially higher costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
Because there are no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We intend to retain future earnings, if any, for future operations, expansion and debt repayment and there are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of our common stock will be at the sole discretion of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions, implications on the payment of dividends by us to our stockholders or by its subsidiaries to it and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends is limited by covenants of our existing and outstanding indebtedness and may be limited by covenants of any future indebtedness that we incur. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.
If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We will not control these analysts. In addition, some financial analysts may have limited expertise with our model and operations. Furthermore, if one or more of the analysts who cover us downgrade our stock or industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on it regularly, we could lose visibility in the market, which in turn could cause its stock price or trading volume to decline.
Future sales, or the perception of future sales, by us or our stockholders in the public market could cause the market price for our common stock to decline.
The sale of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that it deems appropriate.
The lock-up agreement contained in the Amended and Restated Registration Rights Agreement (the “A&R RRA”) with us expired and the shares of common stock held by the stockholders party to the A&R RRA are eligible for resale which could result in the market price of shares of our common stock dropping significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our common stock or other securities.
In addition, common stock reserved for future issuance under our equity incentive plans will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting
agreements, lock-up agreements and, in some cases, limitations on volume and manner of sale applicable to affiliates under Rule 144, as applicable. The aggregate number of shares of our common stock initially reserved for future issuance under our 2021 equity incentive plan was 8,932,162, and as of December 31, 2021, there were 6,470,397 shares of common stock available for future issuance under the 2021 equity incentive plan.
In the future, we may also issue securities in connection with investments or acquisitions. The amount of shares of common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to our stockholders.
Warrants are exercisable for our common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our existing stockholders.
Outstanding warrants to purchase an aggregate of 12,832,500 shares of our common stock became exercisable 30 days after the completion of the Merger. Each warrant entitles the holder thereof to purchase one (1) share of our common stock at a price of $11.50 per whole share, subject to adjustment. Warrants may be exercised only for a whole number of shares of common stock. To the extent such warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to the then existing holders of our 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 could adversely affect the market price of our common stock.
The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, which we refer to as the “JOBS Act.” As such, we will take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as it continues to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (i) December 31, 2024, (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 stock that are held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-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 cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for common stock and our stock price may be more volatile.
Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
Certain provisions of our Amended and Restated Charter and Amended and Restated Bylaws have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.
These provisions provide for, among other things:
•the ability of our board of directors to issue one or more series of preferred stock;
•advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;
•certain limitations on convening special stockholder meetings;
•limiting the ability of stockholders to act by written consent; and
•our board of directors have the express authority to make, alter or repeal our Amended and Restated Bylaws.
These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
Our Amended and Restated Charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our Amended and Restated Charter provides that, subject to limited exceptions, any (1) derivative action or proceeding brought on behalf of us, (2) action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder or employee to us or our stockholders, (3) action asserting a claim arising pursuant to any provision of the DGCL or our Amended and Restated Charter or our Amended and Restated Bylaws, or (4) action asserting a claim governed by the internal affairs doctrine shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, another state or federal court located within the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Amended and Restated Charter described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or its directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our Amended and Restated Charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive office is located in Plano, Texas, which consists of approximately 12,000 square feet under a lease that expires in August 2023, subject to our option to extend the term for two terms of five years each. Our New York, New York office consists of approximately 4,000 square feet of leased office space under a lease that expires in June 2025. We believe that our existing facilities are adequate to meet our needs and that existing needs and future growth can be accommodated by leasing alternative or additional space.
Item 3. Legal Proceedings
From time to time we may become involved in various legal proceedings. Refer to Note 14, Commitments and Contingencies, included in Part II, Item 8 of this Annual Report for a description of current legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Prior to the closing of the Merger, FinServ’s units, shares of Class A common stock and warrants were publicly traded on The Nasdaq Capital Market (the “Nasdaq”). On June 10, 2021, our common stock and warrants began trading on the Nasdaq under the symbols KPLT and KPLTW, respectively. We no longer have any outstanding units.
Holders of Record
As of March 11, 2022, there were 129 holders of record of our common stock and the closing price of our common stock was $1.90 as reported on the Nasdaq Stock Market. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have not paid any cash dividends on our common stock to date. We may retain future earnings, if any, for future operations, expansion and debt repayment and has no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future.
Recent Sales of Unregistered Equity Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC, for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act.
The graph below shows the cumulative total stockholder return on our Common Stock with the cumulative total return on the Nasdaq Composite Index and the S&P 500 Information Technology Index. The graph assumes that $100 was invested at the market close on June 9, 2021, the date that our Class A common stock commenced trading on the Nasdaq Global Market, in each our common stock, the Nasdaq Composite Index, and the S&P 500 Information Technology Index. The graph uses the closing market price on June 9, 2021 of $14.52 per share as the initial value of our common stock. The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance.
Item 6. [Reserved]
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors,” and “Special Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes included elsewhere in this Annual Report. All dollar amounts are in thousands, unless otherwise specified.
Overview
We are an e-commerce focused financial technology company offering e-commerce point-of-sale (“POS”) lease-purchase options for non-prime U.S. consumers. Our fully-digital, next-generation technology platform provides non-prime consumers with a flexible lease purchase option to enable them to obtain durable goods from our network of e-commerce merchants. See the section titled “Business” for further details on our business.
Key events impacting our business are as follows:
•COVID-19 — Due to the economic uncertainty that has and may continue to result from the COVID-19 pandemic, there is an added risk factor in the overall future outlook of the Company. We have implemented cost containment and cash management initiatives to mitigate the potential impact of the COVID-19 pandemic on our business and liquidity. Although we experienced positive performance during the onset of the pandemic due to increased customer activity and the resiliency of our business model, our business has been impacted by a number of factors including changes in consumer spending habits, government stimulus, new variants and other potential factors. Management continues to monitor both positive and negative potential business trends as these factors continue throughout 2022.
Key factors and trends impacting our business include the following:
•In the first quarter 2021, consumers were bolstered by two stimulus payments, one in January and the other in March, which drove spending and consequently our gross originations volume. These stimulus payments also changed historic 90-day buyout and delinquency patterns during 2020 through the first quarter 2021, with these trends now normalizing to pre-pandemic levels. Recent macro headwinds we have observed since fourth quarter 2021 that are continuing include key merchant partners experiencing lower sales volumes than they did in 2020 and early 2021. In addition, in response to these trends and a deterioration in overall payment ability of our customers, we initiated tightening of our underwriting in fourth quarter 2021 continuing into 2022, which has led to fewer approvals. The combination of these factors is resulting in gross originations trending down significantly year-over-year through February 2022.
•Record levels of inflation combined with supply chain issues (including availability of raw materials from Russia and Ukraine) are expected to impact customers ability to make lease payments and impact key merchant partners
•We anticipate that the challenging macro environment will continue in 2022 but expect that our largest merchant partners will be able to return to growth in the second half of 2022. We also anticipate that impairment charges will continue to rise back to pre-pandemic levels.
•Based on historical trends, if prime lenders that had previously expanded their underwriting due to record low delinquencies in 2020 and early 2021, tighten their underwriting, this would result in potential additional volume and higher credit customers to the Company.
Segment Information
We conduct our business within one business segment, which is defined as providing lease payment options to consumers for the purchase of durable goods from e-commerce partners. Our operations are aggregated into a single reportable operating segment based upon similar economic and operating characteristics as well as similar markets.
Key Performance Metrics
We regularly review several metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions, which may also be useful to an investor.
Gross Originations
We measure gross originations to assess the growth trajectory and overall size of our lease portfolio. There is a direct correlation between gross origination growth and revenue growth. We define gross originations as the retail price of the merchandise associated with lease-purchase agreements entered into during the period through our platform. Gross originations do not represent revenue earned. However, we believe this is a useful operating metric for both the Company and investors to use in assessing the volume of transactions that take place on our platforms.
The following table presents gross originations for the years ended December 31, 2021 and 2020, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Years ended December 31, | | 2021 - 2020 Change | | 2020 - 2019 Change |
| 2021 | | 2020 | | 2019 | | $ | | % | | $ | | % |
| Gross Originations | $ | 247,964 | | | $ | 236,368 | | | $ | 102,545 | | | $ | 11,596 | | | 4.9 | % | | $ | 133,823 | | | 130.5 | % |
Wayfair represented 63%, 70% , and 60% of gross origination during the years ended December 31, 2021, 2020 and 2019, respectively.
Gross originations have increased as a result of the addition of new merchant partners, government stimulus, and a continued shift of consumer spending online. The growth of gross originations from customers, excluding Wayfair, year-over-year was 29.9%.
Total Revenue and Bad Debt Recoveries
Total revenue represents the sum of rental revenue, other revenue, and service fees. Bad debt recoveries represent customer payments for receivables that had previously been written off. Bad debt recoveries represent a reduction to bad debt expense in the period in which they are collected. We measure these metrics to assess the total view of paythrough performance of our customers. We believe looking at these components of our consolidated financial statements is useful to an investor as it helps to understand the total payment performance of customers.
The following tables present total revenue and bad debt recoveries for the years ended December 31, 2021 and 2020, respectively:
| | | | | | | | | | | |
| (in thousands) | Years ended December 31, |
| 2021 | 2020 | 2019 |
| Total revenue | $ | 303,113 | | $ | 247,200 | | $ | 91,877 | |
Bad debt recoveries (1) | $ | 6,069 | | $ | 3,465 | | $ | 1,499 | |
(1) Bad debt recoveries represent 21%, 22%, and 16% of total bad debt expense for the years ended December 31, 2021, 2020 and 2019, respectively.
Gross Profit
Gross profit represents total revenue less cost of revenue, and is a measure presented in accordance with U.S. GAAP. We also use adjusted gross profit as a key performance indicator to provide an understanding of one aspect of our performance specifically attributable to total revenue and the variable costs associated with total revenue.
Adjusted Gross Profit
Adjusted gross profit represents gross profit less variable operating expenses, which are servicing costs, underwriting fees, and bad debt expense. We believe that adjusted gross profit provides a meaningful understanding of one aspect of our performance specifically attributable to total revenue and the variable costs associated with total revenue. See “—Non-GAAP Financial Measures” section below for a reconciliation of adjusted gross profit, which is a non-GAAP measure utilized by management, to gross profit.
Components of Results of Operations
Revenue
Revenue consists of rental revenue, other revenue and service fees. Rental revenue consists of revenue earned from property held for lease and agreed-upon charges related to lease-purchase agreements. Other revenue consists of sub-lease revenue, revenue from merchant partnerships, and infrequent sales of property formerly on lease when customers terminate a lease and elect to return the property to the Company rather than the Company’s merchant partners. Service fees consists of fees related to leases originated by the Company’s former subsidiary Cognical SPV-4 LLC (which was liquidated in December 2020) on behalf of a third-party merchant which the Company services for a contractually determined fee.
Cost of Revenue
Cost of revenue consists primarily of depreciation expense related to property held for lease, impairment of property held for lease, net book value of property buyouts, payment processing fees, and other costs associated with offering lease-purchase transactions to customers.
Operating Expenses
Operating expenses consist of servicing costs, underwriting fees, professional and consulting fees, technology and data analytics expense, bad debt expense, compensation costs and general and administrative expense. Servicing costs primarily consist of permanent and temporary call center support. Underwriting fees primarily consist of data costs related to inputs from customer underwriting models. Professional and consulting fees primarily consist of corporate legal and accounting costs. Technology and data analytics expense primarily consist of salaries and benefits for computer programming and data analytics employees that support our underlying technology and proprietary risk model algorithms. Bad debt expense primarily consists of provisions for uncollectible accounts receivable, net of recoveries. Compensation costs consist primarily of payroll and related costs and stock-based compensation. General and administrative expense consists primarily of occupancy costs, travel and entertainment, and other general overhead costs, including depreciation and amortization related to office equipment and software.
Results of Operations
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following table sets forth our results of operations for the years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Years Ended December 31, | | Change |
| 2021 | | 2020 | | $ | | % |
| Revenue | | | | | | | |
| Rental revenue | $ | 302,794 | | | $ | 246,927 | | | $ | 55,867 | | | 22.6 | % |
| Other revenue | 319 | | | 200 | | | 119 | | | 59.5 | % |
| Service fees | — | | | 73 | | | (73) | | | (100.0) | % |
| Total revenue | 303,113 | | | 247,200 | | | 55,913 | | | 22.6 | % |
| Cost of revenue | 214,124 | | | 167,412 | | | 46,712 | | | 27.9 | % |
| Gross profit | 88,989 | | | 79,788 | | | 9,201 | | | 11.5 | % |
| Operating expenses: | | | | | | | |
| Servicing costs | 4,737 | | | 4,077 | | | 660 | | | 16.2 | % |
| Underwriting fees | 1,876 | | | 2,344 | | | (468) | | | (20.0) | % |
| Professional and consulting fees | 5,987 | | | 2,949 | | | 3,038 | | | 103.0 | % |
| Technology and data analytics | 8,196 | | | 6,296 | | | 1,900 | | | 30.2 | % |
| Bad debt expense | 28,299 | | | 16,064 | | | 12,235 | | | 76.2 | % |
| Compensation costs | 26,943 | | | 6,874 | | | 20,069 | | | 292.0 | % |
| General and administrative | 11,294 | | | 4,278 | | | 7,016 | | | 164.0 | % |
| Total operating expenses | 87,332 | | | 42,882 | | | 44,450 | | | 103.7 | % |
| Income from operations | 1,657 | | | 36,906 | | | (35,249) | | | (95.5) | % |
| Loss on extinguishment of debt | — | | | (402) | | | 402 | | | (100.0) | % |
| Interest expense and other fees | (16,485) | | | (13,588) | | | (2,897) | | | 21.3 | % |
| Change in fair value of warrant liability | 36,573 | | | 102 | | | 36,471 | | | 35755.9 | % |
| Income before provision for income taxes | 21,745 | | | 23,018 | | | (1,273) | | | (5.5) | % |
| Provision for income taxes | (539) | | | (487) | | | (52) | | | 10.7 | % |
| Net income | $ | 21,206 | | | $ | 22,531 | | | $ | (1,325) | | | (5.9) | % |
Rental revenue
Rental revenue increased by $55.9 million, or 22.6%, for the year ended December 31, 2021. The increase in rental revenue was attributed to the addition of new merchant partners on the Katapult platforms. During the period we onboarded 102 new merchant partners. In addition, we experienced a 5% increase in originations, which is a direct result of the increases in e-commerce activity.
Cost of revenue
Cost of revenue increased $46.7 million, or 27.9%, for the year ended December 31, 2021. This increase was primarily driven by various promotions and pricing concessions combined with the increase in rental revenue and origination volume over this period.
Gross profit
Gross profit increased by $9.2 million, or 11.5%, for the year ended December 31, 2021. The increase in gross profit was primarily due to the addition of new merchant partners and an increase in originations during the period. Gross profit as a percentage of total revenue decreased to 29% for the year ended December 31, 2021, compared to 32% for the same period in 2020. This decrease was driven by the normalization of customer payment performance as compared to the 2020 period and various promotions and pricing concession for merchant partners.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Years Ended December 31, | | Percentage of Total Revenue |
| 2021 | | 2020 | | 2021 | | 2020 |
| Total revenue | $ | 303,113 | | | $ | 247,200 | | | — | | | — | |
| Servicing costs | 4,737 | | | 4,077 | | | 1.6 | % | | 1.6 | % |
| Underwriting fees | 1,876 | | | 2,344 | | | 0.6 | % | | 0.9 | % |
| Professional and consulting fees | 5,987 | | | 2,949 | | | 2.0 | % | | 1.2 | % |
| Technology and data analytics | 8,196 | | | 6,296 | | | 2.7 | % | | 2.5 | % |
| Bad debt expense | 28,299 | | | 16,064 | | | 9.3 | % | | 6.5 | % |
| Compensation costs | 26,943 | | | 6,874 | | | 8.9 | % | | 2.8 | % |
| General and administrative | 11,294 | | | 4,278 | | | 3.7 | % | | 1.7 | % |
Servicing Costs
Servicing costs increased by $0.7 million, or 16.2%, for the year ended December 31, 2021. This was primarily due an increase in call center headcount to service the increase in originations during the same period and was offset by scalability efficiencies achieved in the latter part of 2020 and throughout 2021.
Underwriting fees
Underwriting fees decreased by $0.5 million, or 20%, for the year ended December 31, 2021. This was primarily due to efficiencies achieved during the latter part of 2020 related to the continual refinement of our customer underwriting model and specifically, our ability to favorably renegotiate third party data costs, despite an increase in underwriting activity associated with increased revenue volume over the period.
Professional and consulting fees
Professional and consulting fees increased by $3.0 million, or 103%, for the year ended December 31, 2021. This increase was primarily driven by the Merger, which resulted in $1.2 million of non-capitalizable expenses for the year ended December 31, 2021. Further contributing to the increase were an increase in accounting and legal fees in preparation of becoming a public company and consulting fees associated with SOX compliance readiness as compared to 2020.
Technology and data analytics
Technology and data analytics expense increased by $1.9 million, or 30.2%, for the year ended December 31, 2021. This was primarily due to added employee headcount to continue the build-out of the Company’s technological infrastructure and continued improvement of our proprietary risk model algorithms, partially offset by a greater portion of software development activities qualifying for capitalization in 2021.
Bad debt expense
Bad debt expense increased $12.2 million, or 76.2%, for the year ended December 31, 2021. This increase was primarily driven by the increase in our lease base resulting in a larger accounts receivable balance year over year. In addition, delinquencies were at record lows during part of 2020 due primarily to the U.S. government stimulus to individuals for COVID-19 relief.
Compensation costs
Compensation costs increased by $20.1 million or 292% for the year ended December 31, 2021. This increase is related to an increase in stock-based compensation for the immediate vesting of restricted stock awards
upon the Merger, payment of transaction related employee bonuses and added headcount to support our growth trajectory. Stock-based compensation increased $12.7 million from $0.4 million to $13.1 million year over year.
General and administrative
General and administrative expense increased by $7.0 million, or 164%, for the year ended December 31, 2021. This increase is related to an increase in insurance and other related costs as a public company, and increased marketing, advertising expenses, and software related expense.
Interest expense and other fees
Interest expense and other fees increased by $2.9 million, or 21.3%, for the year ended December 31, 2021. This was primarily due to an increase in total outstanding principal balance of indebtedness on our debt facilities during 2021. The principal balances on our indebtedness increased due to increased origination volume combined with borrowings on the term loan facility that we entered into during 2020.
Change in fair value of warrant liability
The change in fair value of warrant liability was $36.5 million for the year ended December 31, 2021. The balance consists of changes in the fair value of the Company’s warrant liability, which decreased due to the decline in the fair value of the public warrants.
Provision for income taxes
Provision for income taxes was $0.5 million for the years ended December 31, 2021 and 2020. The provision is related to certain states where accelerated federal tax depreciation is disallowed.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
The following table sets forth our results of operations for the years ended December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Years Ended December 31, | | Change |
| 2020 | | 2019 | | $ | | % |
| Revenue | | | | | | | |
| Rental revenue | $ | 246,927 | | | $ | 90,996 | | | $ | 155,931 | | | 171.4 | % |
| Other revenue | 200 | | | 368 | | | (168) | | | (45.7) | % |
| Service fees | 73 | | | 513 | | | (440) | | | (85.8) | % |
| Total revenue | 247,200 | | | 91,877 | | | 155,323 | | | 169.1 | % |
| Cost of revenue | 167,412 | | | 71,220 | | | 96,192 | | | 135.1 | % |
| Gross profit | 79,788 | | | 20,657 | | | 59,131 | | | 286.3 | % |
| Operating expenses: | | | | | | | |
| Servicing costs | 4,077 | | | 2,934 | | | 1,143 | | | 39.0 | % |
| Underwriting fees | 2,344 | | | 2,562 | | | (218) | | | (8.5) | % |
| Professional and consulting fees | 2,949 | | | 1,347 | | | 1,602 | | | 118.9 | % |
| Technology and data analytics | 6,296 | | | 4,293 | | | 2,003 | | | 46.7 | % |
| Bad debt expense | 16,064 | | | 9,163 | | | 6,901 | | | 75.3 | % |
| Compensation costs | 6,874 | | | 5,514 | | | 1,360 | | | 24.7 | % |
| General and administrative | 4,278 | | | 4,236 | | | 42 | | | 1.0 | % |
| Total operating expenses | 42,882 | | | 30,049 | | | 12,833 | | | 42.7 | % |
| Income from operations | 36,906 | | | (9,392) | | | 46,298 | | | (493.0) | % |
| Loss on extinguishment of debt | (402) | | | (823) | | | 421 | | | (51.2) | % |
| Interest expense and other fees | (13,588) | | | (8,577) | | | (5,011) | | | 58.4 | % |
| Change in fair value of warrant liability | 102 | | | — | | | 102 | | | 100.0 | % |
| Income before provision for income taxes | 23,018 | | | (18,792) | | | 41,810 | | | (222.5) | % |
| Provision for income taxes | (487) | | | — | | | (487) | | | 100.0 | % |
| Net income (loss) | $ | 22,531 | | | $ | (18,792) | | | $ | 41,323 | | | (219.9) | % |
Rental revenue
Rental revenue increased by $155.9 million, or 171.4%, to $246.9 million for the year ended December 31, 2020, from $91.0 million for 2019. This was primarily due to the Company’s addition of Wayfair as a merchant partner, which accounted for 72% of origination dollars in 2020, versus 58% in 2019. The difference in percentage of origination dollars was mainly driven by Wayfair being a merchant partner for the full year in 2020, versus a partial year in 2019. Additionally, the Company experienced a 119.1% increase in originations over the period due to the acceleration of e-commerce activity during the COVID-19 pandemic. A timing lag exists between originations and rental revenue because an origination in a given period will result in revenue over the resulting lease term, which can occur in subsequent periods. The 171.4% increase in rental revenue during 2020 was partly driven by a larger proportion of 2019 originations occurring towards the end of the year, as 38.3% of 2019 originations occurred in the fourth quarter 2019. These later 2019 originations resulted in increased rental revenue in early 2020.
Other revenue
Other revenue decreased by approximately $0.2 million, or 45.7%, to $0.2 million for the year ended December 31, 2020, from $0.4 million in 2019 due to our sub-lease arrangement ending in July 2019.
Service fees
Revenue from service fees decreased by $0.4 million, or 85.8%, to $0.1 million for the year ended December 31, 2020, from $0.5 million in 2019. This was primarily driven by the termination of a pilot partnership in February 2019.
Cost of revenue
Cost of revenue increased $96.2 million, or 135.1%, to $167.4 million for the year ended December 31, 2020, from $71.2 million in 2019. This increase was primarily driven by the proportional increase in rental revenue and origination volume over this period, which was offset by lower depreciation related to property held for lease. Cost of revenue as a percentage of total revenue decreased to 67.7% for the year ended December 31, 2020, compared to 77.5% in 2019. Cost of revenue decreased as a percentage of total revenue due to improved underwriting and payment collection performance.
Gross profit
Gross profit increased by $59.1 million, or 286.3%, to $79.8 million for the year ended December 31, 2020, from $20.7 million in 2019. This was due to the individual revenue and cost of revenue drivers described above. These individual drivers were caused by an overall increase in performance on recently originated leases, which was due to improved underwriting and payment collection performance.
Operating expenses
The following tables quantify the dollar amounts of operating costs versus total revenue for the years ended December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Years Ended December 31, | | Percentage of Total Revenue |
| 2020 | | 2019 | | 2020 | | 2019 |
| Total revenue | $ | 247,200 | | | $ | 90,996 | | | — | | | — | |
| Servicing costs | 4,077 | | | 2,934 | | | 1.6 | % | | 3.2 | % |
| Underwriting fees | 2,344 | | | 2,562 | | | 0.9 | % | | 2.8 | % |
| Professional and consulting fees | 2,949 | | | 1,347 | | | 1.2 | % | | 1.5 | % |
| Technology and data analytics | 6,296 | | | 4,293 | | | 2.5 | % | | 4.7 | % |
| Bad debt expense | 16,064 | | | 9,163 | | | 6.5 | % | | 10.1 | % |
| Compensation costs | 6,874 | | | 5,514 | | | 2.8 | % | | 6.1 | % |
| General and administrative | 4,278 | | | 4,236 | | | 1.7 | % | | 4.7 | % |
Servicing Costs
Servicing costs increased by $1.1 million, or 39.0%, to $4.1 million for the year ended December 31, 2020, from $2.9 million in 2019. This was primarily due to the increase in overall revenue during the same period and was offset by scalability efficiencies achieved in 2020.
Underwriting fees
Underwriting fees decreased by approximately $0.2 million, or 8.5%, to $2.3 million for the year ended December 31, 2020, from $2.6 million in 2019. This was primarily due to scalability efficiencies achieved during the year as the Company refines its customer underwriting model, specifically the Company’s ability to favorably renegotiate third party data costs, despite an increase in underwriting activity associated with increased revenue volume over the period.
Professional and consulting fees
Professional and consulting fees increased by $1.6 million, or 118.9%, to $2.9 million for the year ended December 31, 2020, compared to $1.3 million in 2019. This increase was primarily driven by the pending business combination, which resulted in $1.0 million of non-capitalizable expenses for the year ended December 31, 2020.
Additionally, the Company incurred approximately $0.4 million of legal fees associated with investor transactions for the year ended December 31, 2020.
Technology and data analytics
Technology and data analytics expense increased by $2.0 million, or 46.7%, to $6.3 million for the year ended December 31, 2020, compared to $4.3 million in 2019. This was primarily due to a proportional addition to employee headcount to continue the build-out of the Company’s technological infrastructure and continued improvement and management of our proprietary risk model algorithms.
Bad debt expense
Bad debt expense primarily consists of provisions for uncollectible accounts receivable, net of recoveries. Bad debt expense increased by $6.9 million, or 75.3%, to $16.1 million for the year ended December 31, 2020, compared to $9.2 million in 2019. This increase was primarily driven by the proportional increase in rental revenue over this period, which was offset by decreased charge-off rates due to better underwriting and payment collection performance.
Compensation costs
Compensation costs increased by $1.4 million or 24.7% for the year ended December 31, 2020. This increase is related to added headcount to support the growth trajectory of the Company.
General and administrative
General and administrative expense consists primarily of occupancy costs, travel and entertainment, and other general overhead costs, including depreciation and amortization related to office equipment. General and administrative expense was flat year over year.
Loss on extinguishment of debt
Loss on extinguishment of debt decreased by $0.4 million, or 51.2%, to $0.4 million for the year ended December 31, 2020, compared to $0.8 million in 2019. Loss on extinguishment of debt for the year ended December 31, 2020 was related to the repayment of the Company’s non-revolving line of credit and bridge loan, and the 2019 loss on extinguishment was related to the capital raising activities and conversion of convertible notes during that period.
Interest expense and other fees
Interest expense and other fees increased by $5.0 million, or 58.4%, to $13.6 million for the year ended December 31, 2020, compared to $8.6 million in 2019. This was primarily due to an increase in total outstanding principal balances on our debt during 2020. Principal balances increased due to increased origination volume.
Change in fair value of warrant liability
Change in fair value of warrant liability was $0.1 million for the year ended December 31, 2020 and was $0 in 2019. This consists of changes in the fair value of the Company’s warrant liability, in 2020 which was driven by a reduction in the fair value of this liability between issuance and year-end.
Non-GAAP Financial Measures
In addition to gross profit and net income, which are measures presented in accordance with U.S. GAAP, we believe that adjusted gross profit and adjusted EBITDA provide relevant and useful information which is widely used by analysts, investors, and competitors in our industry in assessing performance. Adjusted gross profit and adjusted EBITDA are supplemental measures of our performance that are neither required by nor presented in accordance with U.S. GAAP. Adjusted gross profit and adjusted EBITDA should not be considered as substitutes
for U.S. GAAP metrics such as gross profit, operating income, net income, or any other performance measures derived in accordance with U.S. GAAP and may not be comparable to similar measures used by other companies.
Adjusted gross profit represents gross profit less variable operating expenses, which are servicing costs, underwriting fees, and bad debt expense. We believe that adjusted gross profit provides a meaningful understanding of one aspect of our performance specifically attributable to total revenue and the variable costs associated with total revenue.
Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) before interest expense and other fees, change in fair value of warrant liability, (provision) benefit for income taxes, depreciation and amortization on property and equipment, impairment of leased assets, stock-based compensation expense, and transaction costs associated with the Merger. Adjusted net income is a non-GAAP financial measure that is defined as net (loss) income before change in fair value of warrant liability, stock-based compensation expense and transaction costs associated with the Merger.
Adjusted gross profit and adjusted EBITDA are useful to an investor in evaluating our performance because these measures:
•Are widely used to measure a company’s operating performance;
•Are financial measurements that are used by rating agencies, lenders and other parties to evaluate our credit worthiness; and
•Are used by our management for various purposes, including as measures of performance and as a basis for strategic planning and forecasting.
The following table presents gross profit and adjusted gross profit for the year ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Years Ended December 31, | | 2021-2020 Change | | 2020-2019 Change |
| 2021 | | 2020 | | 2019 | | $ | | % | | $ | | % |
| Total revenue | $ | 303,113 | | | $ | 247,200 | | | $ | 91,877 | | | $ | 55,913 | | | 22.6 | % | | $ | 155,323 | | | 169.1 | % |
| Cost of revenue | 214,124 | | | 167,412 | | | 71,220 | | | 46,712 | | | 27.9 | % | | 96,192 | | | 135.1 | % |
| Gross profit | 88,989 | | | 79,788 | | | 20,657 | | | 9,201 | | | 11.5 | % | | 59,131 | | | 286.3 | % |
| Less: | | | | | | | | | | | | | |
| Servicing costs | 4,737 | | | 4,077 | | | 2,934 | | | 660 | | | 16.2 | % | | 1,143 | | | 39.0 | % |
| Underwriting fees | 1,876 | | | 2,344 | | | 2,562 | | | (468) | | | (20.0) | % | | (218) | | | (8.5) | % |
| Bad debt expense | 28,299 | | | 16,064 | | | 9,163 | | | 12,235 | | | 76.2 | % | | 6,901 | | | 75.3 | % |
| Adjusted gross profit | $ | 54,077 | | | $ | 57,303 | | | $ | 5,998 | | | $ | (3,226) | | | (5.6) | % | | $ | 51,305 | | | 855.4 | % |
The reconciliations of net income (loss) to adjusted EBITDA for the years ended December 31, 2021, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Years Ended December 31, | | 2021-2020 Change | | 2020-2019 Change |
| 2021 | | 2020 | | 2019 | | $ | | % | | $ | | % |
| Net income (loss) | $ | 21,206 | | | $ | 22,531 | | | $ | (18,792) | | | $ | (1,325) | | | (5.9) | % | | $ | 41,323 | | | (219.9) | % |
| Add back: | | | | | | | | | | | | | |
| Interest expense and other fees | 16,485 | | | 13,588 | | | 8,577 | | | 2,897 | | | 21.3 | % | | 5,011 | | | 58.4 | % |
| Loss on extinguishment of debt | — | | | 402 | | | 823 | | | (402) | | | (100.0) | % | | (421) | | | (51.2) | % |
| Change in fair value of warrant liability | (36,573) | | | (102) | | | — | | | (36,471) | | | NM | | (102) | | | NM |
| Provision for income taxes | 539 | | | 487 | | | — | | | 52 | | | 10.7 | % | | 487 | | | NM |
| Depreciation and amortization on property and equipment | 321 | | | 83 | | | 65 | | | 238 | | | 286.7 | % | | 18 | | | 27.7 | % |
| Impairment of leased assets | (1,490) | | | 1,433 | | | 4,119 | | | (2,923) | | | (204.0) | % | | (2,686) | | | (65.2) | % |
Stock-based compensation expense (1) | 13,476 | | | 351 | | | 315 | | | 13,125 | | | NM | | 36 | | | 11.4 | % |
Transaction costs associated with the Merger (2) | 3,350 | | | 1,040 | | | — | | | 2,310 | | | 222.1 | % | | 1,040 | | | NM |
Legal fees associated with investor transactions (3) | — | | | 362 | | | — | | | (362) | | | (100.0) | % | | 362 | | | NM |
| Adjusted EBITDA | $ | 17,314 | | | $ | 40,175 | | | $ | (4,893) | | | $ | (22,861) | | | (56.9) | % | | $ | 45,068 | | | (921.1) | % |
(1) Includes $0.5 million of employer payroll taxes in 2021.
(2) Consists of non-capitalizable transaction cost associated with the Merger.
(3) Consists of legal expenses incurred in connection with non-recurring investor-related matters including stock transfers, sale of founder shares, and warrant exercises.
NM - calculation is not meaningful
The reconciliations of net income to adjusted net income for the year ended December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Years Ended December 31, | | 2021-2020 Change | | 2020-2019 Change |
| 2021 | | 2020 | | 2019 | | $ | | % | | $ | | % |
| Net income (loss) | $ | 21,206 | | | $ | 22,531 | | | $ | (18,792) | | | $ | (1,325) | | | (5.9) | % | | $ | 41,323 | | | (219.9) | % |
| Add back: | | | | | | | | | | | | | |
| Change in fair value of warrant liability | (36,573) | | | (102) | | | — | | | (36,471) | | | 35755.9 | % | | (102) | | | NM |
Stock-based compensation expense (1) | 13,475 | | | 351 | | | 315 | | | 13,124 | | | 3739.0 | % | | 36 | | | 11.4 | % |
Transaction costs associated with merger (2) | 3,350 | | | 1,040 | | | — | | | 2,310 | | | 222.1 | % | | 1,040 | | | NM |
| Adjusted net income (loss) | $ | 1,458 | | | $ | 23,820 | | | $ | (18,477) | | | $ | (22,362) | | | (93.9) | % | | $ | 42,297 | | | (228.9) | % |
(1) Includes $0.5 million of employer payroll taxes.
(2) Consists of non-capitalizable transaction cost associated with the Merger.
NM- calculation is not meaningful
ASC 842 Adoption
For illustrative purposes only, we are disclosing non-GAAP results for the years ended December 31, 2021 and 2020, respectively as if the lessor accounting impacts of ASC 842 were in effect for these periods. Total revenue under ASC 842 and bad debt expense (net of recoveries) under ASC 842 are supplemental disclosures that are neither required by nor presented in accordance with U.S. GAAP.
Management believes these non-GAAP measures for 2021 and 2020 provide relevant and useful information for users of our financial statements, as it provides comparability with the financial results we will be reporting beginning in 2022 when ASC 842 becomes effective and we begin to recognize revenue from customers when the revenue is earned and cash is collected instead of on an accrual basis as we have historically done. Upon adoption, we will no longer record accounts receivable arising from lease receivables due from customers incurred during the normal course of business for lease payments earned but not yet received from the customer or any corresponding allowance for doubtful accounts.
| | | | | | | | | | | |
| (in thousands) | Years Ended December 31, |
| 2021 | | 2020 |
| As Reported: | | | |
| Total revenue | $ | 303,113 | | | $ | 247,200 | |
| Bad debt expense (net of recoveries) | 28,299 | | | 16,064 | |
| Income before provision for income taxes | $ | 21,745 | | | $ | 23,018 | |
| | | |
| Non-GAAP Results: | | | |
| Total revenue under ASC 842 | $ | 277,560 | | | $ | 233,619 | |
| Bad debt expense (net of recoveries) under ASC 842 | — | | | — | |
| Income before provision for income taxes under ASC 842 | $ | 24,491 | | | $ | 25,501 | |
*Total revenue under ASC 842 also reflects the impact of the change in recognizing revenue when it is earned and cash is collected.
Liquidity and Capital Resources
The following table presents our cash, restricted cash, and accounts receivable, net, as of December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| (in thousands) | December 31, |
| 2021 | | 2020 | | 2019 |
| Cash | $ | 92,494 | | | $ | 65,622 | | | $ | 7,507 | |
| Restricted cash | 3,937 | | | 3,975 | | | 4,739 | |
| Accounts receivable, net | 2,007 | | | 1,636 | | | 924 | |
The table below sets forth a summary of our cash flow for the years ended December 31, 2021 and 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| (in thousands) | Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net cash provided by (used in) operating activities | $ | 2,166 | | | $ | (2,142) | | | $ | (31,584) | |
| Net cash used in investing activities | (1,436) | | | (402) | | | 91 | |
| Net cash provided by financing activities | 26,104 | | | 59,895 | | | 40,777 | |
| Net increase in cash and restricted cash | $ | 26,834 | | | $ | 57,351 | | | $ | 9,284 | |
Operating Activities
Net cash provided by operating activities was $2.2 million for the year ended December 31, 2021. This reflects our net income of $21.2 million, adjusted for non-cash charges of $213.5 million and net cash outflows of $232.5 million from changes in our operating assets and liabilities. Non-cash charges consisted primarily of increases in depreciation and amortization of $144.0 million, net book value of property buyouts of $45.6 million, bad debt expense of $28.3 million and stock compensation of $13.0 million. Partially offsetting these increases was $14.6 million of impairment expense.
Net cash used in operating activities was $2.1 million for the year ended December 31, 2020, a decrease of $29.4 million from $31.6 million used in operating activities for the year ended December 31, 2019. This reflects our net income of $22.5 million, adjusted for non-cash charges of $177.1 million and net cash outflows of $201.8 million from changes in our operating assets and liabilities. Non-cash charges consisted primarily of depreciation and amortization, which increased $64.4 million; net book value of property buyouts, which increased $19.4 million; impairment expense, which increased $7.1 million; and bad debt expense, which increased $6.9 million.
Investing Activities
Net cash used in investing activities was $1.4 million for the year ended December 31, 2021 and was primarily due to an increase in capitalized software of $1.0 million coupled with $0.4 million of purchases of property and equipment.
Net cash used in investing activities was $0.4 million for the year ended December 31, 2020 and was primarily due to purchases of property and equipment of $0.2 million and capitalized software of $0.2 million.
Financing Activities
Net cash provided by financing activities was $26.1 million for the year ended December 31, 2021 and was due to $38.9 million of cash received from the Merger, net of transaction costs and consideration paid to selling stockholders, $7.0 million of advances on the revolving line of credit, and $0.7 million of proceeds from exercise of stock options. These increases were offset by $20.5 million of principal repayments on the revolving line of credit.
Net cash provided by financing activities was $59.9 million for the year ended December 31, 2020 and was primarily due to proceeds from revolving line of credit of $39.9 million and net proceeds from term loan of $49.1 million, which was offset by principal repayment on the revolving line of credit of $4.8 million, principal repayment of long term debt of $7.5 million, and principal repayment of the non-revolving line of credit of $16.0 million.
Financing Arrangements
Senior Secured Term Loan and Revolving Loan Facility
On May 14, 2019, Katapult SPV-1 LLC, as borrower ("Borrower"), and Katapult Group, Inc. (f/k/a Cognical, Inc.) entered into a loan and security agreement (the “credit agreement”) with Midtown Madison Management, LLC as agent for various funds of Atalaya Capital Management (“Atalaya”), for a senior secured revolving loan facility (“revolving loan facility”) with an initial commitment of $50.0 million and the lender having the right to increase to a maximum of $150 million commitment over time. The revolving loan facility is subject certain covenants and originally had an 85% advance rate on eligible accounts receivable, which was increased to 90% in March 2020. The annual interest rate on the principal was the LIBOR plus 11% per annum through July 2020. Beginning in August 2020, the interest rate stepped down to LIBOR plus 7.5% per annum. There is a 2% floor on the LIBOR. On September 28, 2020, the lenders increased the maximum commitment to a total of $125.0 million. On December 4, 2020, the Company entered into the ninth amendment to the revolving loan facility. This amendment provided the lenders with the right to increase the revolving commitment amount from $125.0 million to $250.0 million. This right has not yet been exercised by the lenders as of the date of these consolidated financial statements.
Pursuant to the ninth amendment to the credit agreement entered into on December 4, 2020, Atalaya also provided the Company with a senior secured term loan (“term loan facility”) commitment of up to $50.0 million. The Company drew down the full $50.0 million of the term loan facility on December 4, 2020. The term loan facility bears interest at one-month LIBOR plus 8.0% (with a 1% LIBOR floor) and an additional 3% interest per annum will accrue to the principal balance as paid-in-kind (“PIK”) interest. Total outstanding principal and PIK interest is $51.7 million at December 31, 2021. An additional 3% interest per annum will accrue to the principal balance as paid-in-kind (“PIK”) interest. The term loan facility matures on December 4, 2023.
This credit facility is also subject to certain customary representations, affirmative covenants and negative covenants, which consist of maintaining lease performance metrics, financial ratios related to operating results, and lease delinquency ratios, along with customary negative covenants. The outstanding line of credit, including unpaid principal and interest, is due December 4, 2023 unless there is an earlier event of default such as bankruptcy, default on interest payments, or a change of control (excluding an acquisition by a special purpose acquisition company), at which point the facility may become due earlier. Total outstanding principal under the revolving line of credit was $62.0 million at December 31, 2021.
The negative covenants limit our ability to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; amend our material agreements; make investments; create liens; transfer or sell the collateral for the credit facility; make negative pledges; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with affiliates. Early repayments of certain amounts under our credit facility are subject to prepayment penalties.
The credit agreement governing our credit facility also requires us to maintain the following financial covenants:
•Minimum Trailing Twelve Month Adjusted EBITDA: As of the end of each fiscal month, the TTM Adjusted EBITDA (as defined in the credit agreement) must not be less than (i) during the period on and after October 1, 2021 and until (and including) June 30, 2023, ($15,000,000), (ii) during the period on and after July 1, 2023 and until (and including) December 31, 2023, $0.00, and (iii) at all times thereafter, $20,000,000.
•Minimum Tangible Net Worth: As of the end of each fiscal month, the Tangible Net Worth (as defined in the credit agreement) of Katapult Holdings, Inc. and its subsidiaries, on a consolidated basis, must be greater than or equal to the sum of (i) $(18,500,000) plus (ii) the greater of (A) zero dollars and (B) fifty percent of all aggregate Parent Consolidated Net Income (as defined in the credit agreement) since April 30, 2019 (as determined in accordance with GAAP.
•Minimum Liquidity: As of any date of determination, Katapult Holdings, Inc. must not permit Liquidity (as defined in the credit agreement) to be less than $50 million of cash and cash equivalents on hand.
•Compliance with Total Advance Rate: At the end of each fiscal month and as of the making of any advance under the credit agreement, the Total Advance Rate (as defined in the credit agreement) must not exceed (i) from the period on or after October 1, 2021 to and including December 31, 2022, 140%, (ii) from January 1, 2023 to and including December 31, 2023, 130% and (iii) at all times thereafter, 120%. If at any time during which there is a Total Advance Rate Reserve Account (as defined in the credit agreement), the Total Advance Rate exceeds the applicable rate for any of the foregoing periods, the borrower may cure such Default (as defined in the credit agreement) by depositing funds in the Total Advance Rate Reserve Account in an amount necessary to reduce the Total Advance Rate to the maximum permitted rate for such period; provided that borrower's right to cure a default may be exercised no more than a total of five (5) times.
Failure to comply with any of these covenants or other obligation or agreement under the credit agreement that is not cured within the specified period under the credit agreement would result in an event of default under the agreement. Upon an event of default, the lenders can exercise their remedies under the credit agreement including the immediate termination of any loan commitments under the agreement and the acceleration of repayment of all obligations under the credit agreement immediately.
During the year ended December 31, 2021, the credit agreement was amended to, among other things: (1) amend the trailing twelve month ("TTM") Adjusted EBITDA (as defined in the credit agreement) financial covenant to (2) increase the minimum liquidity covenant to $50.0 million; (3) amend the definition of “Liquidity” to include Cash Equivalents (as defined in the credit agreement): and (4) amend the Total Advance Rate (as defined in the credit agreement) financial covenant. No modifications were made to applicable funding costs or the maturity date of the revolving loan facility.
As of December 31, 2021 and 2020, the Company was in compliance with the covenants in the credit agreement.
On March 14, 2022, the borrower, Katapult Holdings, Inc. and Katapult Group, Inc. entered into the thirteenth amendment to the credit agreement to amend the number of times the borrower can cure a default with respect to compliance with the Total Advance Rate covenant from two to five. As of the date of this report, the Borrower has exercised its right to cure such a default two times.
For additional information on our loan obligations, refer to Notes 7 and 8 of the audited financial statements included elsewhere in this Annual Report on Form 10-K.
Pledge and Guaranty
Pursuant to the Pledge Agreement, dated as of May 14, 2019, between Katapult Group, Inc. (f/k/a Cognical, Inc.) and Midtown Madison Management, LLC, Katapult Group, Inc. pledged and granted a first priority security interest in all equity interests of the Borrower and any investment property and general intangibles evidenced by or related to such membership interests. Pursuant to the Corporate Guaranty and Security Agreement, dated as of December 4, 2020, by and among Katapult Group, Inc., Legacy Katapult and Midtown Madison Management, LLC, Katapult and Katapult Group, Inc. have granted a first priority security interest in all of their respective assets and Katapult and Katapult Group, Inc. guarantee payment of all obligations of the Borrower under the facility.
Sources and Material Cash Requirements
Our principal sources of liquidity are our cash, cash flows generated from operations and availability under our revolving credit facility. Our primary uses of cash include purchases of assets held for lease and funding for growth initiatives.
Our ability to fund future operating needs will be dependent on our ability to generate positive cash flows from operations and obtain financing for growth as needed. We have $92.5 million of unrestricted cash at December 31, 2021 which we believe is sufficient to meet our liquidity needs for the next 12 months. We believe we will meet longer-term (beyond 12 months) cash requirements through a combination of available cash on hand, cash flows generated from operations and availability under our revolving credit facility.
The table below summarizes our material cash requirements as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Payments by Year |
| Total | | 2022-2023 | | 2024-2025 | | Thereafter |
Line of credit (1) | $ | 73,959 | | | $ | 73,959 | | | $ | — | | | $ | — | |
Long term debt (2) | 64,114 | | | 64,114 | | | — | | | — | |
| Operating lease commitments | 1,422 | | | 918 | | | 504 | | | — | |
| Total | $ | 139,495 | | | $ | 138,991 | | | $ | 504 | | | $ | — | |
(1) Future cash obligations include scheduled interest payments due based on the interest rate of 9.5% as of December 31, 2021.
(2) Future cash obligations include scheduled interest payments due based on the interest rate of 9.0%, plus 3.0% paid-in-kind interest as of December 31, 2021.
As the impact of the COVID-19 pandemic on the economy and our business evolves, we will continue to evaluate our liquidity needs. Should we require additional sources of liquidity, we believe that we can finance our future needs through debt or issuance of additional equity. However, we cannot guarantee that we will be able to obtain financing through debt or equity issuances on reasonable/favorable terms.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We evaluate our significant estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.
We believe that the accounting estimates described below involve a significant degree of judgment and complexity and have the greatest potential effect on our consolidated financial statements. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
For further information, see Note 2 to our Consolidated Financial Statements included within Part II Item 8 contained in this Annual Report on Form 10-K.
Rental Revenue Recognition
Property held for lease is leased to customers pursuant to lease purchase agreements with an initial term: typically one week, two weeks, or one month, with non-refundable lease payments. Generally, the customer has the right to acquire title and ownership either through a 90-day purchase option, an early purchase option (buyout) available prior to completion of the full agreement, or by completing all lease renewal payments, generally 10, 12 or 18 months, for ownership. On any current lease, customers have the option to terminate the agreement at any time without penalty in accordance with lease-purchase agreement terms. Accordingly, customer agreements are accounted for as operating leases with lease revenues recognized in the month they are earned based on the accrual basis of accounting. Amounts received from customers who elect purchase options (buyouts) are included in rental revenue, when earned. Lease payments received prior to their due dates are deferred and recorded as unearned revenue and are recognized as revenue in the period in which they are earned. Rental revenue also includes agreed-upon charges assessed to customer lease applications. Payments are received upon submission of the applications and execution of the lease purchase agreements. Services are considered to be rendered and revenue earned over the initial lease term. The Company also may assess fees for missed or late payments, which are recognized as revenue in the billing period in which they are assessed if collectability is reasonably assured. Revenues from leases are reported net of sales taxes.
There are uncertainties involved with applying rental revenue recognition due to the non-prime nature of our consumers, and the conclusion about likelihood to pay after a customer goes delinquent.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded net of allowances for doubtful accounts. Accounts receivable consist primarily of lease receivables due from customers incurred during the normal course of business for lease payments earned not yet received from the customer. On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance for doubtful accounts or if any accounts should be written off based on past history of write-offs, collections, and current credit conditions. We maintain an allowance for doubtful accounts to provide for uncollected amounts based on historical collection experience and an analysis of the aging of receivables per the following categories: 1-30 days, 31-60 days, 61-90 days. This analysis results in the determination of loss rate percentages that are applied to outstanding receivables in each of these categories as of period end. We write off accounts receivables that are over 90 days contractually past due. Bad debt expense is classified in operating expenses within the consolidated statements of operations and comprehensive loss. We do not require any security or collateral to support its receivables.
There are uncertainties involved in estimating the allowance for doubtful accounts due to unanticipated changes in the business environment, as well as factors and risks associated with our customers’ behaviors.
Stock-Based Compensation
We measure and record compensation expense related to stock-based awards based on the fair value of those awards as determined on the date of the grant. We recognize stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period and uses the straight-line method to recognize stock-based compensation. We use the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the estimated fair value of stock-based awards. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, such as expected term, common share price, and volatility, which affect the fair value of each stock option. Forfeitures are accounted for as they are incurred.
There are uncertainties involved when recognizing stock-based compensation expense due to the lack of publicly available share price and volatility data for our common stock. Our valuation utilizes peer company volatility data as well as internally developed valuation models for the common share price which could vary from actual market results.
Income Taxes
We account for income taxes under the asset and liability method pursuant to ASC 740, Income Taxes. Under this method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized based on all available positive and negative evidence. The determination of whether a deferred tax asset will be realizable is a highly subjective decision based upon estimated future taxable income and could vary from actual results. We recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the local taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit greater than 50% likelihood of being realized upon settlement with the related tax authority. The changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in the provision for income taxes.
Property Held for Lease, Net of Accumulated Depreciation and Impairment
Property held for lease consists of furniture, consumer electronics, appliances, and other durable goods offered for lease-purchase in the normal course of business. Such property is provided to consumers pursuant to a lease-purchase agreement with a minimum term; typically one week, two weeks, or one month. The renewal periods of the initial lease term of the agreement are typically 10, 12 or 18 months. Consumers may terminate a lease agreement at any time without penalty. The average consumer continues to lease the property for 7 months because the consumer either exercises the buyout (early purchase) options or terminates the lease purchase agreement prior to the end of the 10 to 18 month renewal periods. As a result, property held for lease is classified as a current asset on the consolidated balance sheets.
Property held for lease is carried at net book value. Depreciation for property held for lease is generally provided using the income forecasting method and is included within cost of revenue. Under the income forecasting method, property held for lease is depreciated in the proportion of rents received to total expected rents received based on historical data, which is an activity-based method similar to the units of production method. We provide for impairment for the undepreciated balance of the property held for lease assuming no salvage value with a corresponding charge to cost of revenue. Impairment expense includes expense related to property identified as impaired based on historical data, including default trends, such that the recorded amount closely approximates actual impairment expense incurred during the period. We derecognize the undepreciated net book value of property buyouts as buyouts occur with a corresponding charge to cost of revenue. We periodically evaluate fully depreciated property held for lease, net. When it is determined there is no future economic benefit, the related assets and accumulated depreciation are written-off.
There are uncertainties involved when recognizing expenses related to property held for lease due to the subjective nature of the income forecasting method and estimated salvage value, which could vary from actual results.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our consolidated financial statements in this filing for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.
Emerging Growth Company
As of December 31, 2021, we are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying
with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, our consolidated financial statements may not be comparable to the financial statements of companies that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2024, (b) the last date of our fiscal year in which we have a total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market and other risks, including the effects of changes in interest rates, and inflation, as well as risks to the availability of funding sources and other risks.
Interest Rate Risk
The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. As of December, 2021 and December 31, 2020, we had interest bearing debt with a principal amount of $113.6 million and $125.5 million, respectively.
Our revolving credit facility is a variable rate loan that accrues interest at a variable rate of interest based on the one month LIBOR rate, subject to a 2% floor, plus 7.5% per annum. As of December 31, 2021, the calculated interest rate is 9.5%.
Inflation Risk
We do not believe that inflation has had, or currently has, a material effect on our business.
Foreign Currency Risk
There was no material foreign currency risk for year ended December 31, 2021, 2020 and 2019. Our activities to date are conducted only in the United States.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Balance Sheets as of December 31, 2021 and 2020, and our Consolidated Statements of Operations, Stockholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2021, together with the report of our independent registered public accounting firm, are incorporated herein by reference.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and Board of Directors of Katapult Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Katapult Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New York, NY
March 15, 2022
We have served as the Company’s auditor since 2018.
KATAPULT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share amounts)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| ASSETS | | | |
| Current assets: | | | |
| Cash | $ | 92,494 | | | $ | 65,622 | |
| Restricted cash | 3,937 | | | 3,975 | |
Accounts receivable, net of allowance for doubtful accounts of $6,248 and $4,372 at December 31, 2021 and December 31, 2020, respectively | 2,007 | | | 1,636 | |
| Property held for lease, net of accumulated depreciation and impairment | 61,752 | | | 66,737 | |
| Prepaid expenses and other current assets | 4,249 | | | 1,248 | |
| Total current assets | 164,439 | | | 139,218 | |
| Property and equipment, net (Note 4) | 576 | | | 330 | |
| Security deposits | 91 | | | 91 | |
| Capitalized software and intangible assets, net (Note 5) | 1,056 | | | 188 | |
| Total assets | $ | 166,162 | | | $ | 139,827 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | |
| Current liabilities: | | | |
| Accounts payable | 2,029 | | | 1,688 | |
| Accrued liabilities | 11,959 | | | 12,967 | |
| Unearned revenue | 2,135 | | | 2,652 | |
| Total current liabilities | 16,123 | | | 17,307 | |
| Revolving line of credit (Note 7) | 61,238 | | | 74,316 | |
| Long term debt (Note 8) | 40,661 | | | 36,413 | |
| Other liabilities | 7,341 | | | 12,740 | |
| Total liabilities | 125,363 | | | 140,776 | |
| STOCKHOLDERS' EQUITY (DEFICIT) | | | |
Common stock, $.0001 par value-- 250,000,000 shares authorized; 97,574,171 and 31,432,476 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively | 10 | | | 3 | |
| Additional paid-in capital | 77,632 | | | 57,097 | |
| Accumulated deficit | (36,843) | | | (58,049) | |
| Total stockholders' equity (deficit) | 40,799 | | | (949) | |
| Total liabilities and stockholders' equity (deficit) | 166,162 | | | 139,827 | |
The accompanying notes are an integral part of these consolidated financial statements.
KATAPULT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(amounts in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenue | | | | | |
| Rental revenue | $ | 302,794 | | | $ | 246,927 | | | $ | 90,996 | |
| Other revenue | 319 | | | 200 | | | 368 | |
| Service fees | — | | | 73 | | | 513 | |
| Total revenue | 303,113 | | | 247,200 | | | 91,877 | |
| Cost of revenue | 214,124 | | | 167,412 | | | 71,220 | |
| Gross profit | 88,989 | | | 79,788 | | | 20,657 | |
| Operating expenses: | | | | | |
| Servicing costs | 4,737 | | | 4,077 | | | 2,934 | |
| Underwriting fees | 1,876 | | | 2,344 | | | 2,562 | |
| Professional and consulting fees | 5,987 | | | 2,949 | | | 1,347 | |
| Technology and data analytics | 8,196 | | | 6,296 | | | 4,293 | |
| Bad debt expense | 28,299 | | | 16,064 | | | 9,163 | |
| Compensation costs | 26,943 | | | 6,874 | | | 5,514 | |
| General and administrative | 11,294 | | | 4,278 | | | 4,236 | |
| Total operating expenses | 87,332 | | | 42,882 | | | 30,049 | |
| Income (loss) from operations | 1,657 | | | 36,906 | | | (9,392) | |
| Loss on extinguishment of debt | — | | | (402) | | | (823) | |
| Interest expense and other fees | (16,485) | | | (13,588) | | | (8,577) | |
| Change in fair value of warrant liability | 36,573 | | | 102 | | | — | |
| Income (loss) before provision for income taxes | 21,745 | | | 23,018 | | | (18,792) | |
| Provision for income taxes | (539) | | | (487) | | | — | |
| Net income (loss) and comprehensive income (loss) | 21,206 | | | 22,531 | | | (18,792) | |
| Net income (loss) per share: | | | | | |
| Basic | 0.31 | | | 0.73 | | | (0.73) | |
| Diluted | 0.26 | | | 0.48 | | | (0.73) | |
| Weighted average shares used in computing net income (loss) per share: | | | | | |
| Basic | 68,502,092 | | | 30,855,778 | | | 25,663,488 | |
| Diluted | 80,573,218 | | | 46,948,445 | | | 25,663,488 | |
The accompanying notes are an integral part of these consolidated financial statements.
KATAPULT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(amounts in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Stock | | | Common Stock | | Additional
Paid-in
Capital | | Accumulated
Deficit | | Total
Stockholders'
Deficit |
| Shares | | Amount | | | Shares | | Amount | | | |
| Balances at December 31, 2018 | 24,773,767 | | | $ | 34,326 | | | | 8,680,353 | | | $ | 1 | | | $ | 3,316 | | | $ | (59,308) | | | $ | (55,991) | |
| Retroactive application of recapitalization | (24,773,767) | | | (34,326) | | | | 7,912,892 | | | 1 | | | 34,326 | | | — | | | 34,327 | |
| Adjusted beginning balance | — | | | — | | | | 16,593,245 | | | 2 | | | 37,642 | | | (59,308) | | | (21,664) | |
| Beneficial conversion feature | — | | | — | | | | — | | | — | | | 2,480 | | | (2,480) | | | — | |
Convertible note conversion (1) | — | | | — | | | | 5,449,538 | | | — | | | 6,088 | | | — | | | 6,088 | |
Redeemable convertible preferred stock (1) | — | | | — | | | | 8,545,606 | | | 1 | | | 9,546 | | | — | | | 9,547 | |
| Stock options exercised | — | | | — | | | | 6,125 | | | — | | | 2 | | | — | | | 2 | |
| Stock-based compensation expense | — | | | — | | | | — | | | — | | | 315 | | | — | | | 315 | |
| Stock warrant issuance | — | | | — | | | | — | | | — | | | 560 | | | — | | | 560 | |
| Net income (loss) | — | | | — | | | | — | | | — | | | — | | | (18,792) | | | (18,792) | |
| Balances at December 31, 2019 | — | | | — | | | | 30,594,514 | | | 3 | | | 56,633 | | | (80,580) | | | (23,944) | |
| Warrant exercise | — | | | — | | | | 173,753 | | | — | | | 1 | | | — | | | 1 | |
| Stock options exercised | — | | | — | | | | 664,209 | | | — | | | 112 | | | — | | | 112 | |
| Stock-based compensation expense | — | | | — | | | | — | | | — | | | 351 | | | — | | | 351 | |
| Net income (loss) | — | | | — | | | | — | | | — | | | — | | | 22,531 | | | 22,531 | |
| Balances at December 31, 2020 | — | | | — | | | | 31,432,476 | | | 3 | | | 57,097 | | | (58,049) | | | (949) | |
| PIPE proceeds | — | | | — | | | | 15,000,000 | | | 2 | | | 149,998 | | | — | | | 150,000 | |
| Merger financing | — | | | — | | | | 39,408,662 | | | 4 | | | 251,105 | | | — | | | 251,109 | |
| Consideration paid to selling stockholders | — | | | — | | | | — | | | — | | | (329,560) | | | — | | | (329,560) | |
| Transaction costs | — | | | — | | | | — | | | — | | | (33,534) | | | — | | | (33,534) | |
| Merger warrants liability | — | | | — | | | | — | | | — | | | (44,272) | | | — | | | (44,272) | |
| Stock options exercised | — | | | — | | | | 2,174,963 | | | — | | | 677 | | | — | | | 677 | |
| Stock-based compensation expense | — | | | — | | | | 2,850,000 | | | — | | | 13,020 | | | — | | | 13,020 | |
| Stock warrant exercise | — | | | — | | | | 6,708,070 | | | 1 | | | 13,101 | | | — | | | 13,102 | |
| Net income (loss) | — | | | — | | | | — | | | — | | | — | | | 21,206 | | | 21,206 | |
| Balances at December 31, 2021 | — | | | $ | — | | | | 97,574,171 | | | $ | 10 | | | $ | 77,632 | | | $ | (36,843) | | | $ | 40,799 | |
(1) Retroactively restated to give effect to the recapitalization transaction. Refer to Note 1 for additional information.
The accompanying notes are an integral part of these consolidated financial statements.
KATAPULT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | 21,206 | | | $ | 22,531 | | | $ | (18,792) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
| Depreciation and amortization | 143,993 | | | 111,447 | | | 47,083 | |
| Net book value of property buyouts | 45,589 | | | 31,140 | | | 11,737 | |
| Impairment expense | 14,566 | | | 17,064 | | | 9,979 | |
| Bad debt expense | 28,299 | | | 16,064 | | | 9,163 | |
| Change in fair value of warrant liability | (36,573) | | | (102) | | | — | |
| Stock-based compensation | 13,020 | | | 351 | | | 315 | |
| Amortization of debt discount | 2,701 | | | 218 | | | — | |
| Amortization of debt issuance costs | 357 | | | 431 | | | 740 | |
| Accrued PIK interest | 1,547 | | | — | | | — | |
| Warrant expense | — | | | — | | | 560 | |
| Loss on extinguishment of debt | — | | | 402 | | | 823 | |
| Other | — | | | 106 | | | 168 | |
| Change in operating assets and liabilities: | | | | | |
| Accounts receivable | (28,670) | | | (16,776) | | | (8,975) | |
| Property held for lease | (198,841) | | | (191,450) | | | (87,809) | |
| Prepaid expenses and other current assets | (3,847) | | | (613) | | | 36 | |
| Accounts payable | 344 | | | 768 | | | (150) | |
| Accrued liabilities | (1,008) | | | 4,993 | | | 3,043 | |
| Unearned revenues | (517) | | | 1,284 | | | 495 | |
| Net cash provided by (used in) operating activities | 2,166 | | | (2,142) | | | (31,584) | |
| Cash flows from investing activities: | | | | | |
| Purchases of property and equipment | (384) | | | (234) | | | (82) | |
| Additions to capitalized software | (1,052) | | | (202) | | | — | |
| Other assets and security deposits | — | | | 34 | | | 173 | |
| Net cash (used in) provided by investing activities | (1,436) | | | (402) | | | 91 | |
| Cash flows from financing activities: | | | | | |
| PIPE proceeds | 150,000 | | | — | | | — | |
| Merger financing, net of redemptions | 251,109 | | | — | | | — | |
| Consideration paid to selling shareholders | (329,560) | | | — | | | — | |
| Transaction cost paid | (32,688) | | | — | | | — | |
| Proceeds from convertible notes | — | | | — | | | 2,500 | |
| Proceeds from revolving line of credit | 7,036 | | | 39,913 | | | 22,845 | |
| Principal repayments of long term debt | — | | | (7,500) | | | — | |
| Proceeds from non-revolving line of credit, related parties | — | | | — | | | 8,937 | |
| Principal repayments on non-revolving line of credit, related parties | — | | | (16,000) | | | (2,846) | |
| Proceeds from term loan | — | | | 49,102 | | | — | |
| Payment of revolving line of credit debt issuance costs | — | | | (750) | | | — | |
| Payment of term loan debt issuance costs | — | | | (182) | | | — | |
| Proceeds from exercise of stock options | 678 | | | 113 | | | 2 | |
| Principal repayments of revolving line of credit | (20,471) | | | (4,801) | | | — | |
| | | | | | | | | | | | | | | | | |
| Proceeds from redeemable convertible preferred stock issuance | — | | | — | | | 9,339 | |
| Net cash provided by financing activities | 26,104 | | | 59,895 | | | 40,777 | |
| Net increase in cash and restricted cash | 26,834 | | | 57,351 | | | 9,284 | |
| Cash and restricted cash at beginning of period | 69,597 | | | 12,246 | | | 2,962 | |
| Cash and restricted cash at end of period | $ | 96,431 | | | $ | 69,597 | | | $ | 12,246 | |
| | | | | |
| Supplemental disclosure of cash flow information: | | | | | |
| Cash paid for interest | 11,628 | | | $ | 12,607 | | | $ | 7,110 | |
| Cash paid for taxes | 416 | | | $ | 625 | | | $ | 105 | |
| Supplemental disclosure of non-cash investing and financing activities: | | | | | |
| Exchange of redeemable convertible preferred shares | $ | 49,894 | | | $ | — | | | $ | — | |
| Assumed warrant liability in connection with Merger | $ | 44,272 | | | $ | — | | | $ | — | |
| Exercise of common stock warrant accounted for as a liability | $ | 13,102 | | | $ | — | | | $ | — | |
| Issuance of warrant to purchase redeemable convertible preferred stock | $ | — | | | $ | 12,846 | | | $ | — | |
| Transaction costs included in other assets | $ | 846 | | | $ | — | | | $ | — | |
| Conversion of preferred stock to common stock | $ | — | | | $ | — | | | $ | 67 | |
| Principal repayments on non-revolving line of credit, related parties | $ | — | | | $ | — | | | $ | 16,757 | |
| Convertible note conversion | $ | — | | | $ | — | | | $ | 6,062 | |
| Fee payable exchanged for preferred shares | $ | — | | | $ | — | | | $ | 167 | |
The accompanying notes are an integral part of these consolidated financial statements.
| | |
KATAPULT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(amounts in thousands, except share and per share amounts) |
1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Katapult Holdings, Inc. (“Katapult”), is an e-commerce focused financial technology company offering e-commerce point-of-sale (“POS”) lease-purchase options for non-prime US consumers. Katapult’s fully-digital technology platform provides non-prime consumers with a flexible lease purchase option to enable them to obtain durable goods from Katapult’s network of e-commerce retailers. Katapult's end-to-end technology platform provides seamless integration with merchants.
On June 9, 2021 (the "Closing Date"), Katapult (formerly known as FinServ Acquisition Corp. or "FinServ"), consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated December 18, 2020 (the "Merger Agreement"), by and among FinServ Keys Merger Sub 1, Inc. ("Merger Sub 1"), a wholly owned subsidiary of FinServ, Keys Merger Sub 2, LLC ("Merger Sub 2"), the entity formerly known as Katapult Holdings, Inc. (formerly known as Cognical Holdings, Inc.), a Delaware corporation (“Legacy Katapult”), and Orlando Zayas, in his capacity as the representative of all pre-closing stockholders. Pursuant to the terms of the Merger Agreement, a business combination between Legacy Katapult and FinServ was effected on June 9, 2021 through the merger of Merger Sub 1 with and into Legacy Katapult, with Legacy Katapult surviving the merger as a wholly owned subsidiary of FinServ (the “First Merger”), followed immediately by the merger of the resulting company with and into Merger Sub 2, with Merger Sub 2 surviving the merger as a wholly owned subsidiary of FinServ (the “Second Merger” and collectively with the First Merger and the other transactions contemplated by the Merger Agreement, the “Merger”). References to “the Company” are to Katapult following the Merger and Legacy Katapult prior to the Merger. On the Closing Date, a number of investors purchased from the Company an aggregate of 15,000,000 shares of Company common stock for a purchase price of $10.00 per share and an aggregate purchase price of $150,000 (the "PIPE Investment" or "PIPE"), pursuant to separate subscription agreements. The PIPE was consummated concurrently with the Merger.
On the Closing Date, and in connection with the closing of the Merger, FinServ changed its name to Katapult Holdings, Inc. Legacy Katapult was deemed the accounting acquirer in the Merger based on an analysis of the criteria outlined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. This determination was primarily based on Legacy Katapult’s stockholders prior to the Merger having had a majority of the voting rights in the combined company, Legacy Katapult’s operations represented the ongoing operations of the combined company, Legacy Katapult and its former owners had the right to appoint a majority of the directors in the combined company, and Legacy Katapult's senior management represented the senior management of the combined company. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Legacy Katapult issuing stock for the net assets of FinServ, accompanied by a recapitalization. The net assets of FinServ are stated at historical cost, with no goodwill or other intangible assets recorded.
In accordance with guidance applicable to these circumstances, the equity structure has been restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company's common stock, $0.0001 par value per share, issued to Legacy Katapult's stockholders in connection with the recapitalization transaction. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Katapult redeemable convertible preferred stock and Legacy Katapult common stock prior to the Merger have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.
| | | | | |
| Recapitalization |
| Cash - FinServ Trust | $ | 251,059 | |
| Less: Redemptions | (64) | |
| Cash - FinServ Operating | 114 | |
| Cash - PIPE | 150,000 |
| Less: Consideration paid to selling stockholders | (329,560) | |
| Less: Transaction Costs | (33,534) | |
| Net contributions from Merger and PIPE | 38,015 | |
| Less: Warrant liability | (44,272) | |
| Total | $ | (6,257) | |
Merger Warrants
Warrants to purchase shares of the Company's common stock deemed acquired as part of the Merger and outstanding during the year ended December 31, 2021 consisted of the following:
| | | | | |
| December 31, 2021 |
| Public warrants | 12,500,000 | |
| Private warrants | 332,500 | |
| Total | 12,832,500 | |
Earn out Shares
At the closing of the Merger, the Company issued 7,500,000 earn out shares to Legacy Katapult stockholders subject to an earn out period and vesting conditions. The earn out period concludes on the sixth anniversary of the Merger (June 9, 2027). One-half of the earn out shares will vest if the closing price of Katapult common stock is greater than or equal to $12.00 over any 20 trading days within any 30 consecutive trading day period and one-half will vest if the closing price of the Katapult common stock is greater than or equal to $14.00 over any 20 trading days within any 30 consecutive trading day period, in each case, during the earn out period. The earn out shares are classified as equity. As of December 31, 2021, none of the earn out shares have vested.
Subsidiaries
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries which are Katapult Intermediate Holdings, LLC (formerly known as Keys Merger Sub 2, LLC), Katapult Group, Inc. (formerly known as Cognical, Inc.) and Katapult SPV-1 LLC, and the Company's former subsidiaries, Cognical SPV-3 LLC, and Cognical SPV-4 LLC. Cognical SPV-3 LLC originated all of the Company’s lease agreements with its customers and owned all of the leased property through April 2019. Katapult SPV-1 LLC originates all of the Company’s lease agreements thereafter. Cognical SPV-4 LLC has halted the origination of new leases on behalf of a third-party merchant, however the Company serviced activity from existing leases of Cognical SPV-4 LLC through November 2020. Cognical SPV-3 LLC and Cognical SPV-4 LLC were liquidated in December 2020.
The Company was headquartered in New York, New York through December 31, 2020. Legacy Katapult was incorporated in Delaware in 2016 and changed its headquarters to Plano, Texas. Katapult Group, Inc. was incorporated in the state of Delaware in 2012. Katapult SPV-1 LLC is a Delaware limited liability company formed in Delaware in 2019, The Company's former subsidiaries, Cognical SPV-3 LLC, Cognical SPV-4 LLC were Delaware limited liability companies formed in 2016 and 2017, respectively.
Basis of Presentation—The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of Katapult Holdings, Inc. and its wholly owned subsidiaries. In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair presentation have been included in these consolidated financial statements.
All intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
Risks and Uncertainties—The Company is subject to a number of risks including, but not limited to, the need for successful development of our growth strategies, the need for additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, dependence on key individuals, and risks associated with changes in information technology. Refer to Item 1A - Risk Factors.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates—The preparation of the consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting period. The most significant estimates relate to the allowance for doubtful accounts, the selection of useful lives of property and equipment, the selection of useful lives for property held for lease and the related depreciation method, intangible assets and associated useful lives, determination of fair value of stock option grants, the fair value of the common stock warrants, and the valuation allowance associated with deferred tax assets. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates.
Segment Information—Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, the Company has one operating segment, and therefore, one reportable segment.
Cash— As of December 31, 2021 and 2020, cash consists primarily of checking and savings deposits. The Company does not hold any cash equivalents, which would consist of highly liquid investments with original maturities of three months or less at the time of purchase.
Restricted Cash—The Company classifies all cash whose use is limited by contractual provisions as restricted cash. Restricted cash as of December 31, 2021 and 2020 consists primarily of cash advanced from the lines of credit in Katapult SPV-1 LLC, which were established pursuant to various agreements for the purpose of funding and servicing originated leases. All of the Company’s restricted cash is classified as current due to its short-term nature.
The reconciliation of cash and restricted cash is as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Reconciliation of cash and restricted cash: | | | |
| Cash | $ | 92,494 | | | $ | 65,622 | |
| Restricted cash | 3,937 | | | 3,975 | |
| Total cash and restricted cash | $ | 96,431 | | | $ | 69,597 | |
Accounts Receivable, Net of Allowance for Doubtful Accounts—Accounts receivable are recorded net of allowances for doubtful accounts. Accounts receivable consist primarily of lease receivables due from customers incurred during the normal course of business for lease payments earned but not yet received from the customer. On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance for doubtful accounts or if any accounts should be written off based on past history of write-offs, collections, and current credit conditions. The Company maintains an allowance for doubtful accounts to provide for uncollected amounts based on historical collection experience and an analysis of the aging of receivables per the following categories: 1-30 days, 31-60 days, 61-90 days. This analysis results in the determination of loss rate percentages that are applied to outstanding receivables in each of these categories as of period end. The Company writes off accounts receivables that are over 90 days contractually past
due. Bad debt expense is classified in operating expenses within the consolidated statements of operations and comprehensive income (loss). The Company does not require any security or collateral to support its receivables.
A rollforward of the allowance for doubtful accounts is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of period | | Charged to cost and expenses, net of recoveries | | Write-offs | | Balance at end of period |
| Year ended December 31, 2019 | $ | 1,109 | | | $ | 9,163 | | | $ | (8,417) | | | $ | 1,855 | |
| Year ended December 31, 2020 | $ | 1,855 | | | $ | 16,064 | | | $ | (13,547) | | | $ | 4,372 | |
| Year ended December 31, 2021 | $ | 4,372 | | | $ | 28,299 | | | $ | (26,423) | | | $ | 6,248 | |
Property Held for Lease, Net of Accumulated Depreciation and Impairment—Property held for lease consists of furniture, consumer electronics, appliances, and other durable goods offered for lease-purchase in the normal course of business. Such property is provided to consumers pursuant to a lease-purchase agreement with a minimum term; typically one week, two weeks, or one month. The renewal periods of the initial lease term of the agreement are typically 10, 12 or 18 months. Consumers may terminate a lease agreement at any time without penalty. The average consumer continues to lease the property for 7 months because the consumer either exercises the buyout (early purchase) options or terminates the lease purchase agreement prior to the end of the 10, 12 or 18 month renewal periods. As a result, property held for lease is classified as a current asset on the consolidated balance sheets.
Property held for lease is carried at net book value. Depreciation for property held for lease is determined using the income forecasting method and is included within cost of revenue. Under the income forecasting method, property held for lease is depreciated in the proportion of rents received to total expected rents received based on historical data, which is an activity-based method similar to the units of production method. The Company provides for impairment for the undepreciated balance of the property held for lease assuming no salvage value with a corresponding charge to cost of revenue. Impairment expense includes expense related to property identified as impaired based on historical data, including default trends, such that the recorded amount closely approximates actual impairment expense incurred during the period. The Company derecognizes the undepreciated net book value of property buyouts as buyouts occur with a corresponding charge to cost of revenue. The Company periodically evaluates fully depreciated property held for lease, net. When it is determined there is no future economic benefit, the cost of the assets are written off and the related accumulated depreciation reversed.
Property and Equipment, Net—Property and equipment other than property held for lease are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method and are recorded in general and administrative expense over the estimated useful lives of the assets. The estimated useful lives of property and equipment are described below:
| | | | | |
| Property and Equipment | Useful Life |
| Computer, office and other equipment | 5 years |
| Computer software | 3 years |
| Furniture and fixtures | 7 years |
| Leasehold improvements | Shorter of estimated useful life or remaining lease term |
Capitalized Software—Starting January 1, 2020 the Company began capitalizing certain development costs incurred in connection with its internal use software. Costs incurred in the preliminary stages of development are expensed as incurred. Capitalization of costs begins when the preliminary project stage is completed, and it is probable that the project will be completed and used for its intended function. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional features and functionality. Maintenance costs are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, generally three years. Capitalized software cost is included within the Capitalized software and intangible assets, net line item of the consolidated balance sheets. Amortization of capitalized software is included in general and administrative on the consolidated statements of operations and comprehensive income (loss).
Debt Issuance Costs—Costs incurred in connection with the issuance of the Company’s line of credit and long-term debt have been recorded as a direct reduction against the debt and amortized over the life of the associated debt as a component of interest expense. The amortization of the long-term debt issuance costs utilizes the effective interest method, and the amortization of the line of credit debt issuance costs utilizes the straight-line method, which is not materially different compared to the effective interest method.
Impairment of Long-Lived Assets—The Company assesses long-lived assets for impairment in accordance with the provisions of ASC 360, Property, Plant and Equipment. Long-lived assets, such as intangible assets and property and equipment, are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment charges have been recorded during the years ended December 31, 2021, 2020, or 2019.
Rental Revenue—Property held for lease is leased to customers pursuant to lease purchase agreements with an initial term: typically one week, two weeks, or one month, with non-refundable lease payments. Generally, the customer has the right to acquire title either through a 90-day promotional pricing option, an early purchase option (buyout) available prior to completion of the full agreement, or by completing all lease renewal payments, generally 10 to 18 months. On any current lease, customers have the option to terminate the agreement at any time without penalty in accordance with lease terms. Accordingly, lease purchase agreements are accounted for as operating leases with lease revenues recognized in the month they are earned. Amounts received from customers who elect early purchase options (buyouts) are included in rental revenue. Lease payments received prior to their due dates are deferred and recorded as unearned revenue and are recognized as rental revenue in the month in which the revenue is earned. Rental revenue also includes agreed-upon charges assessed to customer lease applications. Payments are received upon submission of the applications and execution of the lease purchase agreements. Services are considered to be rendered and revenue earned over the initial lease term. The Company also may assess fees for missed or late payments, which are recognized as revenue in the billing period in which they are assessed if collectability is reasonably assured. Revenues from leases are reported net of sales taxes.
Other Revenue—Other revenue consists of sub-lease revenue, revenue from merchant partnerships, and infrequent sales of property formerly on lease when customers terminate a lease and elect to return the property to the Company rather than the Company’s retail partners.
Service Fees—Cognical SPV-4 LLC executes leases in association with a third-party retailer and then services these leases for a contractually determined fee. Service fees are earned based upon application and origination volume, as well as rendering collection services over the life of the lease. These fees are accrued for in the month the services are rendered and are included in service fees if collectability is reasonably assured. This revenue is recognized at a point in time, which is the date the service is performed. Cost of acquisition is 1.5% of the leased good, payable to a third party, and is recorded in general and administrative expense.
Stock-Based Compensation—The Company measures and records compensation expense related to stock-based awards based on the fair value of those awards as determined on the date of the grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period and uses the straight-line method to recognize stock-based compensation. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the estimated fair value of stock option awards. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option. Forfeitures are accounted for as they are incurred.
The Company calculates the fair value of stock options granted to employees by using the following assumptions:
Expected Volatility—The Company estimates volatility for stock option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the stock option grant for a term that is approximately equal to the stock options’ expected term.
Expected Term—The expected term of the Company’s stock options represents the period that the stock-based awards are expected to be outstanding. The Company has elected to use the midpoint of the stock options vesting term and contractual expiration period to compute the expected term, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.
Risk-Free Interest Rate—The risk-free interest rate is based on the implied yield currently available on US Treasury zero-coupon issues with a term that is equal to the stock options’ expected term at the grant date.
Dividend Yield—The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.
Income Taxes—The Company accounts for income taxes under the asset and liability method pursuant to ASC 740, Income Taxes. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that the Company would be able to realize deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits in the income tax expense line in the accompanying consolidated statement of operations and comprehensive income. As of December 31, 2021 and 2020, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheets.
Net Income (Loss) Per Share–The Company calculates basic and diluted net income (loss) per share attributable to common stockholders using the two-class method required for companies with participating securities.
Under the two-class method, basic net income (loss) per share available to stockholders is calculated by dividing the net income (loss) available to stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share available to stockholders is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. In periods in which the Company reports a net loss available to stockholders, diluted net loss per share available to stockholders would be the same as basic net loss per share available to stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported net losses available to common shareholders for the fiscal year ended December 31, 2019.
Fair Value Measurements- Fair value accounting is applied for all assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company follows the established framework for measuring fair value.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3—Inputs are unobservable inputs for the asset or liability.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety.
The Company’s financial instruments consist of accounts receivable, accounts payable, accrued expenses, warrant liability, revolving line of credit, and long-term debt. Accounts receivable, accounts payable and accrued expenses are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. The consolidated financial statements also include fair value level 3 measurements of additional paid-in capital for stock warrants. The Company uses a third-party valuation firm to determine the fair value of certain of the Company's financial instruments. Refer to Note 10 for further discussion of stock warrants and Note 16 for discussion of fair value measurements.
Concentrations of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company’s cash balances exceed those that are federally insured. To date, the Company has not recognized any losses caused by uninsured balances.
Significant customers are those which represent more than 10% of the Company’s total revenue or gross accounts receivable balance at each balance sheet date. During the years ended December 31, 2021, 2020 and 2019 the Company did not have any customers that accounted for 10% or more of total revenue. As of December 31, 2021 and 2020, the Company also did not have any customers that accounted for 10% or more of outstanding gross accounts receivable.
A significant portion of the Company’s transaction volume is with a limited number of merchants, including most significantly, Wayfair Inc.
Recently Adopted Accounting Pronouncements—In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended (“ASU 2014-09”). ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services. ASU 2014-09 requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted the new standard on January 1, 2020. The adoption of ASU 2014-09 did not have a material impact on the consolidated financial statements as the majority of the Company’s revenue generating activities are leasing arrangements, which are outside the scope of this guidance.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which eliminates, adds and modifies certain fair value measurement disclosure requirements of Accounting Standards Codification 820, Fair Value Measurement. On January 1, 2020, the Company adopted ASU 2018-13, which did not impact the consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This ASU is effective for all entities beginning as of its date of effectiveness, March 12, 2020. This ASU did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, Income Taxes. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. Depending on the amendment, adoption may be applied on a
retrospective, modified retrospective, or prospective basis. The Company adopted this standard on January 1, 2021, and the adoption did not have a material impact on the consolidated financial statements and related disclosures.
Recent Accounting Pronouncements Not Yet Adopted— In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended (“ASU 2016-02”). Under ASU 2016-02, adoption requires the use of a modified retrospective transition method to measure leases at the beginning of the earliest period presented in the consolidated financial statements. In July 2018, the FASB issued ASU 2018-11 Leases, allowing companies to apply a transition method for adoption of the new standard as of the adoption date, with recognition of any cumulative-effects as adjustments to the opening balance of retained earnings in the period of adoption. We will elect the transition method under ASU 2018-11 upon adoption of the new standard. The Company's lease-to-own agreements which comprise the majority of our annual revenue will fall within the scope of ASU 2016-02 under lessor accounting. As a result, the Company will recognize revenue from customers when the revenue is earned and cash is collected. Upon adoption, the Company will no longer record accounts receivable arising from lease receivables due from customers incurred during the normal course of business for lease payments earned but not yet received from the customer or any corresponding allowance for doubtful accounts.
Under ASU 2016-02 lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessee’s right to control the use of an identified asset for the lease term, at the commencement date for all leases with a term greater than one year. As a lessee, the Company will recognize a right-of-use asset and lease liability for these operating lease contracts within the consolidated balance sheet. The Company expects to record approximately $1.2 million for lease liabilities and approximately $1.2 million for right-of-use ("ROU") assets. The Company also expects to be affected by the requirement under the new standard to determine whether impairment indicators exist for the right-of-use asset at the asset or asset group level. If impairment indicators exist, a recoverability test is performed to determine whether an impairment loss exists. In accordance with the transition guidance for the new standard the Company is required to determine if an impairment loss exists immediately prior to the date of adoption. The Company does not believe any impairment indicators exist as it relates to our operating leases. In June 2020, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) – Effective Dates for Certain Entities (“ASU 2020-05”), which defers the effective date of ASU 2016-02 for private entities to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company adopted the new standard on January 1, 2022, in accordance with adoption dates provided by FASB applicable to us under our emerging growth company status.
3.PROPERTY HELD FOR LEASE, NET
Property held for lease, net consists of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Property held for lease | $ | 220,259 | | | $ | 213,838 | |
| Less: accumulated depreciation | (158,507) | | | (147,101) | |
| Property held for lease, net | $ | 61,752 | | | $ | 66,737 | |
Net book value of property buyouts for the years ended December 31, 2021, 2020 and 2019 were $45,589, $31,140 and $11,737, respectively.
Total impairment charges related to property held for lease, net for the years ended December 31, 2021, 2020 and 2019 were $14,566, $17,064 and $9,979, respectively.
Total depreciation expense related to property held for lease, net for the years ended December 31, 2021, 2020 and 2019 were $143,671, $111,364 and $47,019, respectively.
Depreciation expense, net book value of property buyouts and impairment charges are included within cost of revenue in the consolidated statement of operations and comprehensive income (loss).
All property held for lease, net is on-lease as of December 31, 2021 and 2020.
4.PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Computer, office and other equipment | $ | 659 | | | $ | 407 | |
| Computer software | 80 | | | 80 | |
| Furniture and fixtures | 100 | | | 64 | |
| Leasehold improvements | 238 | | | 142 | |
| 1,077 | | | 693 | |
| Less: accumulated depreciation | (501) | | | (363) | |
| Property and equipment, net | $ | 576 | | | $ | 330 | |
Total depreciation expense related to property and equipment, net was $138, $83 and $59 for the years ended December 31, 2021, 2020 and 2019, respectively. The Company has not acquired any property and equipment under capital leases.
5.CAPITALIZED SOFTWARE AND INTANGIBLE ASSETS, NET
Capitalized software and intangible assets, net consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Capitalized software | $ | 1,254 | | | $ | 202 | |
| Domain name | 16 | | | 16 | |
| 1,270 | | | 218 | |
| Less: accumulated amortization | (214) | | | (30) | |
| Capitalized software and intangible assets, net | $ | 1,056 | | | $ | 188 | |
The following table summarizes estimated future amortization expense of capitalized software and intangible assets, net for the years ending December 31:
| | | | | |
| 2022 | $ | 222 | |
| 2023 | 347 | |
| 2024 | 347 | |
| 2025 | 114 | |
| Thereafter | — | |
| $ | 1,030 | |
As of December 31, 2021, $10 of capitalized software was not yet placed into service, respectively.
6.OTHER ACCRUED LIABILITIES
Accrued liabilities consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Bonus accrual | $ | 1,807 | | | $ | 600 | |
| Sales tax payable | 5,445 | | | 5,065 | |
| Unfunded lease payable | 2,697 | | | 5,045 | |
| Interest payable | 91 | | | 66 | |
| Other accrued liabilities | 1,919 | | | 2,191 | |
| Total accrued liabilities | $ | 11,959 | | | $ | 12,967 | |
7.REVOLVING LINE OF CREDIT
During 2019, the Company refinanced its revolving line of credit ("RLOC"), which resulted in an initial commitment amount of $50,000, with the lender having the right to increase to a maximum of $150,000 commitment over time. The RLOC is subject to certain covenants and originally had an 85% advance rate on eligible accounts receivable, which was increased to 90% in March 2020. At December 31, 2021, the total outstanding principal was $61,958 less issuance costs of $720, netting to a total of $61,238. At December 31, 2020, the total outstanding principal was $75,393 less issuance costs of $1,077, netting to a total of $74,316. The issuance costs are amortized over the life of the facility through interest expense. The annual interest rate on the principal was the LIBOR plus 11% per annum through July 2020. Beginning in August 2020, the interest rate stepped down to LIBOR plus 7.5% per annum. There is a 2% floor on the LIBOR. On September 28, 2020, the lenders increased the maximum commitment to a total of $125,000. On December 4, 2020, the Company entered into the ninth amendment to the RLOC. This amendment provided the lenders with the right to increase the revolving commitment amount from $125,000 to $250,000. This right has not yet been exercised by the lenders as of the date of these consolidated financial statements.
This facility is also subject to certain debt covenants as set forth in the loan agreement, which consists of maintaining lease performance metrics, financial ratios related to operating results, and lease delinquency ratios and is secured by all assets of the Company. The outstanding line of credit, including unpaid principal and interest, is due December 4, 2023 unless there is an earlier event of default such as bankruptcy, default on interest payments, or a change of control (excluding an acquisition by a special purpose acquisition company ("SPAC")), at which point the facility may become due earlier.
During the year ended December 31, 2021, the RLOC was amended to, among other things: (1) amend the trailing twelve month ("TTM") Adjusted EBITDA (as defined in the credit agreement) financial covenant (2) increase the minimum liquidity covenant to $50,000; (3) amend the definition of “Liquidity” to include Cash Equivalents (as defined in the credit agreement): and (4) amend the Total Advance Rate (as defined in the credit agreement) financial covenant No modifications were made to applicable funding costs or the maturity date of the RLOC.
As of December 31, 2021 and 2020, the Company was in compliance with the covenants set forth in the above agreements.
8.LONG TERM DEBT
The ninth amendment to the RLOC provided the Company with a senior secured term loan facility commitment of up to $50,000. The Company drew down the full $50,000 of this term loan on December 4, 2020. The interest rate on the term loan is one-month LIBOR plus 8% per annum, and there is a 1% floor on the LIBOR Rate. An additional 3% interest per annum will accrue to the principal balance as paid-in-kind (“PIK”) interest. The term loan maturity date is December 4, 2023.
A reconciliation of the outstanding principal to the carrying amount of long term debt is as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Outstanding principal | $ | 50,000 | | | $ | 50,000 | |
| PIK | 1,664 | | | 117 | |
| Debt discount | (11,003) | | | (13,704) | |
| Total carrying amount | $ | 40,661 | | | $ | 36,413 | |
9.STOCK-BASED COMPENSATION
The Company has two stock incentive plans, the Cognical Holdings, Inc. 2014 Stock Incentive Plan, (the “2014 Plan”) and the Katapult Holdings, Inc. 2021 Equity Incentive Plan, (the "2021 Plan").
2014 Plan
In accordance with the 2014 Plan, the board of directors may issue stock options to officers, employees, directors and consultants to purchase common stock. There were no stock options granted to non-employees during 2021. The 2014
Plan has specific vesting for each stock option grant allowing vesting of the options over one to four years depending upon grantee. As of December 31, 2021, no additional options are being granted under the 2014 Plan. No awards have been granted under the 2014 since October 2020.
Stock Options
A summary of the status of the stock options under the 2014 Plan as of December 31, 2021, and changes during the year then ended is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options | | Weighted- Average Exercise Price | | Weighted-Average Remaining Contractual Term (In Years) | | Aggregate Intrinsic Value |
| Balance - December 31, 2020 | 11,180,731 | | | $ | 0.27 | | | 8.22 | | 82,013 | |
| Recapitalization impact | (609,509) | | | | | | | |
| Balance - December 31, 2020 | 10,571,222 | | 0.29 | | 8.22 | | 82,013 |
| Granted | — | | | — | | | | | |
| Exercised | (2,174,963) | | | 0.31 | | | | | |
| Forfeited | (25,162) | | | 0.46 | | | | | |
| Balance - December 31, 2021 | 8,371,097 | | | $ | 0.29 | | | 7.33 | | 25,773 | |
| Exercisable - December 31, 2021 | 8,341,982 | | | $ | 0.29 | | | 7.33 | | 25,731 | |
| Unvested - December 31, 2021 | 29,115 | | | $ | 2.32 | | | 8.35 | | 42 | |
The total intrinsic value of stock options exercised during the year ended December 31, 2021 and 2020 was $6,642 and $2,061, respectively.
As of December 31, 2021, total compensation cost not yet recognized related to unvested stock options was $32, which is expected to be recognized over a period of 1.77 years.
2021 Plan
On June 9, 2021, the Company's board of directors approved the 2021 Plan, which was concurrently approved by the Company's shareholders.
In accordance with the 2021 Plan, directors may issue restricted stock awards and stock options to officers, employees, directors and consultants to purchase common stock. The awards granted are subject to either service-based or performance-based vesting conditions.
Stock Options
A summary of the status of the stock options under the 2021 Plan as of December 31, 2021, and changes during the year then ended is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options | | Weighted- Average Exercise Price | | Weighted-Average Remaining Contractual Term (In Years) | | Aggregate Intrinsic Value |
| Balance - December 31, 2020 | — | | | $ | — | | | — | | | $ | — | |
| Granted - service conditions | 1,039,810 | | | 10.45 | | | | | |
| Granted - performance conditions | 693,206 | | | 10.45 | | | | |
| Exercised | — | | | — | | | | | |
| Forfeited | (1,386,413) | | | 10.45 | | | | | |
| Balance - December 31, 2020 | 346,603 | | | $ | 10.45 | | | 9.50 | | $ | — | |
| Exercisable - December 31, 2021 | 93,872 | | | — | | | 9.50 | | $ | — | |
| Unvested - December 31, 2021 | 252,731 | | | $ | 10.45 | | | 9.50 | | $ | — | |
The grant-date fair value of stock options granted under the 2021 Plan during the year ended December 31, 2021 was $6.18.
As of December 31, 2021, total compensation cost not yet recognized related to unvested stock options was $1,539, which is expected to be recognized over a period of 2.88 years.
Stock-Based Compensation Expense—Stock-based compensation expense was $13,020, $351 and $315 for the years ended December 31, 2021, 2020 and 2019, respectively. Stock-based compensation expense is included in compensation costs.
Shares available for future issuance—At December 31, 2021, there are 6,470,397 shares available for issuance by the Company under the 2021 Plan.
Stock Options Valuation—The weighted-average assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 |
| Exercise price | $ | 10.45 | | | $ | 3.28 | |
| Risk-free interest rate | 1.02 | % | | 0.11 | % |
| Expected term (in years) | 5.78 | | 3.00 |
| Expected volatility | 66.9 | % | | 60.0 | % |
| Expected dividend yield | 0 | % | | 0 | % |
Restricted stock Units
Restricted stock units ("RSU") are equity awards granted to employees that entitle the holder to shares of common stock when the awards vest. RSU's are measured based on the fair value of the Company's common stock on the date of grant.
A summary of the status of RSU's under the 2021 Plan as of December 31, 2021, and changes during the year then ended is presented below:
| | | | | | | | |
| Number of RSUs | Weighted Average Grant Date Fair Value |
| Outstanding - December 31, 2020 | — | | $ | — | |
| Granted | 2,170,426 | | 6.10 | |
| Vested | — | | — | |
| Forfeited | (55,264) | | 6.24 | |
| Outstanding - December 31, 2021 | 2,115,162 | | $ | 6.10 | |
On August 26, 2020, the Company granted a total of 19,000,000 restricted shares of the Company’s common stock to certain employees (the “Award Shares”). The Award Shares vest only upon a Liquidation Event, which is defined as any liquidation, dissolution, or winding up of the Company, including a consolidation, stock exchange, or merger with another Company. The number of Award Shares that will be forfeited or will vest will depend upon the achieved liquidation price per share of common stock. Vesting of the Award Shares is contingent upon the recipient’s continuous employment with the Company through a Liquidation Event. The Liquidation Event represented a performance condition that was satisfied as a result of the Merger discussed in Note 1. The Award Shares have a grant date fair value of $3.28 per share which resulted in the recognition of $9,348 of stock-based compensation expense during the year ended December 31, 2021. Based on the liquidation price per share of common stock, 15% of the total Award Shares vested as a result of the Merger.
10.STOCK WARRANTS
At December 31, 2020, warrants to purchase 722,260 shares of Legacy Katapult common stock issued in 2014 had vested to a former lender and investor and remained exercisable. Such warrants were exercisable at a price of $0.49 per share and were exercisable through June of 2024. The warrants did not convey any voting privileges or claims on dividends declared until they were exercised into common stock by the holder. These warrants were exercised on June 9, 2021 in connection with the Merger discussed in Note 1.
At December 31, 2020, warrants to purchase 1,084,618 shares of Legacy Katapult common stock issued in 2017 to a new investor remained exercisable. Such warrants were exercisable at a price of $1.7084 per share and exercisable through April of 2022. The warrants did not convey any voting privileges or claims on dividends declared until they were exercised into common stock by the holder. These warrants were exercised on June 9, 2021 in connection with the Merger discussed in Note 1.
At December 31, 2020, warrants to purchase 36,417 shares of Legacy Katapult common stock that were issued in 2018 to current investors were outstanding and remained exercisable. Such warrants were exercisable at a price of $0.01 per share and were exercisable through April 2023. The warrants did not convey any voting privileges or claims on dividends declared until they were exercised into common stock by the holder. These warrants were exercised on June 9, 2021 in connection with the Merger discussed in Note 1.
At December 31, 2020, warrants to purchase 3,637,536 shares of Legacy Katapult common stock that were issued in 2019 to current investors were outstanding and remained exercisable. Such warrants were exercisable at a price of $0.01 per share and were exercisable through April 2024. The warrants did not convey any voting privileges or claims on dividends declared until they were exercised into common stock by the holder. These warrants were exercised on June 9, 2021 in connection with the Merger discussed in Note 1.
The warrants to purchase the remaining 1,241,675 shares of Legacy Katapult common share were issued in conjunction with the $2,500 of additional convertible notes payable issued in 2019. Due to these warrants being issued in connection with the convertible notes, a beneficial conversion feature was recognized on the issuance date of the instruments. The balance related to this feature was extinguished upon the conversion of the related convertible notes. In accordance with ASC 470-20, a beneficial conversion feature exists if the conversion price is less than the fair value of the shares into which the instrument is convertible at the commitment date. In February and March 2019, when the $2,500 of additional convertible notes were issued, the preferred stock price at fair value was $1.7084. This was greater than the conversion prices of $1.6051 and $1.6068 for the February and March issuances, respectively. This difference multiplied by the number of shares issued was calculated at $151 and recorded as additional paid in capital. Both groups of warrants were exercisable through May 2024. The warrants did not convey any voting privileges or claims on dividends declared until they are exercised into common stock by the holder. These warrants were exercised on June 9, 2021 in connection with the Merger discussed in Note 1.
On December 4, 2020, the Company issued warrants to purchase 4,988,719 Series C-1 Convertible Preferred Shares in conjunction with the issuance of the $50,000 term loan ("Term Loan Warrant") discussed om Note 8. The Term Loan Warrant had an exercise price of $0.01 per share and became exercisable upon the earlier of June 30, 2021 or one minute prior to the occurrence of a liquidation event, which includes a SPAC transaction. The Term Loan Warrant will terminate upon the earlier of December 4, 2027, or immediately prior to the occurrence of a liquidation event, which includes a SPAC transaction. The warrant was carried at its fair value because there were certain put rights that may obligate the Company to repurchase the warrant in the future, based on events that are outside of the control of the Company. The warrant is presented within the Other liabilities line item of the balance sheet. The Term Loan Warrant is presented within the Other Liabilities line item of the balance sheet. As of December 31, 2020, there were 4,988,719 Term Loan
Warrants outstanding. Pursuant to the warrant agreement, 1,496,616 warrants were exercised on June 9, 2021 in connection with the Merger discussed in Note 1, with the remaining warrants forfeited in accordance with the warrant agreement.
In connection with the Merger, the Company has 12,832,500 warrants to purchase one share of Katapult common stock outstanding with an exercise price of $11.50 per warrant as of December 31, 2021. These warrants are accounted for as liabilities and recorded at fair value each reporting period and included in Other Liabilities on the consolidated balance sheet. These warrants can be exercised up to five years after the Merger. Of these warrants, 12,500,000 (the “public warrants”) were originally issued in the initial public offering of FinServ (“IPO”) and 332,500 warrants (the “private warrants”) were originally issued in a private placement in connection with the IPO.
11.INCOME TAXES
The Company recorded a federal income tax loss fully related to its U.S.-based jurisdictions for the years ended December 31, 2021, 2020 and 2019, and since it maintains a full valuation allowance on all of its deferred tax assets, the Company recorded no federal provision for income tax or benefit during the years ended December 31, 2021, 2020 and 2019. The provision for income taxes for the years ended December 31, 2021 and 2020 relates primarily to state income taxes.
A reconciliation of the Company's statutory income tax rate to the Company's effective income tax rate is as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Effect of: | | | | | |
| State taxes, net of federal tax benefit | (6.3 | %) | | 4.2 | % | | 5.8 | % |
| Change in valuation allowance | 22.9 | % | | (21.7 | %) | | (25.5 | %) |
| Loss on extinguishment | — | % | | — | % | | (1.5 | %) |
| Warrant remeasurement | (35.3 | %) | | (0.1 | %) | | (0.5 | %) |
| Transaction costs | (5.2 | %) | | — | % | | — | % |
| Nondeductible officer compensation | 20.9 | % | | — | % | | — | % |
| Stock compensation | (17.3 | %) | | (1.0 | %) | | — | % |
| Other, net | 1.8 | % | | (0.3 | %) | | 0.7 | % |
| Effective tax rate | 2.5 | % | | 2.1 | % | | 0.0 | % |
The components of deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Deferred tax assets: | | | |
| Accruals and reserves | $ | 1,950 | | | $ | 1,274 | |
| Federal, state and local net operating loss carryforwards | 28,780 | | | 25,523 | |
| Stock options | 776 | | | 91 | |
| Total deferred tax asset before valuation allowance | 31,506 | | | 26,888 | |
| Valuation allowance | (19,325) | | | (14,006) | |
| Deferred tax asset - net of valuation allowance | 12,181 | | | 12,882 | |
| Deferred tax (liabilities): | | | |
| Depreciation & amortization | (12,181) | | | (12,882) | |
| Total deferred tax liabilities | (12,181) | | | (12,882) | |
| Net deferred tax asset (liability) | $ | — | | | $ | — | |
As of December 31, 2021 and 2020, the Company had a U.S. federal net operating loss carryforward of $119.2 million and $113.7 million. As of December 31, 2021 and 2020, the Company has state net operating loss ("NOL") carryforwards of $71.9 million and $29.1 million. Of the $119.2 million of Federal NOL carryforwards, $35.7 million
begins to expire in 2032 and $83.5 million may be carried forward indefinitely. The state net operating loss carryforwards begin to expire in 2023.
Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of December 31, 2021 and 2020, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance as of December 31, 2021 and 2020.
Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to the Company.
The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which we operate or do business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.
The Company records uncertain tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2021 and 2020 the Company has not recorded any uncertain tax positions in our financial statements.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of December 31, 2021 and 2020, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company's tax years are still open under statute from December 31, 2018, to the present. The resolution of tax matters is not expected to have a material effect on the Company's consolidated financial statements.
12.REDEEMABLE CONVERTIBLE PREFERRED STOCK
During 2019, the Company converted all shares outstanding of Series A, Series A-1, Series A-2, Series B, Series B-1, and Series B-2 redeemable convertible preferred stock to shares of Series C redeemable convertible preferred stock (the "Series C Preferred Shares") by issuing on a 1:1 ratio 24,773,767 Series C Preferred Shares. Additionally, the Company issued 17,061,472 Series C Preferred Shares valued at $6,062 to execute the conversion feature of the outstanding convertible notes. Lastly, the Company raised additional equity of $9,506 by issuing 26,754,674 of Series C Preferred Shares.
Upon issuance of the Series C Preferred Shares, the Company determined that the down round financing triggered a contingent beneficial conversion feature for certain previously issued share classes. In accordance with ASC 470, the Company recorded the beneficial conversion feature as an increase to additional paid-in-capital. Given that the preferred shares were readily convertible at the discretion of the investors, the Company immediately amortized the beneficial conversion feature through accumulated deficit.
Redeemable convertible preferred stock as of December 31, 2020 consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Preferred
Shares
Authorized | | Preferred
Shares
Issued and
Outstanding | | Average
Issuance
Price
Per Share | | Liquidation
Preference | | Carrying
Value |
| Series C | 95,415,981 | | | 68,589,913 | | | $ | 0.753892 | | | $ | 51,709 | | | $ | 49,894 | |
The holders of redeemable convertible preferred stock had various rights and preferences as follows:
Voting – Each Series C Preferred share entitled the holder to the number of votes equal to the number of whole shares of common stock into which each share is convertible at the time of the vote.
The holders of record of the Series C Preferred Shares, voting as a separate class, were entitled to elect three (3) members of the Company’s board of directors. The holders of record of Series C Preferred Shares, voting as a separate class, were entitled to elect two (2) members of the Company’s board of directors.
Dividends – The holders of Series C Preferred Shares, in preference to the holders of Legacy Katapult common stock, were entitled to receive, as and if declared by the Board of Directors, but only out of funds that were legally available therefore, non-cumulative cash dividends at the rate of 8% of the original issue price of each outstanding share of Series C Preferred Shares.
Liquidation Preference – In the event of any liquidation, dissolution, or winding-up of the Company, the holders of Series C Preferred Shares were entitled to receive, ratably, prior and in preference to any distribution of the assets or funds of the Company to the holders of common stock, an amount equal to the original issuance price per share plus any accrued and unpaid dividends. If the Company has insufficient assets to permit payment of the Liquidation Preference in full to the holders of the Series C Preferred Shares, then the assets of the Company shall be distributed ratably to the Series C Preferred Shares in proportion to the Liquidation Preference that such holders would otherwise be entitled to receive.
After payment of the Liquidation Preference to the holders of Series C Preferred Shares, the remaining assets of the Company would be distributed ratably to the holders of common stock.
Redemption – The Series C Preferred Shares did not contain any mandatory redemption provisions. In accordance with ASC Topic 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities, preferred stock issued with redemption provisions that are outside of the control of the Company or that contain certain redemption rights in a deemed liquidation event is required to be classified as temporary equity in the mezzanine section of the balance sheets. The Series C Preferred Shares were redeemable upon the occurrence of a deemed liquidation event, which is outside of the control of the Company. Therefore, these shares were classified as temporary equity at December 31, 2020, before accounting for the effects of the Merger.
Conversion – Each share of Series C Preferred Shares was convertible at the option of the holder, at any time after the date of issuance of each share, into shares of common stock as is determined by dividing the original purchase price of preferred stock by the conversion price in effect at the time of conversion. As of December 31, 2020, the 68,589,913 shares of Series C preferred stock were convertible into 69,389,530 shares of Common stock. In connection with the Merger discussed in Note 1, all convertible redeemable preferred stock was converted to Katapult common stock.
13.NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of net income (loss) per common share:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net income (loss) per share | | | | | |
| Numerator | | | | | |
| Net Income (loss) | $ | 21,206 | | | $ | 22,531 | | | $ | (18,792) | |
| | | | | |
| Denominator | | | | | |
| Denominator for basic net income (loss) per weighted average common shares | 68,502,092 | | | 30,855,778 | | | 25,663,488 | |
| Effect of dilutive securities | | | | | |
| Warrants | 2,805,302 | | | — | | | — | |
| Unvested RSUs | 265,692 | | | — | | | — | |
| Common stock warrants | — | | | 5,004,062 | | | — | |
| Convertible preferred warrants | — | | | 368,020 | | | — | |
| Stock options | 9,000,132 | | | 10,720,585 | | | — | |
| Denominator for diluted net income (loss) per weighted average common shares | 80,573,218 | | | 46,948,445 | | | 25,663,488 | |
| | | | | |
| Net income (loss) per common share | | | | | |
| Basic | $ | 0.31 | | | $ | 0.73 | | | $ | (0.73) | |
| Diluted | $ | 0.26 | | | $ | 0.48 | | | $ | (0.73) | |
The Company’s potentially dilutive securities, which include unvested RSUs, stock options to purchase common stock and warrants to purchase common stock, have been excluded from the computation of diluted net income (loss) per share for certain periods, as the effect would be antidilutive. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net income (loss) per share is the same in periods of a net loss. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share for the periods indicated because including them would have had an anti-dilutive effect:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Public warrants | 12,500,000 | | | — | | | — | |
| Private warrants | 332,500 | | | — | | | — | |
| Options to purchase common stock | 346,603 | | | — | | | 11,982,429 | |
| Unvested restricted stock units | — | | | 19,000,000 | | | — | |
| Warrants to purchase common stock | — | | | — | | | 5,654,584 | |
| Total common stock equivalents | 13,179,103 | | | 19,000,000 | | | 17,637,013 | |
Warrants and options to purchase common stock that were outstanding during the year ended December 31, 2021 were not included in the computation of diluted EPS because the warrants exercise price was greater than the average market price of the common stock. Unvested restricted stock units that were outstanding during the year ended December 31, 2020 were not included in the computation of diluted EPS because the Merger had not occurred as of the reporting date. Options and warrants to purchase common stock outstanding during the year ended December 31, 2019 were not included in the computation of diluted EPS as there were no earnings attributable to common stock.
14.COMMITMENTS AND CONTINGENCIES
Leases—The Company leases office space in Plano, TX and New York, NY under operating leases with non-cancelable lease terms that end in August 2023 and June 2025, respectively. These amounts are included in general and
administrative expenses. The following is a schedule of future minimum lease payments required under the non-cancelable leases as of December 31, 2021:
| | | | | |
| Years Ending December 31, | |
| 2022 | $ | 511 | |
| 2023 | 407 | |
| 2024 | 334 | |
| 2025 | 170 | |
| Thereafter | — | |
| Total future minimum lease payments | $ | 1,422 | |
Rent expense for operating leases for the years ended December 31, 2021, 2020 and 2019 were $654, $709, $779 respectively.
Litigation risk— From time to time, the Company may become involved in various legal actions arising in the ordinary course of business. Management is of the opinion that the ultimate liability, if any, from these actions will not have a material effect on its financial condition or results of operations. The Company is not currently aware of any indemnification or other claims, except as discussed below and has not accrued any liabilities related to such obligations in the consolidated financial statements as of December 31, 2021 and 2020.
Except as set forth below, the Company and its subsidiaries are not a party to, and their properties are not the subject of, any material pending legal proceedings.
DCA Litigation
On April 9, 2021, Daiwa Corporate Advisory LLC (formerly known as DCS Advisory LLC) (“DCA”), a financial advisory firm, served the Company with a summons and a complaint filed in the Supreme Court of the State of New York, New York County, in a matter bearing the index number 652164/2021. The complaint relates to a March 22, 2018 letter agreement (the “Letter Agreement”) entered into by DCA and Legacy Katapult. Among other things, DCA alleges that the Letter Agreement confers upon DCA (i) a right to act as the “exclusive financial advisor” with respect to certain transactions defined in the Letter Agreement, (ii) a right to a “Placement Fee” and/or “mutually-agreed upon fees” in connection with such advisory roles, and (iii) a right to a $100 termination fee payable in certain circumstances by the Company in the event that the Company terminated the Letter Agreement. For its first cause of action, DCA alleges that the Company “breached the Letter Agreement by failing and/or refusing to extend to DCA the opportunity to exercise its right of first refusal in connection with” certain transactions and the PIPE Investment. DCA seeks “damages in an amount to be determined at trial” with respect to this first cause of action. For its second cause of action, DCA alleges that, assuming the Company properly terminated the Letter Agreement in April 2019 (which DCA disputes), the Company, Inc. “also breached the Letter Agreement by failing to pay DCA a termination fee when it terminated the Letter Agreement.” DCA seeks “damages in an amount to be determined at trial, but no less than $100” with respect to this second cause of action. With respect to both causes of action, DCA also seeks attorneys’ fees and costs pursuant to the Letter Agreement, an award of pre- and- post -judgment interest, and such other and further relief as the Court deems just and proper.
On May 24, 2021, the Company filed its answer to the complaint and also asserted counterclaims against DCA for breach of contract and for breach of the duty of good faith and fair dealing. In connection with its counterclaims, the Company is seeking damages in the amount of approximately $10,600 as well as attorneys’ fees and costs. The Company disputes the allegations in DCA’s complaint and intends to vigorously defend against the claims.
On July 29, 2021, the court entered a Preliminary Conference Order, which was subsequently amended on September 13, 2021 and October 25, 2021. The Amended Scheduling Order dated October 25, 2021 provides that: the parties must complete fact discovery on or before May 13, 2022; they must serve any expert disclosures by June 10, 2022; they must complete all discovery no later than June 24, 2022; and any motions for summary judgment must be filed by July 29, 2022. The parties are currently engaged in discovery.
The Company has not recorded any loss or gain contingencies associated with this matter as it is not probable or reasonably estimable at December 31, 2021.
Shareholder Litigation
On August 27, 2021, a putative class action lawsuit was filed in the U.S. District Court for the Southern District of New York against Katapult Holdings, Inc., two officers of FinServ, one of whom is a current Company director, and two officers of Legacy Katapult, both of whom are current Company officers. The lawsuit is captioned McIntosh v. Katapult Holdings, Inc., et al. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and seeks an unspecified amount of damages on behalf of persons and entities that purchased or otherwise acquired Katapult securities between December 18, 2020 and August 10, 2021, inclusive (the “Putative Class”). The complaint alleges that defendants misled the Putative Class by failing to disclose that the Company was experiencing declining e-commerce retail sales and consumer spending, lacked visibility into its consumers’ future buying behavior, and had no reasonable basis for positive statements about its business, operations, and prospects. On October 26, 2021, seven investors filed motions to be appointed lead plaintiff of the Putative Class. The Company and the other defendants intend to vigorously defend against the claims in this action.
The Company has not recorded any loss or gain contingencies associated with this matter as it is not probable or reasonably estimable at December 31, 2021.
15.RELATED-PARTY TRANSACTIONS
Certain debt facilities of the Company were with related parties. No interest was paid to related parties during the year ended December 31, 2021. Total interest paid to related parties was $4,381 and $4,782 for the years ended December 31, 2020 and 2019, respectively.
16.FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist of its warrant liability, revolving line of credit, and long-term debt.
The estimated fair value of the Company’s revolving line of credit, and long-term debt were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Principal
amount | | Carrying
amount | | Fair
value | | Principal
amount | | Carrying
amount | | Fair
value |
| Revolving line of credit | $ | 61,958 | | | $ | 61,238 | | | $ | 70,688 | | | $ | 75,393 | | | $ | 74,316 | | | $ | 83,014 | |
| Long term debt | 51,664 | | | 40,661 | | | 58,143 | | | 50,117 | | | 36,413 | | | 55,378 | |
| $ | 113,622 | | | $ | 101,899 | | | $ | 128,831 | | | $ | 125,510 | | | $ | 110,729 | | | $ | 138,392 | |
The estimated fair values of the Company’s revolving line of credit, and long-term debt were determined using Level 2 inputs based on an estimated credit rating for the Company and the trading value of debt for similar debt instruments with similar credit ratings.
There were no assets measured at fair value on a recurring basis as of December 31, 2021 and 2020, respectively. Liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| Liabilities: | | | | | | | |
| Warrant Liability - Public & Private Warrants | $ | 7,341 | | | $ | 7,125 | | | $ | — | | | $ | 216 | |
| Total Other Liabilities | $ | 7,341 | | | $ | 7,125 | | | $ | — | | | $ | 216 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| Liabilities: | | | | | | | |
| Term Loan Warrant | $ | 12,744 | | | $ | — | | | $ | — | | | $ | 12,744 | |
| Total Other Liabilities | $ | 12,744 | | | $ | — | | | $ | — | | | $ | 12,744 | |
Term Loan Warrants
Term Loan Warrants classified as Level 3 liabilities are valued using the probability weighted average of their value if a special purpose acquisition company (“SPAC”) transaction occurs and their value if a SPAC transaction does not occur. The value under the SPAC transaction scenario utilized the current value method, which estimates the total equity value of the Company. The value under the no-SPAC scenario was calculated using the Black-Scholes model.
During the year ended December 31, 2021, there were no transfers between Level 1 and Level 2, nor into and out of Level 3.
The following table summarizes the activity for the Company’s Level 3 liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | |
| Term Loan Warrant | | Warrant Liability |
| Balance as of December 31, 2020 | $ | 12,744 | | | $ | — | |
| Exercised | (13,102) | | | — | |
| Assumed from Merger | — | | | 44,272 | |
| Changes in fair value | 358 | | | (36,931) | |
| Balance as of December 31, 2021 | $ | — | | | $ | 7,341 | |
17.SUBSEQUENT EVENTS
The Company evaluated subsequent events from December 31, 2021, the date of these consolidated financial statements, through March 15, 2022, which represents the date the consolidated financial statements were issued, for events requiring adjustment to or disclosure in these consolidated financial statements. Except as discussed below, there are no events that require adjustment to or disclosure in these consolidated financial statements.
Credit Facility Amendment
On March 14, 2022, the Company entered into the Thirteenth Amendment to the credit agreement, which amended and restated Section 6.19(c) Total Advance Rate. This section provides that the Total Advance Rate shall not exceed (i) from the period on or after October 1, 2021 to and including December 31, 2022, 140%, (ii) from January 1, 2023 to and including December 31, 2023, 130%, and (iii) at all times thereafter, 120%. The borrower may cure such Total Advance Rate by depositing funds into a reserve bank account in an amount necessary to reduce the Total Advance Rate to the maximum permitted rate for such period. The Thirteenth Amendment increases the ability of the borrower to exercise this cure from two (2) to five (5) times.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of December 31, 2021.
Management’s Report on Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control Over Financial Reporting
As discussed elsewhere in this Annual Report, we completed the Merger on June 9, 2021. Prior to the Merger, we were a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more operating businesses. Accordingly, we are excluding management's report on internal control over financial reporting pursuant to Section 215.02 of the SEC Division of Corporation Finance's Regulation S-K Compliance & Disclosure Interpretations.
Material Weakness in Internal Control Over Financial Reporting
In connection with the audit of our financial statements for the fiscal year ended December 31, 2020, 2019, and 2018, our independent registered public accounting firm identified certain control deficiencies in the design and implementation of our internal control over financial reporting that in aggregate constituted material weaknesses. 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 financial statements will not be prevented or detected on a timely basis. Our evaluation was based on the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control — Integrated Framework (2013).
These material weaknesses relate to (i) an insufficient number of personnel with an appropriate level of GAAP knowledge and experience to create the proper control environment for effective internal control over financial reporting and to ensure that oversight processes and procedures in applying nuanced guidance to complex accounting transactions for financial reporting are adequate, (ii) a lack of control in place to perform a review of the depreciation, cost of property sold, and impairment expense curves, specifically associated with evaluating the accuracy and completeness of the underlying data supporting the curves, or reconcile the expense amounts per the curves to the general ledger, (iii) a lack of controls in place to review journal entries, reconcile journal entries to underlying support and evaluate if journal entries are in compliance with GAAP before the entries are manually posted, (iv) an incomplete implementation of the information and communication component of the COSO framework, specifically with respect to user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to its financial applications and data to appropriate company personnel and (v) a lack of controls in place surrounding the accounting of warrants inherited from FinServ.
Remediation Efforts to Address Material Weakness
We previously disclosed in our Quarterly Reports on Form 10-Q material weaknesses in our internal controls over financial reporting when evaluating an incomplete implementation of the information and communication component of the COSO framework, specifically with respect to user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to its financial applications and data to appropriate company personnel. In addition, we previously disclosed a lack of controls in place surrounding the accounting of warrants from FinServ, as well as a material weakness related to the review of depreciation, cost of property sold, and impairment expense curves, specifically associated
with evaluating the accuracy and completeness of the underlying data supporting the curves, or reconcile the expense amounts per the curves to the general ledger.
In order to remediate these particular material weaknesses, we undertook a number of actions with the oversight of the Audit Committee of the Board of Directors. The following steps were taken to remediate the conditions leading to certain material weaknesses:
(i) Material weakness related to user access controls to ensure appropriate segregation of duties and to restrict user and privileged access to its financial applications:
•Management has implemented user access controls, including reviews of user access to ensure that only the appropriate personnel have access to certain financial applications
(ii) Material weakness related to the accounting of warrants from FinServ:
•Management has implemented procedures to properly account for warrants inherited from FinServ
•Management and the third-party valuation expert discuss all significant elements of the prepared reports with evidence of this review.
(iii) Material weakness related to the review of depreciation, cost of property sold, and impairment expense curves, specifically associated with evaluating the accuracy and completeness of the underlying data supporting the curves, or reconcile the expense amounts per the curves to the general ledger:
•Management has implemented procedures to evaluate the accuracy and completeness of the underlying data supporting the curves.
•Management has implemented a control to reconcile the depreciation expense amounts per the curves to the general ledger.
As of the date of this filing, two material weaknesses remain. As part of our plan to remediate these material weaknesses, we are performing a full review of our internal control procedures. We have implemented, and plan to continue to implement, new controls and new processes. We cannot assure you that the measures that we have taken, and that will be taken, to remediate these material weaknesses will, in fact, remedy the material weaknesses or will be sufficient to prevent future material weaknesses from occurring. We also cannot assure you that we have identified all of our existing material weaknesses.
The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. While we are undertaking efforts to remediate the remaining material weakness, the material weakness will not be considered remediated until our remediation plan for these material weaknesses has been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm due to an exemption for “emerging growth companies.”
Changes in Internal Control Over Financial Reporting
Except as disclosed above, there were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021.
Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021.
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements:
(a)(2) Financial Statement Schedules
All other schedules are omitted because they are not required or the required information is included in the financial statements or notes thereto.
(a)(3) Exhibits
The exhibits required to be filed as part of this report are listed in the Exhibit List attached hereto and are incorporated herein by reference.
| | | | | | | | | | | |
Exhibit Number | | Description | |
| | Agreement and Plan of Merger, dated as of December 18, 2020, by and among FinServ Acquisition Corp., a Delaware corporation, Keys Merger Sub 1, Inc., a Delaware corporation, Keys Merger Sub 2, LLC, a Delaware limited liability company, Katapult Holdings, Inc., a Delaware corporation, and Orlando Zayas, in his capacity as the representative of all Pre-Closing Holders (incorporated by reference to Exhibit 2.1 of the Company’s Registration Statement on Form 8-K, filed with the SEC on December 21, 2020). | |
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| | Twelfth Amendment to Loan and Security Agreement, dated as of December 15, 2021, by and among Katapult SPV-1 LLC, Katapult Group, Inc., Katapult Holdings, Inc., Midtown Madison Management LLC and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Katapult Holdings, Inc. filed with the SEC on December 17, 2021). | |
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| 101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document. | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibit 101). | |
* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
+ Indicates management contract or compensatory plan or arrangement.
# Indicates management contract or compensatory plan or arrangement.
† Certain of the exhibits and schedules to these exhibits have been omitted in accordance with Regulation S-K Item 601(a)(5). The registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
Item 16. Form 10-K Summary
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 15th day of March 2022.
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| KATAPULT HOLDINGS, INC. | |
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By: | /s/ ORLANDO ZAYAS | | |
| Orlando Zayas | | |
| Chief Executive Officer
(Principal Executive Officer) | | |
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| /s/ KARISSA CUPITO | | |
| Karissa Cupito | | |
| Chief Financial Officer (Principal Financial Officer) | | |
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| /s/ CHRISTOPHER TOWERS | | |
| Christopher Towers | | |
| Chief Accounting Officer (Principal Accounting Officer) | | |
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of Katapult Holdings, Inc., a Delaware corporation (“Company”), and the undersigned Directors and Officers of Katapult Holdings, Inc. hereby constitute and appoint Orlando Zayas and Karissa Cupito as the Company’s or such Director’s or Officer’s true and lawful attorneys-in-fact and agents, for the Company or such Director or Officer and in the Company’s or such Director’s or Officer’s name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this report, and to file each such amendment to this report, with all exhibits thereto, and any and all documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in connection therewith, as fully to all intents and purposes as the Company or such Director or Officer might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature | Title | Date | |
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/s/ BRIAN HIRSCH Brian Hirsch | Chairman of the Board and Director | March 15, 2022 | |
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/s/ ORLANDO ZAYAS Orlando Zayas | Chief Executive Officer and Director (Principal Executive Officer) | March 15, 2022 | |
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/s/ KARISSA CUPITO Karissa Cupito | Chief Financial Officer (Principal Financial Officer) | March 15, 2022 | |
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/s/ CHRISTOPHER TOWERS Christopher Towers | Chief Accounting Officer (Principal Accounting Officer) | March 15, 2022 | |
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/s/LEE EINBINDER Lee Einbinder | Director | March 15, 2022 | |
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/s/ DON GAYHARDT Don Gayhardt | Director | March 15, 2022 | |
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/s/ CHRIS MASTO Chris Masto | Director | March 15, 2022 | |
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/s/ BRUCE TARAGIN Bruce Taragin | Director | March 15, 2022 | |
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/s/ JOYCE PHILLIPS Joyce Phillips | Director | March 15, 2022 | |
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/s/ JANE J. THOMPSON Jane J. Thompson | Director | March 15, 2022 | |
DESCRIPTION OF SECURITIES
The following summary of the material terms of our securities is not intended to be a complete summary of the rights and preferences of such securities, and is qualified by reference to i) our Amended and Restated Charter (“Charter”), ii) our Amended and Restated Bylaws (“Bylaws”), iii) the warrant-related documents described herein, and iv) the general Corporation Law of the State of Delaware, or the DGCL. We urge to you read each of the Amended and Restated Charter, the Amended and Restated Bylaws and the warrant-related documents described herein in their entirety for a complete description of the rights and preferences of our securities, copies of which have been filed as exhibits to our Annual Report on Form 10-K to which this exhibit is attached.
General
Our Charter authorizes the issuance of 250,000,000 shares of common stock, par value $0.0001 per share (“Common Stock”), and 25,000,000 shares of undesignated preferred stock, par value $0.0001 per share (“Preferred Stock”).
Common Stock
Voting Rights
Holders of Common Stock are entitled to one (1) vote for each share held of record on all matters properly submitted to a vote of stockholders and holders of the Common Stock shall have the exclusive right to vote for the election of directors. Unless specified in our Charter or Bylaws, or as required by applicable provisions of the DGCL or applicable stock exchange rules, the affirmative vote of a majority of the votes cast at any meeting of our stockholders at which there is a quorum is required to approve any such matter voted on by its stockholders. Our board of directors (“Board”) is divided into three (3) classes, each of which generally serve for a term of three (3) years with only one (1) class of directors being elected each year. At any meeting of stockholders for the election of one or more directors at which a quorum is present, the election shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. Our stockholders do not have cumulative voting rights.
Economic Rights
Dividends and Distributions. Stockholders are entitled to receive ratable dividends, if any, as may be declared from time to time by our Board out of legally available assets or funds.
Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of shares of Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them.
No Preemptive or Similar Rights
Holders of our common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.
Preferred Stock
Under our Charter currently in effect, our board of directors may, without further action by our stockholders, fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special and other rights, if any, of each such series and any qualifications, limitations and restrictions thereof, as shall be stated in the resolution or resolutions adopted by the Board providing for the issuance of such series and included in a certificate of designation (a “Preferred Stock Designation”) filed pursuant to the DGCL, and the Board is hereby expressly vested with the authority to the full extent provided by law, now or hereafter, to adopt any such resolution or resolutions. of up to an aggregate of 10,000,000 shares of preferred stock.
Redeemable Warrants
The warrants were issued in registered form under a Warrant Agreement between Continental Stock Transfer & Trust Company (“CST”), as warrant agent, and FinServ Acquisition Corp. (“FinServ”), dated October 31, 2019 (the “Warrant Agreement”). 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 a majority of the then outstanding warrants to make any change that adversely affects the
interests of the registered holders of warrants. We have authorized 11,500,000 redeemable warrants, of which 1,150,000 are outstanding. Capitalized terms in this section will have the meaning ascribed to them in the Warrant Agreement, if not separately defined herein.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified check payable to us or by wire transfer, for the number of warrants being exercised. The warrantholders do not have the rights or privileges of holders of our common stock and any voting rights until they exercise their warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the warrants, each holder will be entitled to one (1) vote for each share held of record on all matters to be voted on by stockholders.
Pursuant to the Warrant Agreement, a warrantholder may exercise its warrants only for a whole number of shares of Common Stock. This means that only a whole warrant may be exercised at any given time by a warrantholder. Only whole warrants are traded. The warrants will expire five (5) years after the completion of the initial business combination, at 5:00 p.m. Eastern Time or earlier upon redemption or liquidation.
We will not be obligated to deliver any shares of Common Stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) with respect to the shares of Common Stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to us satisfying our obligations described below with respect to registration. No warrant is exercisable and we will not be obligated to issue shares of Common Stock upon exercise of a warrant unless Common Stock issuable upon such warrant exercise has been registered, qualified, or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will we be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share of Common Stock underlying such unit.We may call the warrants for redemption:
• in whole and not in part;
• at a price of $0.01 per warrant;
• upon not less than 30 days’ prior written notice of redemption given after the warrants become exercisable (the “30-day redemption period”) to each warrantholder; and
• if, and only if, the reported last sale price of the Common Stock stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three (3) business days before we send the notice of redemption to the warrantholders.
If and when the warrants become redeemable, we may not exercise its redemption right if the issuance of shares of our Common Stock upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or we are unable to effect such registration or qualification.
We established the last of the redemption criteria discussed above to prevent a redemption call unless there is, at the time of the call, a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the warrants, each warrantholder is entitled to exercise its warrant prior to the scheduled redemption date. However, the price of the Common Stock may fall below the $18.00 redemption trigger price (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) as well as the $11.50 warrant exercise price after the redemption notice is issued.
If we call the warrants for redemption as described above, our management will have the option to require any holder that wishes to exercise its warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” management will consider, among other factors, our cash position, the number of warrants that are outstanding and the dilutive effect on its stockholders of issuing the maximum number of shares of Common Stock issuable upon the exercise of our warrants. If our management takes advantage of this option, all holders of warrants would pay the exercise price by surrendering their warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Common Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If our management takes advantage of this
option, the notice of redemption will contain the information necessary to calculate the number of shares of Common Stock to be received upon exercise of the warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption. If we call its warrants for redemption and its management does not take advantage of this option, FinServ Holdings LLC, the Sponsor, and its permitted transferees would still be entitled to exercise their Private Placement Warrants for cash or on a cashless basis using the same formula described above that other warrantholders would have been required to use had all warrantholders been required to exercise their warrants on a cashless basis, as described in more detail below.
A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that, to the warrant agent’s actual knowledge, after giving effect to such exercise, such person (together with such person’s affiliates) would beneficially own in excess of 4.9% or 9.8% (or such other amount as a holder may specify) of the shares of our common stock outstanding immediately after giving effect to such exercise.
If the number of outstanding shares of Common Stock or by a split-up of shares of Common Stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of Common Stock issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding shares of Common Stock. A rights offering to holders of Common Stock entitling holders to purchase shares of Common Stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of Common Stock equal to the product of (i) the number of shares of Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Common Stock) and (ii) one (1) minus the quotient of (x) the price per share of Common Stock paid in such rights offering divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for Common Stock, in determining the price payable for Common Stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of Common Stock as reported during 10 trading day period ending on the trading day prior to the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities, or other assets to the holders of our Common Stock on account of such shares of Common Stock (or other shares of our capital stock into which the warrants are convertible), other than (a) as described above, or (b) certain ordinary cash dividends, with respect to any other provision relating to stockholders’ rights, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of Common Stock in respect of such event.
If the number of outstanding shares of Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Common Stock issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding shares of Common Stock.
Whenever the number of shares of Common Stock purchasable upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of Common Stock purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of Common Stock so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding shares of Common Stock (other than those described above or that solely affects the par value of such shares of Common Stock), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of its outstanding shares of Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the warrantholders will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the shares of Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of Common Stock in such a transaction is payable in the form of Common Stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered
holder of the warrant properly exercises the warrant within 30 days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the Warrant Agreement based on the Black-Scholes value of the warrant. The purpose of such exercise price reduction is to provide additional value to warrantholders when an extraordinary transaction occurs during the exercise period of the warrants pursuant to which the warrantholders otherwise do not receive the full potential value of the warrants in order to determine and realize the option value component of the warrant. This formula is to compensate the warrantholder for the loss of the option value portion of the warrant due to the requirement that the warrantholder exercise the warrant within 30 days of the event. The Black-Scholes model is an accepted pricing model for estimating fair market value where no quoted market price for an instrument is available.
Anti-Takeover Provisions
Certificate of Incorporation and Bylaws
Among other things, our Charter and Bylaws:
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| | • | | permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in control; |
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| | • | | provide that the authorized number of directors may be changed only by resolution of our board of directors; |
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| | • | | provide that our board of directors will be classified into three classes of directors; |
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| | • | | provide that, subject to the rights of the holders of any series of preferred stock to elect directors under specified circumstances, directors may only be removed for cause and only upon the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class; |
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| | • | | provide that all vacancies, including newly created directorships, may be filled solely and exclusively by a majority vote of the remaining directors then in office, even if less than a quorum, or by a sole remaining director; |
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| | • | | require that any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders; provided, however, that any action required or permitted to be taken by the holders of preferred stock, voting separately as a series or separately as a class with one or more other such series, may be taken without a meeting, without prior notice and without a vote, to the extent expressly so provided by the applicable certificate of designation relating to such series of preferred stock; |
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| | • | | provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder’s notice; |
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| | • | | provide that special meetings of our stockholders may be called only by the chairman of our board of directors, our chief executive officer or by our board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and |
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| | • | | not provide for cumulative voting rights. |
The affirmative vote of the stockholders holding at least 66.7% of the voting power of all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal certain provisions above, with Article X in the Charter providing additional details on amendments to the Charter and these provisions.
The combination of these provisions will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Because our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control.
These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to reduce our vulnerability to hostile takeovers and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of delaying changes in our control or management. As a consequence, these provisions may also inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts. We believe that the benefits of these provisions, including increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company, outweigh the disadvantages of discouraging takeover proposals, because negotiation of takeover proposals could result in an improvement of their terms.
Choice of Forum
Unless the Corporation consents in writing to the selection of an alternative forum, to the fullest extent permitted by the applicable law, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the DGCL or the Charter or the Bylaws, (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, or (v) any action asserting an “internal corporate claim” as such term is defined in Section 115 of the DGCL, and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel, except any action (A) as to which the Court of Chancery in the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, (C) for which the Court of Chancery does not have subject matter jurisdiction, or (D) any action arising under the Securities Act.
Notwithstanding the foregoing, the provisions of this Section 11.1 will not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any other claim for which the federal courts have exclusive jurisdiction. Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring or holding any interest in any security of the Company shall be deemed to have notice of and consented to this provision.
Transfer Agent and Warrant Agent
The transfer agent and warrant agent for the warrants is Continental Stock Transfer & Trust.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this “Agreement”), dated as of September 3, 2021, is made by and between Katapult Holdings, Inc., a Delaware corporation (“Parent”), Katapult Group, Inc., a wholly-owned subsidiary of Parent and a Delaware corporation (the “Company”), and Chandan Chopra (“Executive”).
RECITALS
WHEREAS, the Parent and Executive previously entered into an Employment Agreement dated November 17, 2020 (the “Prior Agreement”);
WHEREAS, the Parent and Executive wish to amend and restate the Prior Agreement as set forth in this Agreement to memorialize in writing the terms of Executive’s continued employment with the Company following the Effective Date; and WHEREAS, the parties agree that this Agreement supersedes the Prior Agreement and any other prior employment agreement and understandings between the parties.
NOW, THEREFORE, in consideration of the premises, the respective covenants and commitments of the parties hereto set forth in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1.At-Will Employment. The “Effective Date” of this Agreement will be the date immediately prior to the closing of the Agreement and Plan of Merger, dated as of December 18, 2020 (“Merger Agreement”), by and among FinServ Acquisition Corp (“FinServ”), Keys Merger Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of FinServ, Keys Merger Sub 2, LLC, a Delaware limited liability company and wholly owned subsidiary of FinServ, the Company, and Orlando Zayas, in his capacity as the representative of all Pre-Closing Holders (as defined in the Merger Agreement). As of the Effective Date, the Company offers employment, and Executive accepts employment and agrees to perform services for the Company, upon the terms set forth in this Agreement. Executive shall be employed by the Company on an “at will” basis, meaning either the Company or Executive may terminate Executive’s employment at any time, with or without cause or advance notice.
2.Title and Duties.
2.1Title. Executive shall serve as the Company’s Chief Technology Officer during the term of this Agreement and agrees to perform duties consistent therewith. Subject to the authority and supervision of the Chief Executive Officer of the Company (“CEO”) or such other person as shall be designated by the CEO or the Board of Directors of the Company (“Board”), Executive shall have such management and control of the business, affairs and property of the Company as are consistent with Executive’s position, with all such powers with respect to such management and control as may be reasonably incident to such responsibilities. Executive may also serve as an officer or director of Parent and one or more direct or indirect subsidiaries of Parent; provided, however, that Executive shall not be entitled to any additional compensation for serving in such additional capacities. Upon termination of Executive’s employment with the Company, regardless of the reason, or upon the Company’s request, Executive shall be deemed to have resigned from all positions with Parent, the Company and their direct or indirect subsidiaries, including any directorships or similar positions. Executive will execute any documents reasonably requested by the Company or its subsidiaries to effectuate the purposes of the foregoing sentence.
2.2Performance of Duties. This is a full-time, exempt position. Executive agrees to serve the Company faithfully and to the best of Executive’s abilities. During Executive’s employment with the Company, Executive shall not engage in any outside activities that interferes with Executive’s ability to perform Executive’s duties hereunder or violate or conflict with any terms of the PRA (as defined below). Notwithstanding the foregoing, Executive may (i) engage in charitable and civic activities, (ii) serve on the board of directors of not-for-profit organizations, and (iii) subject to approval of the CEO or the Board, serve on the board of directors of for-profit organizations, but, in each case, only to the extent such service or engagement does not interfere with Executive’s duties to the Company other than in an immaterial manner and does not breach the PRA.
2.3Compliance with Company Policies. Executive agrees that in the rendering of all services to the Company and in all aspects of employment hereunder, Executive shall comply in all material respects with all written policies from time to time established by the Company, to the extent they are not in conflict with this Agreement.
3.Compensation and Benefits.
3.1Base Salary. The Company shall pay Executive a base salary of $300,000.00 (three hundred thousand dollars) on an annualized basis. Executive’s annualized base salary shall be reviewed annually by the Company and may be increased (but not decreased) based upon the evaluation of Executive’s performance and the compensation policies of the Company in effect at the time of each such review. The annualized base salary in effect at any given time is referred to herein as “Base Salary.” Base Salary shall be payable in a manner that is consistent with the Company’s usual payroll practices for senior executives. All amounts payable to Executive pursuant to this Section 3.1 shall be subject to customary and proper payroll deductions.
3.2Cash Bonuses. Executive shall be eligible to earn a discretionary annual cash bonus (an “Annual Bonus”) pursuant to a bonus program established by the Board in consultation with Executive.
(a)For calendar year 2021, Executive’s target annual cash bonus will be sixty percent (60%) of Base Salary (“Target Bonus”) up to a maximum of two hundred percent (200%) of the Target Bonus (i.e., one hundred and twenty percent (120%) of Base Salary). The actual amount of the Annual Bonus shall be determined by the Board based fifty percent (50%) on the Company’s level of achievement of certain EBITDA targets set by the Board and fifty percent (50%) on the Company’s level of achievement of certain revenue targets set by the Board, in each case as determined by the Board.
(b)For calendar year 2022 and later calendar years, Executive’s target annual cash bonus will be no less than sixty percent (60%) of Base Salary. The actual amount of any Annual Bonus may be up to one hundred and twenty percent (120%) of the Base Salary and will be determined by the Board pursuant to the terms and conditions of the bonus program.
(c)Except as expressly provided in Section 5 of this Agreement, in order to receive any Annual Bonus, Executive must be employed through the end of the calendar year which relates to the Annual Bonus. Any Annual Bonus, if earned, will be paid to Executive within two and one-half (2.5) months following the end of the calendar year during which the bonus is earned. All amounts payable to Executive hereunder will be subject to all required withholding by the Company.
3.3Long-Term Incentive Compensation. Executive shall be eligible to participate in the Parent’s 2021 Equity Incentive Plan, as may be amended from time to time (the
“Plan”) and in any other long-term and/or equity-based incentive compensation plan or program approved by the Board from time to time. Any awards shall be subject to and governed in all respects by the terms of the plan they were granted under and the award agreement between Executive and the Company entered into with respect to each award.
(a)Stock Options. Executive has been granted certain stock options (the “Previously Granted Options”) pursuant to the terms of the 2014 Stock Incentive Plan. The Previously Granted Options shall remain outstanding under their current terms except as specifically modified by the Merger Agreement.
(b)RSUs. Subject to the terms of the Plan and in accordance with the terms of a separate award agreement to be provided by the Company, as soon as feasible after the first Board meeting following the first day of trading of the Company under the ticker symbol “KPLT” and any filing required by the Securities and Exchange Commission under the Securities Exchange Act of 1933, whichever occurs later, Executive will be granted a certain number of restricted share units equal to the quotient (rounded down to the nearest whole share) of $1,000,000 (one million dollars) divided by the closing price as of the date the Company filed with the U.S. Securities and Exchange Commission and effective registration statement on Form S-8, vesting annually over a period of four (4) years commencing on the grant date (“Sign-On LTI”).
3.4Other Benefits. Executive shall have the right to participate in all benefit plans which may be in effect for the Company’s senior executive employees from time to time, on the same terms as such other senior executive employees, including, without limitation, group health and dental insurance, group life insurance, disability insurance, and any retirement, 401(K), profit-sharing or pension plans, in accordance with the terms and conditions thereof.
3.5Vacation, Holidays and Sick Time. Executive shall be entitled to paid time off per year in accordance with the Company’s normal policies in effect from time to time.
3.6Expenses. During the term of this Agreement, the Company shall pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by Executive in the performance of Executive’s duties under this Agreement, subject to the presentment by Executive of appropriate expense reports and receipts in accordance with the Company’s normal policies for expense verification.
3.7Directors and Officers Liability Insurance; Indemnification Agreement. During the term of this Agreement, the Company will maintain directors’ and officers’ liability insurance on terms acceptable to the Board. In addition, no later than the Effective Date, Executive and Parent shall enter into an Indemnification Agreement, substantially in the form attached hereto as Exhibit A.
4.Proprietary Rights Agreement. The Executive has previously entered into a Confidentiality and Assignment Agreement, attached hereto as Exhibit B (the “PRA”). The provisions of the PRA shall be deemed incorporated herein by reference as if set forth in full herein. The obligations of Executive under the PRA shall survive the termination of Executive’s employment with the Company for any reason whatsoever. In the event of any conflict or inconsistency between this Agreement and the PRA, the terms of the PRA shall prevail.
5.Termination. The parties acknowledge that Executive’s employment relationship with the Company is at-will. The provisions in this Section govern the amount of compensation, if any, to be provided to Executive upon termination of employment and do not alter this at-will status.
5.1Termination with Cause. The Company may terminate Executive’s employment for “Cause,” as defined below, at any time upon written notice to Executive.
(a)If Executive’s employment is terminated for Cause, except for the Accrued Obligations, the Company may immediately cease payment of any further wages, benefits, or other compensation under this Agreement. No severance or any other payments of any kind, other than the Accrued Obligations, shall be payable to Executive upon termination of employment with Cause, except as required by law.
(b)For purposes of this Agreement, “Cause” means: (i) Executive’s indictment or conviction of, or plea of nolo contendere to, a felony or any other crime involving moral turpitude; (ii) Executive’s engaging in any act of fraud, misconduct, illegality, unlawful harassment, embezzlement, or misappropriation; (iii) Executive’s failure to perform Executive’s duties; (iv) Executive’s failure to follow the reasonable and lawful directives of the CEO, Board or a committee thereof, or Executive’s supervisor; (v) Executive’s material breach of this Agreement, the PRA, or any other written agreement between the Company (or any of its affiliates) and Executive; (vi) Executive’s violation of the Company’s written policies or code of ethics or standards of conduct policies, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct; and (vii) Executive’s breach of fiduciary obligation. With respect to those circumstances of Cause set forth in the preceding clauses that are reasonably susceptible to cure, Cause shall only exist in cases in which the Company has provided Executive with written notice of the alleged circumstances of Cause and Executive has failed to cure such condition to the reasonable satisfaction of the Company within thirty (30) days after such written notice.
5.2Termination without Cause. The Company may terminate Executive’s employment without Cause at any time upon written notice to Executive.
(a)If Executive’s employment is terminated by the Company without Cause, the Company will pay severance on the terms and conditions set forth in Section 5.3(b). As a mandatory condition precedent to Executive’s right to receive and retain this severance pay, Executive must first sign a separation agreement and general release of all claims against Parent, the Company and their respective affiliates, in substantially the form attached hereto as Exhibit C with any such changes as the Company deems, upon the advice of counsel, reasonably necessary or appropriate to comply with applicable law or to reflect then-current corporate structure (the “Release”), return such Release to the Company no later than forty-five (45) days following the termination of Executive’s employment (or such shorter period of time specified in the Release), and not revoke the Release, to the extent the Release is revocable, within seven (7) days following the execution date allowed by the Release for revocation.
(b)If the Company terminates Executive’s employment without Cause, in addition to the Accrued Obligations, in all cases subject to Executive’s execution and non revocation of the Release in the time frame provided, the Company will (i) continue to pay to Executive, as severance, the Base Salary for a period of six (6) months from the date of termination of employment (such period shall be referred to as the “Severance Period”), in equal installments payable in accordance with the Company’s regular payroll schedule and subject to all applicable withholdings and deductions, commencing on the next regular pay date following the sixtieth (60th) day after termination of employment; provided, however, the first payment shall include the cumulative amount of payments that would have otherwise been paid to Executive between the termination date and the sixtieth (60th) day after termination date had such payments commenced on the next regular pay date following the termination date; (ii) a pro-rated Annual Bonus for the calendar year in which termination occurs (with such pro-ration based upon the number of days in the calendar year which have elapsed as of the date of termination) determined in accordance with Section 3 of this Agreement and paid when such
Annual Bonus is paid generally, (iii) pay the cost of Executive’s COBRA premiums to continue group health insurance coverage for the Severance Period if Executive or Executive’s dependents participate in the Company’s group health benefits plan and timely elect to continue participating in the group health plan under COBRA; (iv) accelerate the vesting of the unvested portion of any and all long-term incentive awards held by Executive that are subject to time-based vesting only and would have vested during the Severance Period but for Executive’s separation from employment with the Company; and (v) extend the exercise period for the vested portion of any and all stock options held by Executive as of the termination date to the earliest to occur of the following: (A) the eighteenth (18th) month anniversary of the date of Executive’s termination, (B) immediately prior to the Company’s consummation of a Change in Control (as defined in the Plan), or (C) the expiration date of each such option. Any provision contained in the agreement(s) under which such options were granted that is inconsistent with the exercise period extension as set forth herein is hereby modified to the extent necessary to provide for such extension.
5.3Termination by Executive with Good Reason. Executive may terminate Executive’s employment with Good Reason (defined below) upon thirty (30) days’ prior written notice to the Company. No event or condition shall constitute “Good Reason” unless Executive provides the Company with written notice of the event or condition Executive alleges to be Good Reason within thirty (30) days after such event or condition first occurs. The resignation shall not become effective unless the Company fails to cure such event or condition constituting Good Reason within thirty (30) days following the Company’s receipt of such notice.
(a)If Executive’s employment is terminated by Executive with Good Reason, the Company will provide Executive the severance benefits on the terms and conditions set forth below. As a mandatory condition precedent to Executive’s right to receive and retain this severance pay, Executive must first sign a Release, return such Release to the Company no later than forty-five (45) days following the termination of Executive’s employment, and not revoke the Release, to the extent the Release is revocable, within the time allowed by the Release for revocation.
(b)For purposes of this Agreement, “Good Reason” means absent Executive’s prior written consent, (i) the Company requiring Executive to be based at any office or location more than fifty (50) miles from Executive’s principal place of employment immediately prior to such relocation, (ii) a material adverse change in Executive’s job title or a material reduction in Executive’s duties or responsibilities; (iii) material reduction in Executive’s Base Salary, other than a general reduction in Base Salary affecting similarly situated senior executives of the Company, or (iv) the Company’s breach of this Agreement in any material respect; provided, however, that there shall be no resignation for “Good Reason” after such time as the Company delivers to Executive a notice of termination for one or more acts or omissions constituting Cause.
(c)Except as set forth below, if Executive terminates Executive’s employment with Good Reason, in addition to the Accrued Obligations, in all cases subject to Executive’s execution and non-revocation of the Release in the time frame provided, the Company will provide Executive the severance benefits set forth in Section 5.3(b) at the same times specified therein; provided, that if Executive’s Good Reason is a reduction in the Base Salary per clause (iii) of Section 5.4(b), the rate of Base Salary for clause (i) of Section 5.3(b) shall be rate prior to reduction.
5.4Termination by Executive without Good Reason. Executive may terminate Executive’s employment without Good Reason at any time upon two (2) weeks’ prior notice to the Company (which the Company may, in its sole discretion, make effective earlier; provided that the Company pays Executive’s Base Salary for the balance of the two (2)-week notice
period). If Executive terminates Executive’s employment without Good Reason, except for the Accrued Obligations, the Company may immediately cease payment of any further wages, benefits, or other compensation under this Agreement. No severance or any other payments of any kind, other than the Accrued Obligations, shall be payable to Executive upon termination of employment by Executive, except as required by law.
5.5Termination due to Executive’s Death or Total Disability. Executive’s employment shall automatically terminate upon Executive’s death and may be terminated by the Company for Total Disability (as defined below) upon thirty (30) days’ prior written notice to Executive, which notice, for the avoidance of doubt, may be given in advance of the expiration of the one hundred and twenty (120) consecutive days or the one hundred and fifty days (150) during any twelve (12) month period referenced in Section 5.6(b).
(a)If Executive employment is terminated due to Executive’s death or Total Disability, the Company will pay all Accrued Obligations and will cease payment of any further wages, benefits or other compensation, and shall have no further payment obligations under this Agreement or otherwise, except as required by law.
(b)For purposes of this Agreement, “Total Disability” means Executive is unable to perform the essential functions of Executive’s job, with or without a reasonable accommodation, for a period of (i) one hundred and twenty (120) consecutive days or (ii) any one hundred and fifty (150) days during any twelve (12) month period. Any question as to the existence of Executive’s Total Disability as to which Executive and the Company cannot agree shall be determined in writing by a qualified medical doctor mutually selected by the Company and Executive.
5.6Termination due to a Change in Control.
(a)If the Company terminates Executive’s employment without Cause or Executive terminates Executive’s employment with Good Reason and during the period commencing three (3) months prior to a Change in Control and ending twelve months (12) following a Change in Control, in addition to the Accrued Obligations, in all cases subject to Executive’s execution and non-revocation of the Release in the time frame provided, the Company will (i) pay to Executive, as severance, a lump sum equal to one (1) times the sum of the Base Salary plus the Target Bonus for the year of termination, with payment on the next regular pay date following the sixtieth (60th) day after termination of employment; (ii) pay the cost of Executive’s COBRA premiums to continue group health insurance coverage for twelve (12) months if Executive or Executive’s dependents participate in the Company’s group health benefits plan and timely elect to continue participating in the group health plan under COBRA; (iii) cause one hundred percent (100%) of the unvested portion of any and all long-term incentive awards held by Executive as of the closing of such Change in Control (to the extent such awards are assumed or continued (in accordance with its terms) by the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be, in such Change in Control) to immediately vest and, if applicable, become exercisable (in the case of a long-term incentive award with performance-based vesting, all performance goals and other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels); and (iv) extend the exercise period for the vested portion of any and all stock options held by Executive as of the termination date to the earliest to occur of the following: (A) the eighteenth (18th) month anniversary of the date of Executive’s termination, (B) immediately prior to the Company’s consummation of a Change in Control, or (C) the expiration date of each such option. Any provision contained in the agreement(s) under which such options were granted that is inconsistent with the exercise period extension as set forth herein is hereby modified to the extent necessary to provide for such extension. Notwithstanding anything herein to the contrary, the provisions of this Section are subject to the terms of the Plan which will govern in all cases. If Executive is terminated
pursuant to this Section 5.7(a), the severance provisions of Section 5.3(b) and Section 5.4(c) will not apply; provided, however, if after the Company terminates Executive without Cause per Section 5.3 or Executive resigns for Good Reason per Section 5.4, it is determined such termination or resignation occurred during the period commencing three (3) months prior to a Change in Control, then the Company shall make a cash payment to Executive within sixty (60) days of the Change in Control equal to the amount Executive would have received under this Section 5.7(a) less any payment Executive already received by Executive under Section 5.3(b) or Section 5.4(c), and the Executive shall receive severance payments and benefits in total that equate to the provisions of this Section 5.7(a).
(b)For purposes of this Agreement, “Change in Control” shall have the same meaning as in the Plan.
6.Miscellaneous Provisions.
6.1Resolution of Disputes. The parties recognize that litigation in federal or state courts or before federal or state administrative agencies of disputes arising out of Executive’s employment with the Company or out of this Agreement, or Executive’s termination of employment or termination of this Agreement, may not be in the best interests of either Executive or the Company, and may result in unnecessary costs, delays, complexities, and uncertainty. The parties agree that any dispute between the parties arising out of or relating to the negotiation, execution, performance or termination of this Agreement or Executive’s employment, including, but not limited to, any claim arising out of this Agreement, claims under Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, Section 1981 of the Civil Rights Act of 1966, as amended, the Family Medical Leave Act, the Executive Retirement Income Security Act, and any similar federal, state or local law, statute, regulation, or any common law doctrine, whether that dispute arises during or after employment, shall be settled by binding arbitration in accordance with the JAMS Employment Arbitration Rules; provided however, that this dispute resolution provision shall not apply to any separate agreements between the parties that do not themselves specify arbitration as an exclusive remedy. Issues of procedure, arbitrability, or confirmation of award will be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16. The location for the arbitration shall be the Plano, TX area. Any award made by such panel shall be final, binding and conclusive on the parties for all purposes, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The Company shall pay for all fees and costs of the Arbitrator, including any fees and costs that would not be incurred in a court proceeding. The parties acknowledge and agree that their obligations to arbitrate under this Section survive the termination of this Agreement and continue after the termination of the employment relationship between Executive and the Company. The parties each further agree that the arbitration provisions of this Agreement shall provide each party with its exclusive remedy, and each party expressly waives any right it might have to seek redress in any other forum, except as otherwise expressly provided in this Agreement. By election arbitration as the means for final settlement of all claims, the parties hereby waive their respective rights to, and agree not to, sue each other in any action in a Federal, State or local court with respect to such claims, but may seek to enforce in court an arbitration award rendered pursuant to this Agreement.
6.2Governing Law and Jurisdiction. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to principles of conflict of laws.
6.3Entire Agreement. This Agreement, together with the exhibits attached hereto (including but not limited to the PRA), which are hereby incorporated by reference contains the entire agreement of the parties hereto relating to the employment of Executive by
the Company and the other matters discussed herein and supersedes all prior agreements and understandings with respect to such subject matter, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. In the event of conflict between the terms of this Agreement and any equity or compensation award agreement, the terms of this Agreement shall govern.
6.4Withholding Taxes. Parent and the Company may withhold from any compensation or other benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.
6.5Supplements and Amendments. This Agreement may be supplemented or amended only upon the written consent of each of the parties hereto.
6.6Assignment. Except as expressly provided below, this Agreement shall not be assignable, in whole or in part, by either party without the prior written consent of the other party. The Company may, without the prior written consent of Executive, assign its rights and obligations under this Agreement to any other corporation, firm or other business entity with or into which Parent or the Company may merge or consolidate, or to which Parent or the Company may sell or transfer all or substantially all of its assets, or of which fifty percent (50%) or more of the equity investment and of the voting control is owned, directly or indirectly, by, or is under common ownership with, Parent or the Company; provided, however, that such assignment may be made without Executive’s prior written consent only if (a) such assignment has a valid business purpose and is not for the purpose of avoiding the Company’s obligations hereunder or Executive’s realization of the benefits of this Agreement and (b) the assignee expressly assumes in writing all obligations and liabilities to Executive hereunder. This Agreement shall be binding upon and inure to the benefit of Parent and the Company and their successors and permitted assigns. This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive’s heirs, personal or legal representatives and beneficiaries.
6.7Beneficiary in Event of Death. In the event of Executive’s death, any payment or benefit to be paid to Executive per the terms of this Agreement as of, or due to, such death shall be paid to the Beneficiary. The “Beneficiary” will be the beneficiary or beneficiaries named by Executive in a written instrument that must be received by the Company prior to Executive’s death. In the event there is no such named beneficiary, or no surviving named beneficiary, then the Beneficiary shall be the Executive’s surviving spouse, or, if none, the Executive’s surviving children per stirpes, or, if none, the Executive’s estate.
6.8No Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
6.9Severability. The provisions of this Agreement are severable, and if any one or more provisions may be judicially unenforceable and/or found invalid by a court of competent jurisdictions, in whole or in part, the remaining provisions shall nevertheless be binding, enforceable and in full force and effect.
6.10Survival. The provisions of this Agreement shall survive the termination of this Agreement and/or the termination of Executive’s employment to the extent necessary to effectuate the terms contained herein.
6.11Titles and Headings. The titles and headings of the various sections of this Agreement are intended solely for convenience of reference and not intended for any purpose whatsoever to explain, modify or place any construction upon any of the provisions hereof.
6.12Attorney’s Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or to commence mediation or arbitration or other proceedings against the other party to enforce any of the terms or conditions of this Agreement, the court, mediator, or arbitrator shall award to the prevailing party in any such proceeding, the costs, fees and expenses (including attorneys’ fees) reasonably incurred by such party in connection with such proceeding.
6.13Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered (which shall include personal delivery and delivery by courier, messenger or overnight delivery service) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive: At Executive’s home address m accordance with the Company’s records.
If to Parent or the Company: Katapult Holdings, Inc.
Katapult Group, Inc.
5204 Tennyson Pkwy, Suite 500
Plano, TX 75024
with a copy, which copy shall not constitute notice, to:
legal@katapult.com
or to such other address of which either party gives notice to the other party in accordance herewith, except that notices of change of address shall be effective only upon receipt.
6.14Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document (such as DocuSign or AdobeSign), will have the same effect as physical delivery of the paper document bearing an original signature.
6.15Section 409A.
(a)This Agreement shall be interpreted to avoid any penalty sanctions under Section 409A of the Internal Revenue Code (the “Code”). If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under Section 409A of the Code, then such benefit or payment shall be provided in full (to extent not paid in part at earlier date) at the earliest time thereafter when such sanctions will not be imposed. For purposes of Section 409A of the Code, all payments to be made upon a termination of employment under this Agreement may only be made upon the Executive’s “separation from service” (within the meaning of such term under Section 409A of the Code), each payment made under this Agreement shall be treated as a separate payment, and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. In no event shall the Executive, directly or indirectly, designate the calendar year of payment, except as permitted under Section 409A of the Code. Notwithstanding any provision of this Agreement
to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly or indirectly, result in the Executive designating the calendar year of payment, and if a payment that is subject to execution of the Release could be made in more than one taxable year, payment shall be made in the later taxable year.
(b)Notwithstanding anything herein to the contrary, if, at the time of the Executive’s termination of employment with the Company, Parent or the Company has securities which are publicly traded on an established securities market and the Executive is a “specified employee” (as such term is defined in Section 409A of the Code) and it is necessary to postpone the commencement of any payments or benefits otherwise payable under this Agreement as a result of such termination of employment to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will postpone the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Executive) that are not otherwise paid within the “short-term deferral exception” under Treas. Reg. §1.409A-l(b)(4), and the “separation pay exception” under Treas. Reg. §1.409A-1(b)(9)(iii), until the first payroll date that occurs after the date that is six months following the Executive’s “separation of service” (as such term is defined under code Section 409A of the Code) with the Company. If any payments are postponed due to such requirements, such postponed amounts will be paid in a lump sum to the Executive on the first payroll date that occurs after the date that is six months following Executive’s separation of service with the Company. If the Executive dies during the postponement period prior to the payment of postponed amount, the amounts withheld on account of Section 409A of the Code shall be paid to the personal representative of the Executive’s estate within 60 days after the date of the Executive’s death.
(c)All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (A) any reimbursement shall be for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement), (B) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar year, (C) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (D) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.
6.16Government Agency Exception. Nothing in this Agreement or the PRA is intended to prohibit or restrict the Executive from: (i) making any disclosure of information required by process of law; (ii) providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal or state regulatory or law enforcement agency or legislative body, or any self-regulatory organization; or (iii) filing, testifying, participating in, or otherwise assisting in a proceeding relating to an alleged violation of any federal, state, or municipal law relating to fraud or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization. In addition, this Agreement does not bar the Executive’s right to file an administrative charge with the Equal Employment Opportunity Commission (“EEOC”) and/or to participate in an investigation by the EEOC.
6.17Acknowledgement of Full Understanding. Executive acknowledges and agrees that Executive has fully read, understands and voluntarily enters into this Agreement. Executive acknowledges and agrees that Executive has had an opportunity to ask questions and consult with an attorney of Executive’s choice before signing this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Employment Agreement on the day and year first written above.
KATAPULT HOLDINGS, INC.
By: /s/ Orlando Zayas
Orlando Zayas, Chief Executive Officer
KATAPULT GROUP, INC.
By: /s/ Orlando Zayas
Orlando Zayas, Chief Executive Officer
EXECUTIVE:
/s/ Chandan Chopra
Chandan Chopra
[Signature Page to Employment Agreement]
Exhibit A
Indemnification Agreement
Exhibit B
Confidentiality and Assignment Agreement
Exhibit C
Form of Separation Agreement and General Release of Claims
This Separation Agreement and General Release Agreement (the “Agreement”) is made by and between Katapult Holdings, Inc., a Delaware corporation (“Parent”), Katapult Group, Inc., a wholly-owned subsidiary of Parent and a Delaware corporation (the “Company”), and Chandan Chopra (“you”). Capitalized terms not defined herein shall have the meanings ascribed to them in the Employment Agreement (as defined below).
WHEREAS, you and the Company entered into an Amended and Restated Employment Agreement (this “Agreement”), dated September 3, 2021 (the “Employment Agreement”); and
WHEREAS, pursuant to the Employment Agreement, if either (i) the Company terminates your employment without Cause pursuant to Section 5.3 of the Employment Agreement, or (ii) you resign for Good Reason pursuant to Section 5.4 of the Employment Agreement, then the Company shall provide to you certain benefits set forth in this Agreement in exchange for your execution, return and non-revocation of, and compliance with, this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and benefits set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, you and the Company agree as follows:
1.Separation. Your last day of work with the Company and your employment termination date will be ________________ (the “Separation Date”).
2.Accrued Obligations. On the next regular payroll date following the Separation Date, the Company shall provide you the Accrued Obligations (as defined in Section 5.1 of the Employment Agreement). You are entitled to these payments regardless of whether or not you sign this Agreement.
3.Separation Pay. If you sign this Agreement, return it by the deadline specified below, and comply with its terms, the Company will provide you the severance benefits described in Section 5.3(b) of the Employment Agreement in accordance with, and subject to, the provisions of Section 5.3 and Section 6.14 of the Employment Agreement.
4.Health Insurance. Your group health insurance will cease on the last day of the month in which your employment ends. At that time, you will be eligible to continue your group health insurance benefits at your own expense, subject to Section 5.3(b) of the Employment Agreement, the terms and conditions of the benefit plan, federal COBRA law, and, as applicable, state insurance laws. You will receive additional information regarding your right to elect continued coverage under COBRA in a separate communication.
5.Tax Matters. The Company will withhold required federal, state, and local taxes from any and all payments contemplated by this Agreement. Other than the Company’s obligation and right to withhold, you will be responsible for any and all taxes, interest, and Exhibit C penalties that may be imposed with respect to the payments contemplated by this Agreement (including, but not limited to, those imposed under Section 409A of the Code).
6.Incentive Stock Option. You have been granted (i) certain stock options set forth in Schedule 1 pursuant to the terms of the Parent 2014 Stock Incentive Plan, as amended
(the “Plan”), and (ii) shares of Parent’s Common Stock pursuant to the Restricted Stock Agreement, dated on or about August 26, 2020. Following the Separation Date, your rights and obligations with respect to such equity shall continue to be governed by the terms of the Plan and the Options-related agreements or Restricted Stock Agreement, as applicable, and as modified by Section 3.3, Section 5.3(b)(iv), and Section 5.3(b)(v) of the Employment Agreement.
7.Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, benefits, or separation pay after the Separation Date. Thus, for any employee benefits sponsored by the Company not specifically referenced in this Agreement, you will be treated as a terminated employee effective on your Separation Date. This includes but is not limited to a 401(k) plan, life insurance, accidental death and dismemberment insurance, and short and long-term disability insurance.
8.Expense Reimbursement. You agree that, within three (3) business days of the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice.
9.Return of Company Property. By the Separation Date or within seven (7) days, you agree to return to the Company all hard copy and electronic documents (and all copies thereof) and other Company property that you have had in your possession at any time, including, but not limited to, files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information (including email), tangible property (laptop computer, cell phone, PDA, etc.), credit cards, entry cards, identification badges and keys, and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof). If you discover after the Separation Date that you have retained any Company proprietary or confidential information, you agree immediately upon discovery to contact the Company and make arrangements for returning the information.
10.Post Employment Restrictions. You acknowledge your continuing obligations under your Confidentiality and Assignment Agreement (the “Proprietary Agreement”), which prohibits disclosure of any confidential or proprietary information of the Company and solicitation of Company employees and customers. A copy of your Proprietary Agreement is attached hereto as Schedule 2.
11.Confidentiality. The existence of this Agreement and its provisions will be held in strictest confidence by you and will not be publicized or disclosed in any manner whatsoever; provided, however, that you may disclose this Agreement in confidence: (a) to your spouse or partner; (b) to your attorney, accountant, auditor, tax preparer, and financial advisor, provided that such individuals first agree that they will treat such information as strictly confidential and that you agree to be responsible for any disclosure by any such individual as if you had made the disclosure; and (c) as necessary to enforce its terms or as otherwise required by law. You agree not to disclose the terms of this Agreement to any current or former Company employee.
12.Non-disparagement. You agree not to disparage the Parent, the Company, and their officers, directors, employees, or agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation. The Company agrees not to disparage you in any manner likely to be harmful to you or your business or personal reputation; provided, however, that the Company’s obligation only applies to its officers
and its members of the Board of Directors at the time of the Separation Date for the period such individuals are serving in such roles. Notwithstanding the foregoing, that statements which are made in good faith in response to any question, inquiry, or request for information required by legal process shall not violate this paragraph. Nothing in this restriction is intended to limit you or the Company from giving honest statements before an administrative agency investigating an alleged violation of discrimination laws.
13.Release of All Claims. Except as otherwise set forth in this Agreement, you hereby release, acquit and forever discharge the Parent, the Company and their affiliates, officers, agents, administrators, servants, employees, attorneys, successors, parent, subsidiaries, assigns, and affiliates (the “Released Party” or “Released Parties”), of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages, indemnities, and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts, omissions, or conduct at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (i) claims and demands arising out of or in any way connected with your employment with the Company, or the termination of that employment; (ii) claims or demands related to your compensation or benefits with the Company, including but not limited to, wages, salary, bonuses, commissions, vacation pay, fringe benefits, expense reimbursements, incentive pay, severance pay, or any other form of compensation; (iii) claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees or other claim arising under the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (the “ADEA”); the federal Family Medical Leave Act, as amended; the federal Worker Adjustment and Retraining Notification Act, as amended; the Employee Retirement Income Security Act of 1974, as amended; and New York Labor Law, New York City Human Rights Law, and the New York Human Rights Law; (iv) all tort claims, including without limitation, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing, including claims arising out of an Employment Agreement, sales commission plan or incentive compensation plan applicable to your employment with the Company.
Excluded from this Agreement are any claims (a) which by law cannot be waived in a private agreement between an employer and employee, and (b) arising out of rights under the Indemnification Agreement attached hereto as Schedule 3. Moreover, this Release does not prohibit you from engaging in the activities protected pursuant to Section 6.15 of the Employment Agreement. You do agree to waive your right to monetary or other recovery should any claim be pursued with the EEOC, state agency, or any other federal, state or local administrative agency your behalf arising out of or related to your employment with and/or separation from the Company.
14.ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, as amended. You also acknowledge that the consideration given for the waiver and release herein is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing, as required by the ADEA, that: (a) your waiver and release do not apply to any rights or claims that may arise after the execution date of this Agreement; (b) you have been advised hereby that you have the right to consult with an attorney prior to executing this Agreement; (c) you have up to twenty-one (21) days from the date of this Agreement to execute this Agreement (although you may choose to voluntarily
execute this Agreement earlier); (d) you have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Agreement is executed by you, provided that the Company has also executed this Agreement by that date (“Effective Date”); and (f) this Agreement does not affect your ability to test the knowing and voluntary nature of this Agreement.
15.No Actions or Claims. You represent that you have not filed any charges, complaints, grievances, arbitrations, lawsuits, or claims against the Company, with any local, state or federal agency, union or court from the beginning of time to the date of execution of this Agreement and that you will not do so at any time hereafter, based upon events occurring prior to the date of execution of this Agreement. In the event any agency, union, or court ever assumes jurisdiction of any lawsuit, claim, charge, grievance, arbitration, or complaint, or purports to bring any legal proceeding on your behalf, you will ask any such agency, union, or court to withdraw from and/or dismiss any such action, grievance, or arbitration, with prejudice.
16.Employment Rights. You hereby waive any and all rights to employment or re employment with the Company or any successor or affiliated organization (“Related Entity”). You agree that the Company and the Related Entities have no obligation, contractual or otherwise, to employ or re-employ you, now or in the future, either directly or indirectly, on a full-time, part-time, or temporary basis, including, but not limited to, utilizing your services as a temporary employee, worker, or contractor through any temporary service providers, vendors, or agencies.
17.Acknowledgements and Representations. You acknowledge and represent that you have not suffered any discrimination or harassment by any of the Released Parties on account of your race, gender, national origin, religion, marital or registered domestic partner status, sexual orientation, age, disability, medical condition, or any other characteristic protected by law. You acknowledge and represent that you have not been denied any leave, benefits or rights to which you may have been entitled under the FMLA or any other federal or state law, and that you have not suffered any job-related wrongs or injuries for which you might still be entitled to compensation or relief. You further acknowledge and represent that, except as expressly provided in this Agreement, you have been paid all wages, bonuses, compensation, benefits and other amounts that any of the Released Parties have ever owed to you, and you understand that you will not receive any additional compensation, severance, or benefits after the Separation Date, with the exception of any vested right you may have under the terms of a written ERISA-qualified benefit plan.
18.Medical Bills, Liens, and Other Potential Rights for Reimbursement
(a)Responsibility for Satisfaction of All Liens. You represent and warrant that all bills, costs, or liens resulting from or arising out of any injuries and claims are your responsibility to pay. You agree to assume responsibility for satisfaction of any and all demands for payment, claims or liens of any kinds, that arise from or are related to payments made or services provided to you or on your behalf. You agree to assume responsibility for all expenses, costs, or fees incurred by you related to your alleged injuries and claims including without limitation, all Medicare conditional payments, subrogation claims, liens, or other rights to payment, relating to medical treatment or lost wages that have been or may be asserted by any health care provider, insurer, governmental entity, employer, or other person or entity. Further, you and your attorney (if any) will indemnify, defend and hold Released Parties harmless from any and all damages, claims, and
rights to payment, including any attorneys’ fees, brought by any person, entity, or governmental agency to recover any of these amounts. If any governmental entity, or anyone acting on behalf of any governmental entity, seeks damages including multiple damages from Released Parties relating to payment by such governmental entity, or anyone acting on behalf of such governmental entity, relating to your alleged injuries and claims, you will defend and indemnify Released Parties and hold Released Parties harmless from any and all such damages, claims, liens, Medicare conditional payments, and rights to payment, including any attorneys’ fees sought by such entities.
(b)Good Faith Resolution. This settlement is based upon a good faith determination of you and the Company to resolve any potential claims. You and the Company have not shifted responsibility of medical treatment to Medicare in contravention of 42 U.S.C. Section 1395y(b). You and the Company have made every effort to adequately protect Medicare’s interest and incorporate such in the settlement terms.
(c)Representation that Employee is Not a Medicare Beneficiary. You and your counsel (if any) warrant that you are not a Medicare beneficiary as of the date of this Agreement.
(d)Representation that No Medicare Conditional Payments Exist. You and your counsel (if any) further represent and warrant that you are aware of no Medicare conditional payments that have been made on your behalf.
19.No Admissions. By entering into this Agreement, the Parent and the Company make no admission that they have engaged, or are now engaging, in any unlawful conduct. The Parties understand and acknowledge that this Agreement is not an admission of liability and shall not be used or construed as such in any legal or administrative proceeding.
20.Code Section 409A Compliance. Notwithstanding anything to the contrary in this Agreement, no portion of the severance to be made under Section 3 hereof will be payable until you has a “separation from service” from the Company within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The severance is otherwise subject to Section 6.14 of the Employment Agreement. This provision shall not be construed as a guarantee by the Company of any particular tax effect to you under this Agreement. The Company shall not be liable to Executive for any payment made under this Agreement or the Employment Agreement which is determined to result in an additional tax, penalty or interest under Section 409A, nor for reporting in good faith any payment as an amount includible in gross income under Section 409A.
21.Arbitration. The arbitration provisions of Section 6.1 of the Employment Agreement shall apply to this Agreement. You and the Company agree that nothing in this Agreement is intended to prevent either the Company or you from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration pursuant to applicable law.
22.Miscellaneous. This Agreement, including Schedule 1, Schedule 2, and Schedule 3, constitutes the complete, final, and exclusive embodiment of the entire agreement between you and the Company with regard to this subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties, or representations. You have entered into separate agreements with the Parent related to equity that will survive termination of your employment under this Agreement. This
Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors, and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors, and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of New York.
THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.
KATAPULT HOLDINGS, INC.
By:
Orlando Zayas, Chief Executive Officer
KATAPULT GROUP, INC.
By:
Orlando Zayas, Chief Executive Officer
EXECUTIVE:
Chandan Chopra
Exhibit C
[Signature Page to Separation Agreement and General Release of Claims]
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this “Agreement”), dated as of September 3, 2021, is made by and between Katapult Holdings, Inc., a Delaware corporation (“Parent”), Katapult Group, Inc., a wholly-owned subsidiary of Parent and a Delaware corporation (the “Company”), and Fangqui Sun (“Executive”).
RECITALS
WHEREAS, the Parent and Executive previously entered into an Employment Agreement dated November 17, 2020 (the “Prior Agreement”);
WHEREAS, the Parent and Executive wish to amend and restate the Prior Agreement as set forth in this Agreement to memorialize in writing the terms of Executive’s continued employment with the Company following the Effective Date; and WHEREAS, the parties agree that this Agreement supersedes the Prior Agreement and any other prior employment agreement and understandings between the parties.
NOW, THEREFORE, in consideration of the premises, the respective covenants and commitments of the parties hereto set forth in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1.At-Will Employment. The “Effective Date” of this Agreement will be the date immediately prior to the closing of the Agreement and Plan of Merger, dated as of December 18, 2020 (“Merger Agreement”), by and among FinServ Acquisition Corp (“FinServ”), Keys Merger Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of FinServ, Keys Merger Sub 2, LLC, a Delaware limited liability company and wholly owned subsidiary of FinServ, the Company, and Orlando Zayas, in his capacity as the representative of all Pre-Closing Holders (as defined in the Merger Agreement). As of the Effective Date, the Company offers employment, and Executive accepts employment and agrees to perform services for the Company, upon the terms set forth in this Agreement. Executive shall be employed by the Company on an “at will” basis, meaning either the Company or Executive may terminate Executive’s employment at any time, with or without cause or advance notice.
2.Title and Duties.
2.1Title. Executive shall serve as the Company’s Chief of Decision Science during the term of this Agreement and agrees to perform duties consistent therewith. Subject to the authority and supervision of the Chief Executive Officer of the Company (“CEO”) or such other person as shall be designated by the CEO or the Board of Directors of the Company (“Board”), Executive shall have such management and control of the business, affairs and property of the Company as are consistent with Executive’s position, with all such powers with respect to such management and control as may be reasonably incident to such responsibilities. Executive may also serve as an officer or director of Parent and one or more direct or indirect subsidiaries of Parent; provided, however, that Executive shall not be entitled to any additional compensation for serving in such additional capacities. Upon termination of Executive’s employment with the Company, regardless of the reason, or upon the Company’s request, Executive shall be deemed to have resigned from all positions with Parent, the Company and their direct or indirect subsidiaries, including any directorships or similar positions. Executive will execute any documents reasonably requested by the Company or its subsidiaries to effectuate the purposes of the foregoing sentence.
2.2Performance of Duties. This is a full-time, exempt position. Executive agrees to serve the Company faithfully and to the best of Executive’s abilities. During Executive’s employment with the Company, Executive shall not engage in any outside activities that interferes with Executive’s ability to perform Executive’s duties hereunder or violate or conflict with any terms of the PRA (as defined below). Notwithstanding the foregoing, Executive may (i) engage in charitable and civic activities, (ii) serve on the board of directors of not-for-profit organizations, and (iii) subject to approval of the CEO or the Board, serve on the board of directors of for-profit organizations, but, in each case, only to the extent such service or engagement does not interfere with Executive’s duties to the Company other than in an immaterial manner and does not breach the PRA.
2.3Compliance with Company Policies. Executive agrees that in the rendering of all services to the Company and in all aspects of employment hereunder, Executive shall comply in all material respects with all written policies from time to time established by the Company, to the extent they are not in conflict with this Agreement.
3.Compensation and Benefits.
3.1Base Salary. The Company shall pay Executive a base salary of $275,000.00 (two hundred and seventy-five thousand dollars) on an annualized basis. Executive’s annualized base salary shall be reviewed annually by the Company and may be increased (but not decreased) based upon the evaluation of Executive’s performance and the compensation policies of the Company in effect at the time of each such review. The annualized base salary in effect at any given time is referred to herein as “Base Salary.” Base Salary shall be payable in a manner that is consistent with the Company’s usual payroll practices for senior executives. All amounts payable to Executive pursuant to this Section 3.1 shall be subject to customary and proper payroll deductions.
3.2Cash Bonuses. Executive shall be eligible to earn a discretionary annual cash bonus (an “Annual Bonus”) pursuant to a bonus program established by the Board in consultation with Executive.
(a)For calendar year 2021, Executive’s target annual cash bonus will be sixty percent (60%) of Base Salary (“Target Bonus”) up to a maximum of two hundred percent (200%) of the Target Bonus (i.e., one hundred and twenty percent (120%) of Base Salary). The actual amount of the Annual Bonus shall be determined by the Board based fifty percent (50%) on the Company’s level of achievement of certain EBITDA targets set by the Board and fifty percent (50%) on the Company’s level of achievement of certain revenue targets set by the Board, in each case as determined by the Board.
(b)For calendar year 2022 and later calendar years, Executive’s target annual cash bonus will be no less than sixty percent (60%) of Base Salary. The actual amount of any Annual Bonus may be up to one hundred and twenty percent (120%) of the Base Salary and will be determined by the Board pursuant to the terms and conditions of the bonus program.
(c)Except as expressly provided in Section 5 of this Agreement, in order to receive any Annual Bonus, Executive must be employed through the end of the calendar year which relates to the Annual Bonus. Any Annual Bonus, if earned, will be paid to Executive within two and one-half (2.5) months following the end of the calendar year during which the bonus is earned. All amounts payable to Executive hereunder will be subject to all required withholding by the Company.
3.3Long-Term Incentive Compensation. Executive shall be eligible to participate in the Parent’s 2021 Equity Incentive Plan, as may be amended from time to time (the
“Plan”) and in any other long-term and/or equity-based incentive compensation plan or program approved by the Board from time to time. Any awards shall be subject to and governed in all respects by the terms of the plan they were granted under and the award agreement between Executive and the Company entered into with respect to each award.
(a)Stock Options. Executive has been granted certain stock options (the “Previously Granted Options”) pursuant to the terms of the 2014 Stock Incentive Plan. The Previously Granted Options shall remain outstanding under their current terms except as specifically modified by the Merger Agreement.
(b)RSUs. Subject to the terms of the Plan and in accordance with the terms of a separate award agreement to be provided by the Company, as soon as feasible after the first Board meeting following the first day of trading of the Company under the ticker symbol “KPLT” and any filing required by the Securities and Exchange Commission under the Securities Exchange Act of 1933, whichever occurs later, Executive will be granted a certain number of restricted share units equal to the quotient (rounded down to the nearest whole share) of $660,000 (six hundred and sixty thousand dollars) divided by the closing price as of the date the Company filed with the U.S. Securities and Exchange Commission an effective registration statement on Form S-8, vesting annually over a period of four (4) years commencing on the grant date (“Sign-On LTI”).
3.4Other Benefits. Executive shall have the right to participate in all benefit plans which may be in effect for the Company’s senior executive employees from time to time, on the same terms as such other senior executive employees, including, without limitation, group health and dental insurance, group life insurance, disability insurance, and any retirement, 401(K), profit-sharing or pension plans, in accordance with the terms and conditions thereof.
3.5Vacation, Holidays and Sick Time. Executive shall be entitled to paid time off per year in accordance with the Company’s normal policies in effect from time to time.
3.6Expenses. During the term of this Agreement, the Company shall pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by Executive in the performance of Executive’s duties under this Agreement, subject to the presentment by Executive of appropriate expense reports and receipts in accordance with the Company’s normal policies for expense verification.
3.7Directors and Officers Liability Insurance; Indemnification Agreement. During the term of this Agreement, the Company will maintain directors’ and officers’ liability insurance on terms acceptable to the Board. In addition, no later than the Effective Date, Executive and Parent shall enter into an Indemnification Agreement, substantially in the form attached hereto as Exhibit A.
4.Proprietary Rights Agreement. The Executive has previously entered into a Confidentiality and Assignment Agreement, attached hereto as Exhibit B (the “PRA”). The provisions of the PRA shall be deemed incorporated herein by reference as if set forth in full herein. The obligations of Executive under the PRA shall survive the termination of Executive’s employment with the Company for any reason whatsoever. In the event of any conflict or inconsistency between this Agreement and the PRA, the terms of the PRA shall prevail.
5.Termination. The parties acknowledge that Executive’s employment relationship with the Company is at-will. The provisions in this Section govern the amount of compensation, if any, to be provided to Executive upon termination of employment and do not alter this at-will status.
5.1Termination with Cause. The Company may terminate Executive’s employment for “Cause,” as defined below, at any time upon written notice to Executive.
(a)If Executive’s employment is terminated for Cause, except for the Accrued Obligations, the Company may immediately cease payment of any further wages, benefits, or other compensation under this Agreement. No severance or any other payments of any kind, other than the Accrued Obligations, shall be payable to Executive upon termination of employment with Cause, except as required by law.
(b)For purposes of this Agreement, “Cause” means: (i) Executive’s indictment or conviction of, or plea of nolo contendere to, a felony or any other crime involving moral turpitude; (ii) Executive’s engaging in any act of fraud, misconduct, illegality, unlawful harassment, embezzlement, or misappropriation; (iii) Executive’s failure to perform Executive’s duties; (iv) Executive’s failure to follow the reasonable and lawful directives of the CEO, Board or a committee thereof, or Executive’s supervisor; (v) Executive’s material breach of this Agreement, the PRA, or any other written agreement between the Company (or any of its affiliates) and Executive; (vi) Executive’s violation of the Company’s written policies or code of ethics or standards of conduct policies, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct; and (vii) Executive’s breach of fiduciary obligation. With respect to those circumstances of Cause set forth in the preceding clauses that are reasonably susceptible to cure, Cause shall only exist in cases in which the Company has provided Executive with written notice of the alleged circumstances of Cause and Executive has failed to cure such condition to the reasonable satisfaction of the Company within thirty (30) days after such written notice.
5.2Termination without Cause. The Company may terminate Executive’s employment without Cause at any time upon written notice to Executive.
(a)If Executive’s employment is terminated by the Company without Cause, the Company will pay severance on the terms and conditions set forth in Section 5.3(b). As a mandatory condition precedent to Executive’s right to receive and retain this severance pay, Executive must first sign a separation agreement and general release of all claims against Parent, the Company and their respective affiliates, in substantially the form attached hereto as Exhibit C with any such changes as the Company deems, upon the advice of counsel, reasonably necessary or appropriate to comply with applicable law or to reflect then-current corporate structure (the “Release”), return such Release to the Company no later than forty-five (45) days following the termination of Executive’s employment (or such shorter period of time specified in the Release), and not revoke the Release, to the extent the Release is revocable, within seven (7) days following the execution date allowed by the Release for revocation.
(b)If the Company terminates Executive’s employment without Cause, in addition to the Accrued Obligations, in all cases subject to Executive’s execution and non revocation of the Release in the time frame provided, the Company will (i) continue to pay to Executive, as severance, the Base Salary for a period of six (6) months from the date of termination of employment (such period shall be referred to as the “Severance Period”), in equal installments payable in accordance with the Company’s regular payroll schedule and subject to all applicable withholdings and deductions, commencing on the next regular pay date following the sixtieth (60th) day after termination of employment; provided, however, the first payment shall include the cumulative amount of payments that would have otherwise been paid to Executive between the termination date and the sixtieth (60th) day after termination date had such payments commenced on the next regular pay date following the termination date; (ii) a pro-rated Annual Bonus for the calendar year in which termination occurs (with such pro-ration based upon the number of days in the calendar year which have elapsed as of the date of termination) determined in accordance with Section 3 of this Agreement and paid when such
Annual Bonus is paid generally, (iii) pay the cost of Executive’s COBRA premiums to continue group health insurance coverage for the Severance Period if Executive or Executive’s dependents participate in the Company’s group health benefits plan and timely elect to continue participating in the group health plan under COBRA; (iv) accelerate the vesting of the unvested portion of any and all long-term incentive awards held by Executive that are subject to time-based vesting only and would have vested during the Severance Period but for Executive’s separation from employment with the Company; and (v) extend the exercise period for the vested portion of any and all stock options held by Executive as of the termination date to the earliest to occur of the following: (A) the eighteenth (18th) month anniversary of the date of Executive’s termination, (B) immediately prior to the Company’s consummation of a Change in Control (as defined in the Plan), or (C) the expiration date of each such option. Any provision contained in the agreement(s) under which such options were granted that is inconsistent with the exercise period extension as set forth herein is hereby modified to the extent necessary to provide for such extension.
5.3Termination by Executive with Good Reason. Executive may terminate Executive’s employment with Good Reason (defined below) upon thirty (30) days’ prior written notice to the Company. No event or condition shall constitute “Good Reason” unless Executive provides the Company with written notice of the event or condition Executive alleges to be Good Reason within thirty (30) days after such event or condition first occurs. The resignation shall not become effective unless the Company fails to cure such event or condition constituting Good Reason within thirty (30) days following the Company’s receipt of such notice.
(a)If Executive’s employment is terminated by Executive with Good Reason, the Company will provide Executive the severance benefits on the terms and conditions set forth below. As a mandatory condition precedent to Executive’s right to receive and retain this severance pay, Executive must first sign a Release, return such Release to the Company no later than forty-five (45) days following the termination of Executive’s employment, and not revoke the Release, to the extent the Release is revocable, within the time allowed by the Release for revocation.
(b)For purposes of this Agreement, “Good Reason” means absent Executive’s prior written consent, (i) the Company requiring Executive to be based at any office or location more than fifty (50) miles from Executive’s principal place of employment immediately prior to such relocation, (ii) a material adverse change in Executive’s job title or a material reduction in Executive’s duties or responsibilities; (iii) material reduction in Executive’s Base Salary, other than a general reduction in Base Salary affecting similarly situated senior executives of the Company, or (iv) the Company’s breach of this Agreement in any material respect; provided, however, that there shall be no resignation for “Good Reason” after such time as the Company delivers to Executive a notice of termination for one or more acts or omissions constituting Cause.
(c)Except as set forth below, if Executive terminates Executive’s employment with Good Reason, in addition to the Accrued Obligations, in all cases subject to Executive’s execution and non-revocation of the Release in the time frame provided, the Company will provide Executive the severance benefits set forth in Section 5.3(b) at the same times specified therein; provided, that if Executive’s Good Reason is a reduction in the Base Salary per clause (iii) of Section 5.4(b), the rate of Base Salary for clause (i) of Section 5.3(b) shall be rate prior to reduction.
5.4Termination by Executive without Good Reason. Executive may terminate Executive’s employment without Good Reason at any time upon two (2) weeks’ prior notice to the Company (which the Company may, in its sole discretion, make effective earlier; provided that the Company pays Executive’s Base Salary for the balance of the two (2)-week notice
period). If Executive terminates Executive’s employment without Good Reason, except for the Accrued Obligations, the Company may immediately cease payment of any further wages, benefits, or other compensation under this Agreement. No severance or any other payments of any kind, other than the Accrued Obligations, shall be payable to Executive upon termination of employment by Executive, except as required by law.
5.5Termination due to Executive’s Death or Total Disability. Executive’s employment shall automatically terminate upon Executive’s death and may be terminated by the Company for Total Disability (as defined below) upon thirty (30) days’ prior written notice to Executive, which notice, for the avoidance of doubt, may be given in advance of the expiration of the one hundred and twenty (120) consecutive days or the one hundred and fifty days (150) during any twelve (12) month period referenced in Section 5.6(b).
(a)If Executive employment is terminated due to Executive’s death or Total Disability, the Company will pay all Accrued Obligations and will cease payment of any further wages, benefits or other compensation, and shall have no further payment obligations under this Agreement or otherwise, except as required by law.
(b)For purposes of this Agreement, “Total Disability” means Executive is unable to perform the essential functions of Executive’s job, with or without a reasonable accommodation, for a period of (i) one hundred and twenty (120) consecutive days or (ii) any one hundred and fifty (150) days during any twelve (12) month period. Any question as to the existence of Executive’s Total Disability as to which Executive and the Company cannot agree shall be determined in writing by a qualified medical doctor mutually selected by the Company and Executive.
5.6Termination due to a Change in Control.
(a)If the Company terminates Executive’s employment without Cause or Executive terminates Executive’s employment with Good Reason and during the period commencing three (3) months prior to a Change in Control and ending twelve months (12) following a Change in Control, in addition to the Accrued Obligations, in all cases subject to Executive’s execution and non-revocation of the Release in the time frame provided, the Company will (i) pay to Executive, as severance, a lump sum equal to one (1) times the sum of the Base Salary plus the Target Bonus for the year of termination, with payment on the next regular pay date following the sixtieth (60th) day after termination of employment; (ii) pay the cost of Executive’s COBRA premiums to continue group health insurance coverage for twelve (12) months if Executive or Executive’s dependents participate in the Company’s group health benefits plan and timely elect to continue participating in the group health plan under COBRA; (iii) cause one hundred percent (100%) of the unvested portion of any and all long-term incentive awards held by Executive as of the closing of such Change in Control (to the extent such awards are assumed or continued (in accordance with its terms) by the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be, in such Change in Control) to immediately vest and, if applicable, become exercisable (in the case of a long-term incentive award with performance-based vesting, all performance goals and other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels); and (iv) extend the exercise period for the vested portion of any and all stock options held by Executive as of the termination date to the earliest to occur of the following: (A) the eighteenth (18th) month anniversary of the date of Executive’s termination, (B) immediately prior to the Company’s consummation of a Change in Control, or (C) the expiration date of each such option. Any provision contained in the agreement(s) under which such options were granted that is inconsistent with the exercise period extension as set forth herein is hereby modified to the extent necessary to provide for such extension. Notwithstanding anything herein to the contrary, the provisions of this Section are subject to the terms of the Plan which will govern in all cases. If Executive is terminated
pursuant to this Section 5.7(a), the severance provisions of Section 5.3(b) and Section 5.4(c) will not apply; provided, however, if after the Company terminates Executive without Cause per Section 5.3 or Executive resigns for Good Reason per Section 5.4, it is determined such termination or resignation occurred during the period commencing three (3) months prior to a Change in Control, then the Company shall make a cash payment to Executive within sixty (60) days of the Change in Control equal to the amount Executive would have received under this Section 5.7(a) less any payment Executive already received by Executive under Section 5.3(b) or Section 5.4(c), and the Executive shall receive severance payments and benefits in total that equate to the provisions of this Section 5.7(a).
(b)For purposes of this Agreement, “Change in Control” shall have the same meaning as in the Plan.
6.Miscellaneous Provisions.
6.1Resolution of Disputes. The parties recognize that litigation in federal or state courts or before federal or state administrative agencies of disputes arising out of Executive’s employment with the Company or out of this Agreement, or Executive’s termination of employment or termination of this Agreement, may not be in the best interests of either Executive or the Company, and may result in unnecessary costs, delays, complexities, and uncertainty. The parties agree that any dispute between the parties arising out of or relating to the negotiation, execution, performance or termination of this Agreement or Executive’s employment, including, but not limited to, any claim arising out of this Agreement, claims under Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, Section 1981 of the Civil Rights Act of 1966, as amended, the Family Medical Leave Act, the Executive Retirement Income Security Act, and any similar federal, state or local law, statute, regulation, or any common law doctrine, whether that dispute arises during or after employment, shall be settled by binding arbitration in accordance with the JAMS Employment Arbitration Rules; provided however, that this dispute resolution provision shall not apply to any separate agreements between the parties that do not themselves specify arbitration as an exclusive remedy. Issues of procedure, arbitrability, or confirmation of award will be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16. The location for the arbitration shall be the Plano, TX area. Any award made by such panel shall be final, binding and conclusive on the parties for all purposes, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The Company shall pay for all fees and costs of the Arbitrator, including any fees and costs that would not be incurred in a court proceeding. The parties acknowledge and agree that their obligations to arbitrate under this Section survive the termination of this Agreement and continue after the termination of the employment relationship between Executive and the Company. The parties each further agree that the arbitration provisions of this Agreement shall provide each party with its exclusive remedy, and each party expressly waives any right it might have to seek redress in any other forum, except as otherwise expressly provided in this Agreement. By election arbitration as the means for final settlement of all claims, the parties hereby waive their respective rights to, and agree not to, sue each other in any action in a Federal, State or local court with respect to such claims, but may seek to enforce in court an arbitration award rendered pursuant to this Agreement.
6.2Governing Law and Jurisdiction. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to principles of conflict of laws.
6.3Entire Agreement. This Agreement, together with the exhibits attached hereto (including but not limited to the PRA), which are hereby incorporated by reference contains the entire agreement of the parties hereto relating to the employment of Executive by
the Company and the other matters discussed herein and supersedes all prior agreements and understandings with respect to such subject matter, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. In the event of conflict between the terms of this Agreement and any equity or compensation award agreement, the terms of this Agreement shall govern.
6.4Withholding Taxes. Parent and the Company may withhold from any compensation or other benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.
6.5Supplements and Amendments. This Agreement may be supplemented or amended only upon the written consent of each of the parties hereto.
6.6Assignment. Except as expressly provided below, this Agreement shall not be assignable, in whole or in part, by either party without the prior written consent of the other party. The Company may, without the prior written consent of Executive, assign its rights and obligations under this Agreement to any other corporation, firm or other business entity with or into which Parent or the Company may merge or consolidate, or to which Parent or the Company may sell or transfer all or substantially all of its assets, or of which fifty percent (50%) or more of the equity investment and of the voting control is owned, directly or indirectly, by, or is under common ownership with, Parent or the Company; provided, however, that such assignment may be made without Executive’s prior written consent only if (a) such assignment has a valid business purpose and is not for the purpose of avoiding the Company’s obligations hereunder or Executive’s realization of the benefits of this Agreement and (b) the assignee expressly assumes in writing all obligations and liabilities to Executive hereunder. This Agreement shall be binding upon and inure to the benefit of Parent and the Company and their successors and permitted assigns. This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive’s heirs, personal or legal representatives and beneficiaries.
6.7Beneficiary in Event of Death. In the event of Executive’s death, any payment or benefit to be paid to Executive per the terms of this Agreement as of, or due to, such death shall be paid to the Beneficiary. The “Beneficiary” will be the beneficiary or beneficiaries named by Executive in a written instrument that must be received by the Company prior to Executive’s death. In the event there is no such named beneficiary, or no surviving named beneficiary, then the Beneficiary shall be the Executive’s surviving spouse, or, if none, the Executive’s surviving children per stirpes, or, if none, the Executive’s estate.
6.8No Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
6.9Severability. The provisions of this Agreement are severable, and if any one or more provisions may be judicially unenforceable and/or found invalid by a court of competent jurisdictions, in whole or in part, the remaining provisions shall nevertheless be binding, enforceable and in full force and effect.
6.10Survival. The provisions of this Agreement shall survive the termination of this Agreement and/or the termination of Executive’s employment to the extent necessary to effectuate the terms contained herein.
6.11Titles and Headings. The titles and headings of the various sections of this Agreement are intended solely for convenience of reference and not intended for any purpose whatsoever to explain, modify or place any construction upon any of the provisions hereof.
6.12Attorney’s Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or to commence mediation or arbitration or other proceedings against the other party to enforce any of the terms or conditions of this Agreement, the court, mediator, or arbitrator shall award to the prevailing party in any such proceeding, the costs, fees and expenses (including attorneys’ fees) reasonably incurred by such party in connection with such proceeding.
6.13Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered (which shall include personal delivery and delivery by courier, messenger or overnight delivery service) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive: At Executive’s home address m accordance with the Company’s records.
If to Parent or the Company: Katapult Holdings, Inc.
Katapult Group, Inc.
5204 Tennyson Pkwy, Suite 500
Plano, TX 75024
with a copy, which copy shall not constitute notice, to:
legal@katapult.com
or to such other address of which either party gives notice to the other party in accordance herewith, except that notices of change of address shall be effective only upon receipt.
6.14Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document (such as DocuSign or AdobeSign), will have the same effect as physical delivery of the paper document bearing an original signature.
6.15Section 409A.
(a)This Agreement shall be interpreted to avoid any penalty sanctions under Section 409A of the Internal Revenue Code (the “Code”). If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under Section 409A of the Code, then such benefit or payment shall be provided in full (to extent not paid in part at earlier date) at the earliest time thereafter when such sanctions will not be imposed. For purposes of Section 409A of the Code, all payments to be made upon a termination of employment under this Agreement may only be made upon the Executive’s “separation from service” (within the meaning of such term under Section 409A of the Code), each payment made under this Agreement shall be treated as a separate payment, and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. In no event shall the Executive, directly or indirectly, designate the calendar year of payment, except as permitted under Section 409A of the Code. Notwithstanding any provision of this Agreement
to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly or indirectly, result in the Executive designating the calendar year of payment, and if a payment that is subject to execution of the Release could be made in more than one taxable year, payment shall be made in the later taxable year.
(b)Notwithstanding anything herein to the contrary, if, at the time of the Executive’s termination of employment with the Company, Parent or the Company has securities which are publicly traded on an established securities market and the Executive is a “specified employee” (as such term is defined in Section 409A of the Code) and it is necessary to postpone the commencement of any payments or benefits otherwise payable under this Agreement as a result of such termination of employment to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will postpone the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Executive) that are not otherwise paid within the “short-term deferral exception” under Treas. Reg. §1.409A-l(b)(4), and the “separation pay exception” under Treas. Reg. §1.409A-1(b)(9)(iii), until the first payroll date that occurs after the date that is six months following the Executive’s “separation of service” (as such term is defined under code Section 409A of the Code) with the Company. If any payments are postponed due to such requirements, such postponed amounts will be paid in a lump sum to the Executive on the first payroll date that occurs after the date that is six months following Executive’s separation of service with the Company. If the Executive dies during the postponement period prior to the payment of postponed amount, the amounts withheld on account of Section 409A of the Code shall be paid to the personal representative of the Executive’s estate within 60 days after the date of the Executive’s death.
(c)All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (A) any reimbursement shall be for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement), (B) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar year, (C) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (D) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.
6.16Government Agency Exception. Nothing in this Agreement or the PRA is intended to prohibit or restrict the Executive from: (i) making any disclosure of information required by process of law; (ii) providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal or state regulatory or law enforcement agency or legislative body, or any self-regulatory organization; or (iii) filing, testifying, participating in, or otherwise assisting in a proceeding relating to an alleged violation of any federal, state, or municipal law relating to fraud or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization. In addition, this Agreement does not bar the Executive’s right to file an administrative charge with the Equal Employment Opportunity Commission (“EEOC”) and/or to participate in an investigation by the EEOC.
6.17Acknowledgement of Full Understanding. Executive acknowledges and agrees that Executive has fully read, understands and voluntarily enters into this Agreement. Executive acknowledges and agrees that Executive has had an opportunity to ask questions and consult with an attorney of Executive’s choice before signing this Agreement.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Employment Agreement on the day and year first written above.
KATAPULT HOLDINGS, INC.
By: /s/ Orlando Zayas
Orlando Zayas, Chief Executive Officer
KATAPULT GROUP, INC.
By: /s/ Orlando Zayas
Orlando Zayas, Chief Executive Officer
EXECUTIVE:
/s/ Fangqui Sun
Fangqui Sun
[Signature Page to Employment Agreement]
Exhibit A
Indemnification Agreement
Exhibit B
Confidentiality and Assignment Agreement
Exhibit C
Form of Separation Agreement and General Release of Claims
This Separation Agreement and General Release Agreement (the “Agreement”) is made by and between Katapult Holdings, Inc., a Delaware corporation (“Parent”), Katapult Group, Inc., a wholly-owned subsidiary of Parent and a Delaware corporation (the “Company”), and Fangqui Sun (“you”). Capitalized terms not defined herein shall have the meanings ascribed to them in the Employment Agreement (as defined below).
WHEREAS, you and the Company entered into an Amended and Restated Employment Agreement (this “Agreement”), dated September 3, 2021 (the “Employment Agreement”); and
WHEREAS, pursuant to the Employment Agreement, if either (i) the Company terminates your employment without Cause pursuant to Section 5.3 of the Employment Agreement, or (ii) you resign for Good Reason pursuant to Section 5.4 of the Employment Agreement, then the Company shall provide to you certain benefits set forth in this Agreement in exchange for your execution, return and non-revocation of, and compliance with, this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and benefits set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, you and the Company agree as follows:
1.Separation. Your last day of work with the Company and your employment termination date will be ________________ (the “Separation Date”).
2.Accrued Obligations. On the next regular payroll date following the Separation Date, the Company shall provide you the Accrued Obligations (as defined in Section 5.1 of the Employment Agreement). You are entitled to these payments regardless of whether or not you sign this Agreement.
3.Separation Pay. If you sign this Agreement, return it by the deadline specified below, and comply with its terms, the Company will provide you the severance benefits described in Section 5.3(b) of the Employment Agreement in accordance with, and subject to, the provisions of Section 5.3 and Section 6.14 of the Employment Agreement.
4.Health Insurance. Your group health insurance will cease on the last day of the month in which your employment ends. At that time, you will be eligible to continue your group health insurance benefits at your own expense, subject to Section 5.3(b) of the Employment Agreement, the terms and conditions of the benefit plan, federal COBRA law, and, as applicable, state insurance laws. You will receive additional information regarding your right to elect continued coverage under COBRA in a separate communication.
5.Tax Matters. The Company will withhold required federal, state, and local taxes from any and all payments contemplated by this Agreement. Other than the Company’s obligation and right to withhold, you will be responsible for any and all taxes, interest, and Exhibit C penalties that may be imposed with respect to the payments contemplated by this Agreement (including, but not limited to, those imposed under Section 409A of the Code).
6.Incentive Stock Option. You have been granted (i) certain stock options set forth in Schedule 1 pursuant to the terms of the Parent 2014 Stock Incentive Plan, as amended
(the “Plan”), and (ii) shares of Parent’s Common Stock pursuant to the Restricted Stock Agreement, dated on or about August 26, 2020. Following the Separation Date, your rights and obligations with respect to such equity shall continue to be governed by the terms of the Plan and the Options-related agreements or Restricted Stock Agreement, as applicable, and as modified by Section 3.3, Section 5.3(b)(iv), and Section 5.3(b)(v) of the Employment Agreement.
7.Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, benefits, or separation pay after the Separation Date. Thus, for any employee benefits sponsored by the Company not specifically referenced in this Agreement, you will be treated as a terminated employee effective on your Separation Date. This includes but is not limited to a 401(k) plan, life insurance, accidental death and dismemberment insurance, and short and long-term disability insurance.
8.Expense Reimbursement. You agree that, within three (3) business days of the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice.
9.Return of Company Property. By the Separation Date or within seven (7) days, you agree to return to the Company all hard copy and electronic documents (and all copies thereof) and other Company property that you have had in your possession at any time, including, but not limited to, files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information (including email), tangible property (laptop computer, cell phone, PDA, etc.), credit cards, entry cards, identification badges and keys, and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof). If you discover after the Separation Date that you have retained any Company proprietary or confidential information, you agree immediately upon discovery to contact the Company and make arrangements for returning the information.
10.Post Employment Restrictions. You acknowledge your continuing obligations under your Confidentiality and Assignment Agreement (the “Proprietary Agreement”), which prohibits disclosure of any confidential or proprietary information of the Company and solicitation of Company employees and customers. A copy of your Proprietary Agreement is attached hereto as Schedule 2.
11.Confidentiality. The existence of this Agreement and its provisions will be held in strictest confidence by you and will not be publicized or disclosed in any manner whatsoever; provided, however, that you may disclose this Agreement in confidence: (a) to your spouse or partner; (b) to your attorney, accountant, auditor, tax preparer, and financial advisor, provided that such individuals first agree that they will treat such information as strictly confidential and that you agree to be responsible for any disclosure by any such individual as if you had made the disclosure; and (c) as necessary to enforce its terms or as otherwise required by law. You agree not to disclose the terms of this Agreement to any current or former Company employee.
12.Non-disparagement. You agree not to disparage the Parent, the Company, and their officers, directors, employees, or agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation. The Company agrees not to disparage you in any manner likely to be harmful to you or your business or personal reputation; provided, however, that the Company’s obligation only applies to its officers
and its members of the Board of Directors at the time of the Separation Date for the period such individuals are serving in such roles. Notwithstanding the foregoing, that statements which are made in good faith in response to any question, inquiry, or request for information required by legal process shall not violate this paragraph. Nothing in this restriction is intended to limit you or the Company from giving honest statements before an administrative agency investigating an alleged violation of discrimination laws.
13.Release of All Claims. Except as otherwise set forth in this Agreement, you hereby release, acquit and forever discharge the Parent, the Company and their affiliates, officers, agents, administrators, servants, employees, attorneys, successors, parent, subsidiaries, assigns, and affiliates (the “Released Party” or “Released Parties”), of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages, indemnities, and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts, omissions, or conduct at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (i) claims and demands arising out of or in any way connected with your employment with the Company, or the termination of that employment; (ii) claims or demands related to your compensation or benefits with the Company, including but not limited to, wages, salary, bonuses, commissions, vacation pay, fringe benefits, expense reimbursements, incentive pay, severance pay, or any other form of compensation; (iii) claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees or other claim arising under the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (the “ADEA”); the federal Family Medical Leave Act, as amended; the federal Worker Adjustment and Retraining Notification Act, as amended; the Employee Retirement Income Security Act of 1974, as amended; and New York Labor Law, New York City Human Rights Law, and the New York Human Rights Law; (iv) all tort claims, including without limitation, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing, including claims arising out of an Employment Agreement, sales commission plan or incentive compensation plan applicable to your employment with the Company.
Excluded from this Agreement are any claims (a) which by law cannot be waived in a private agreement between an employer and employee, and (b) arising out of rights under the Indemnification Agreement attached hereto as Schedule 3. Moreover, this Release does not prohibit you from engaging in the activities protected pursuant to Section 6.15 of the Employment Agreement. You do agree to waive your right to monetary or other recovery should any claim be pursued with the EEOC, state agency, or any other federal, state or local administrative agency your behalf arising out of or related to your employment with and/or separation from the Company.
14.ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, as amended. You also acknowledge that the consideration given for the waiver and release herein is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing, as required by the ADEA, that: (a) your waiver and release do not apply to any rights or claims that may arise after the execution date of this Agreement; (b) you have been advised hereby that you have the right to consult with an attorney prior to executing this Agreement; (c) you have up to twenty-one (21) days from the date of this Agreement to execute this Agreement (although you may choose to voluntarily
execute this Agreement earlier); (d) you have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Agreement is executed by you, provided that the Company has also executed this Agreement by that date (“Effective Date”); and (f) this Agreement does not affect your ability to test the knowing and voluntary nature of this Agreement.
15.No Actions or Claims. You represent that you have not filed any charges, complaints, grievances, arbitrations, lawsuits, or claims against the Company, with any local, state or federal agency, union or court from the beginning of time to the date of execution of this Agreement and that you will not do so at any time hereafter, based upon events occurring prior to the date of execution of this Agreement. In the event any agency, union, or court ever assumes jurisdiction of any lawsuit, claim, charge, grievance, arbitration, or complaint, or purports to bring any legal proceeding on your behalf, you will ask any such agency, union, or court to withdraw from and/or dismiss any such action, grievance, or arbitration, with prejudice.
16.Employment Rights. You hereby waive any and all rights to employment or re employment with the Company or any successor or affiliated organization (“Related Entity”). You agree that the Company and the Related Entities have no obligation, contractual or otherwise, to employ or re-employ you, now or in the future, either directly or indirectly, on a full-time, part-time, or temporary basis, including, but not limited to, utilizing your services as a temporary employee, worker, or contractor through any temporary service providers, vendors, or agencies.
17.Acknowledgements and Representations. You acknowledge and represent that you have not suffered any discrimination or harassment by any of the Released Parties on account of your race, gender, national origin, religion, marital or registered domestic partner status, sexual orientation, age, disability, medical condition, or any other characteristic protected by law. You acknowledge and represent that you have not been denied any leave, benefits or rights to which you may have been entitled under the FMLA or any other federal or state law, and that you have not suffered any job-related wrongs or injuries for which you might still be entitled to compensation or relief. You further acknowledge and represent that, except as expressly provided in this Agreement, you have been paid all wages, bonuses, compensation, benefits and other amounts that any of the Released Parties have ever owed to you, and you understand that you will not receive any additional compensation, severance, or benefits after the Separation Date, with the exception of any vested right you may have under the terms of a written ERISA-qualified benefit plan.
18.Medical Bills, Liens, and Other Potential Rights for Reimbursement
(a)Responsibility for Satisfaction of All Liens. You represent and warrant that all bills, costs, or liens resulting from or arising out of any injuries and claims are your responsibility to pay. You agree to assume responsibility for satisfaction of any and all demands for payment, claims or liens of any kinds, that arise from or are related to payments made or services provided to you or on your behalf. You agree to assume responsibility for all expenses, costs, or fees incurred by you related to your alleged injuries and claims including without limitation, all Medicare conditional payments, subrogation claims, liens, or other rights to payment, relating to medical treatment or lost wages that have been or may be asserted by any health care provider, insurer, governmental entity, employer, or other person or entity. Further, you and your attorney (if any) will indemnify, defend and hold Released Parties harmless from any and all damages, claims, and
rights to payment, including any attorneys’ fees, brought by any person, entity, or governmental agency to recover any of these amounts. If any governmental entity, or anyone acting on behalf of any governmental entity, seeks damages including multiple damages from Released Parties relating to payment by such governmental entity, or anyone acting on behalf of such governmental entity, relating to your alleged injuries and claims, you will defend and indemnify Released Parties and hold Released Parties harmless from any and all such damages, claims, liens, Medicare conditional payments, and rights to payment, including any attorneys’ fees sought by such entities.
(b)Good Faith Resolution. This settlement is based upon a good faith determination of you and the Company to resolve any potential claims. You and the Company have not shifted responsibility of medical treatment to Medicare in contravention of 42 U.S.C. Section 1395y(b). You and the Company have made every effort to adequately protect Medicare’s interest and incorporate such in the settlement terms.
(c)Representation that Employee is Not a Medicare Beneficiary. You and your counsel (if any) warrant that you are not a Medicare beneficiary as of the date of this Agreement.
(d)Representation that No Medicare Conditional Payments Exist. You and your counsel (if any) further represent and warrant that you are aware of no Medicare conditional payments that have been made on your behalf.
19.No Admissions. By entering into this Agreement, the Parent and the Company make no admission that they have engaged, or are now engaging, in any unlawful conduct. The Parties understand and acknowledge that this Agreement is not an admission of liability and shall not be used or construed as such in any legal or administrative proceeding.
20.Code Section 409A Compliance. Notwithstanding anything to the contrary in this Agreement, no portion of the severance to be made under Section 3 hereof will be payable until you has a “separation from service” from the Company within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The severance is otherwise subject to Section 6.14 of the Employment Agreement. This provision shall not be construed as a guarantee by the Company of any particular tax effect to you under this Agreement. The Company shall not be liable to Executive for any payment made under this Agreement or the Employment Agreement which is determined to result in an additional tax, penalty or interest under Section 409A, nor for reporting in good faith any payment as an amount includible in gross income under Section 409A.
21.Arbitration. The arbitration provisions of Section 6.1 of the Employment Agreement shall apply to this Agreement. You and the Company agree that nothing in this Agreement is intended to prevent either the Company or you from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration pursuant to applicable law.
22.Miscellaneous. This Agreement, including Schedule 1, Schedule 2, and Schedule 3, constitutes the complete, final, and exclusive embodiment of the entire agreement between you and the Company with regard to this subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties, or representations. You have entered into separate agreements with the Parent related to equity that will survive termination of your employment under this Agreement. This
Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors, and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors, and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of New York.
THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.
KATAPULT HOLDINGS, INC.
By:
Orlando Zayas, Chief Executive Officer
KATAPULT GROUP, INC.
By:
Orlando Zayas, Chief Executive Officer
EXECUTIVE:
Fangqui Sun
Exhibit C
[Signature Page to Separation Agreement and General Release of Claims]
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this “Agreement”), dated as of September 13, 2021, is made by and between Katapult Holdings, Inc., a Delaware corporation (“Parent”), Katapult Group, Inc., a wholly-owned subsidiary of Parent and a Delaware corporation (the “Company”), and Tahmineh Maloney (“Executive”).
Recitals
Whereas, the Parent and Executive previously wish to to memorialize in writing the
terms of Executive’s continued employment with the Company following the Effective Date; and
Whereas, the parties agree that this Agreement supersedes the Prior Agreement and any
other prior employment agreement and understandings between the parties.
Now, Therefore, in consideration of the premises, the respective covenants
and commitments of the parties hereto set forth in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1.At-Will Employment. The “Effective Date” of this Agreement will be the date
immediately prior to the closing of the Agreement and Plan of Merger, dated as of December 18,
2020 (“Merger Agreement”), by and among FinServ Acquisition Corp (“FinServ”), Keys Merger
Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of FinServ, Keys Merger Sub 2,
LLC, a Delaware limited liability company and wholly owned subsidiary of FinServ, the
Company, and Orlando Zayas, in his capacity as the representative of all Pre-Closing Holders (as
defined in the Merger Agreement). As of the Effective Date, the Company offers employment,
and Executive accepts employment and agrees to perform services for the Company, upon the
terms set forth in this Agreement. Executive shall be employed by the Company on an “at will”
basis, meaning either the Company or Executive may terminate Executive’s employment at any
time, with or without cause or advance notice.
2.Title and Duties.
2.1Title. Executive shall serve as the Company’s General Counsel, Head of Compliance and Secretary during the term of this Agreement and agrees to perform duties
consistent therewith. Subject to the authority and supervision of the Chief Executive Officer of the
Company (“CEO”) or such other person as shall be designated by the CEO or the Board of Directors of the Company (“Board”), Executive shall have such management and control of the
business, affairs and property of the Company as are consistent with Executive’s position, with
all
such powers with respect to such management and control as may be reasonably incident to such responsibilities. Executive may also serve as an officer or director of Parent and one or more direct
or indirect subsidiaries of Parent; provided, however, that Executive shall not be entitled to any
additional compensation for serving in such additional capacities. Upon termination of
Executive’s employment with the Company, regardless of the reason, or upon the Company’s
request, Executive shall be deemed to have resigned from all positions with Parent, the Company
and their direct or indirect subsidiaries, including any directorships or similar positions. Executive will execute any documents reasonably requested by the Company or its subsidiaries to effectuate
the purposes of the foregoing sentence.
2.2Performance of Duties. This is a full-time, exempt position. Executive
agrees to serve the Company faithfully and to the best of Executive’s abilities. During Executive’s employment with the Company, Executive shall not engage in any outside activities that interferes
with Executive’s ability to perform Executive’s duties hereunder or violate or conflict with any
terms of the PRA (as defined below). Notwithstanding the foregoing, Executive may (i) engage
in charitable and civic activities, (ii) serve on the board of directors of not-for-profit organizations,
and (iii) subject to approval of the CEO or the Board, serve on the board of directors of for-profit organizations, but, in each case, only to the extent such service or engagement does not interfere
with Executive’s duties to the Company other than in an immaterial manner and does not breach
the PRA.
2.3Compliance with Company Policies. Executive agrees that in the rendering of all services to the Company and in all aspects of employment hereunder, Executive shall comply in all material respects with all written policies from time to time established by the Company, to the extent they are not in conflict with this Agreement.
3.Compensation and Benefits.
3.1Base Salary. The Company shall pay Executive a base salary of
$315,000.00 (three hundred and fifteen thousand dollars) on an annualized basis. Executive’s
annualized base salary shall be reviewed annually by the Company and may be increased (but not decreased) based upon the evaluation of Executive’s performance and the compensation policies
of the Company in effect at the time of each such review. The annualized base salary in effect at
any given time is referred to herein as “Base Salary.” Base Salary shall be payable in a manner
that is consistent with the Company’s usual payroll practices for senior executives. All amounts
payable to Executive pursuant to this Section 3.1 shall be subject to customary and proper payroll deductions.
3.2Cash Bonuses. Executive shall be eligible to earn a discretionary annual
cash bonus (an “Annual Bonus”) pursuant to a bonus program established by the Board in
consultation with Executive.
(a)For calendar year 2021, Executive’s target annual cash bonus will
be sixty percent (60%) of Base Salary (“Target Bonus”) up to a maximum of two hundred percent
(200%) of the Target Bonus (i.e., one hundred and twenty percent (120%) of Base Salary). The
actual amount of the Annual Bonus shall be determined by the Board based fifty percent (50%) on
the Company’s level of achievement of certain EBITDA targets set by the Board and fifty percent
(50%) on the Company’s level of achievement of certain revenue targets set by the Board, in each
case as determined by the Board.
(b)For calendar year 2022 and later calendar years, Executive’s target
annual cash bonus will be no less than sixty percent (60%) of Base Salary. The actual amount of
any Annual Bonus may be up to one hundred and twenty percent (120%) of the Base Salary and
will be determined by the Board pursuant to the terms and conditions of the bonus program.
(c)Except as expressly provided in Section 5 of this Agreement, in
order to receive any Annual Bonus, Executive must be employed through the end of the calendar
year which relates to the Annual Bonus. Any Annual Bonus, if earned, will be paid to Executive
within two and one-half (2.5) months following the end of the calendar year during which the
bonus is earned. All amounts payable to Executive hereunder will be subject to all required
withholding by the Company.
3.3Long-Term Incentive Compensation. Executive shall be eligible to
participate in the Parent’s 2021 Equity Incentive Plan, as may be amended from time to time (the
“Plan”) and in any other long-term and/or equity-based incentive compensation plan or program
approved by the Board from time to time. Any awards shall be subject to and governed in all
respects by the terms of the plan they were granted under and the award agreement between
Executive and the Company entered into with respect to each award.
(a)RSUs. Subject to the terms of the Plan and in accordance with the
terms of a separate award agreement to be provided by the Company, as soon as feasible after the
first Board meeting following the first day of trading of the Company under the ticker symbol
“KPLT” and any filing required by the Securities and Exchange Commission under the Securities
Exchange Act of 1933, whichever occurs later, Executive will be granted a certain number of
restricted share units equal to the quotient (rounded down to the nearest whole share) of $600,000
(six hundred thousand dollars) divided by the closing price as of the date the Company filed with
the U.S. Securities and Exchange Commission an effective registration statement on Form S-8,
vesting annually over a period of four (4) years commencing on the grant date (“Sign-On LTI”).
3.4Other Benefits. Executive shall have the right to participate in all benefit
plans which may be in effect for the Company’s senior executive employees from time to time, on
the same terms as such other senior executive employees, including, without limitation, group
health and dental insurance, group life insurance, disability insurance, and any retirement, 401(K),
profit-sharing or pension plans, in accordance with the terms and conditions thereof.
3.5Vacation, Holidays and Sick Time. Executive shall be entitled to paid time
off per year in accordance with the Company’s normal policies in effect from time to time.
3.6Expenses. During the term of this Agreement, the Company shall pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by
Executive in the performance of Executive’s duties under this Agreement, subject to the
presentment by Executive of appropriate expense reports and receipts in accordance with the
Company’s normal policies for expense verification.
3.7Directors and Officers Liability Insurance; Indemnification Agreement. During the term of this Agreement, the Company will maintain directors’ and officers’ liability insurance on terms acceptable to the Board. In addition, no later than the Effective Date, Executive and Parent shall enter into an Indemnification Agreement, substantially in the form attached hereto as Exhibit A.
4.Proprietary Rights Agreement. The Executive has previously entered into a Confidentiality and Assignment Agreement, attached hereto as Exhibit B (the “PRA”). The
provisions of the PRA shall be deemed incorporated herein by reference as if set forth in full
herein. The obligations of Executive under the PRA shall survive the termination of Executive’s
employment with the Company for any reason whatsoever. In the event of any conflict or
inconsistency between this Agreement and the PRA, the terms of the PRA shall prevail.
5.Termination. The parties acknowledge that Executive’s employment relationship
with the Company is at-will. The provisions in this Section govern the amount of compensation,
if any, to be provided to Executive upon termination of employment and do not alter this at-will status.
5.1Termination with Cause. The Company may terminate Executive’s
employment for “Cause,” as defined below, at any time upon written notice to Executive.
(a)If Executive’s employment is terminated for Cause, except for the
Accrued Obligations, the Company may immediately cease payment of any further wages,
benefits, or other compensation under this Agreement. No severance or any other payments of
any kind, other than the Accrued Obligations, shall be payable to Executive upon termination of
employment with Cause, except as required by law.
(b)For purposes of this Agreement, “Cause” means: (i) Executive’s indictment or conviction of, or plea of nolo contendere to, a felony or any other crime involving
moral turpitude; (ii) Executive’s engaging in any act of fraud, misconduct, illegality, unlawful
harassment, embezzlement, or misappropriation; (iii) Executive’s failure to perform Executive’s
duties; (iv) Executive’s failure to follow the reasonable and lawful directives of the CEO, Board
or a committee thereof, or Executive’s supervisor; (v) Executive’s material breach of this
Agreement, the PRA, or any other written agreement between the Company (or any of its affiliates)
and Executive; (vi) Executive’s violation of the Company’s written policies or code of ethics or
standards of conduct policies, including written policies related to discrimination, harassment,
performance of illegal or unethical activities, and ethical misconduct; and (vii) Executive’s breach
of fiduciary obligation. With respect to those circumstances of Cause set forth in the preceding
clauses that are reasonably susceptible to cure, Cause shall only exist in cases in which the
Company has provided Executive with written notice of the alleged circumstances of Cause and
Executive has failed to cure such condition to the reasonable satisfaction of the Company within
thirty (30) days after such written notice.
5.2Termination without Cause. The Company may terminate Executive’s employment without Cause at any time upon written notice to Executive.
(a)If Executive’s employment is terminated by the Company without
Cause, the Company will pay severance on the terms and conditions set forth in Section 5.3(b). As a mandatory condition precedent to Executive’s right to receive and retain this severance pay,
Executive must first sign a separation agreement and general release of all claims against Parent,
the Company and their respective affiliates, in substantially the form attached hereto as Exhibit C
with any such changes as the Company deems, upon the advice of counsel, reasonably necessary
or appropriate to comply with applicable law or to reflect then-current corporate structure (the
“Release”), return such Release to the Company no later than forty-five (45) days following the
termination of Executive’s employment (or such shorter period of time specified in the Release),
and not revoke the Release, to the extent the Release is revocable, within seven (7) days following the execution date allowed by the Release for revocation.
(b)If the Company terminates Executive’s employment without Cause,
in addition to the Accrued Obligations, in all cases subject to Executive’s execution and non-
revocation of the Release in the time frame provided, the Company will (i) continue to pay to
Executive, as severance, the Base Salary for a period of six (6) months from the date of termination
of employment (such period shall be referred to as the “Severance Period”), in equal installments
payable in accordance with the Company’s regular payroll schedule and subject to all applicable withholdings and deductions, commencing on the next regular pay date following the sixtieth
(60th) day after termination of employment; provided, however, the first payment shall include the cumulative amount of payments that would have otherwise been paid to Executive between the
termination date and the sixtieth (60th) day after termination date had such payments commenced
on the next regular pay date following the termination date; (ii) a pro-rated Annual Bonus for the
calendar year in which termination occurs (with such pro-ration based upon the number of days in
the calendar year which have elapsed as of the date of termination) determined in accordance with
Section 3 of this Agreement and paid when such Annual Bonus is paid generally, (iii) pay the cost
of Executive’s COBRA premiums to continue group health insurance coverage for the Severance
Period if Executive or Executive’s dependents participate in the Company’s group health benefits
plan and timely elect to continue participating in the group health plan under COBRA;
(iv) accelerate the vesting of the unvested portion of any and all long-term incentive awards held
by Executive that are subject to time-based vesting only and would have vested during the
Severance Period but for Executive’s separation from employment with the Company; and (v)
extend the exercise period for the vested portion of any and all stock options held by Executive as
of the termination date to the earliest to occur of the following: (A) the eighteenth (18th) month
anniversary of the date of Executive’s termination, (B) immediately prior to the Company’s
consummation of a Change in Control (as defined in the Plan), or (C) the expiration date of each
such option. Any provision contained in the agreement(s) under which such options were granted
that is inconsistent with the exercise period extension as set forth herein is hereby modified to the
extent necessary to provide for such extension.
5.3Termination by Executive with Good Reason. Executive may terminate Executive’s employment with Good Reason (defined below) upon thirty (30) days’ prior written
notice to the Company. No event or condition shall constitute “Good Reason” unless Executive
provides the Company with written notice of the event or condition Executive alleges to be Good
Reason within thirty (30) days after such event or condition first occurs. The resignation shall not
become effective unless the Company fails to cure such event or condition constituting Good
Reason within thirty (30) days following the Company’s receipt of such notice.
(a)If Executive’s employment is terminated by Executive with Good
Reason, the Company will provide Executive the severance benefits on the terms and conditions
set forth below. As a mandatory condition precedent to Executive’s right to receive and retain this
severance pay, Executive must first sign a Release, return such Release to the Company no later
than forty-five (45) days following the termination of Executive’s employment, and not revoke the
Release, to the extent the Release is revocable, within the time allowed by the Release for
revocation.
(b)For purposes of this Agreement, “Good Reason” means absent Executive’s prior written consent, (i) the Company requiring Executive to be based at any office
or location more than fifty (50) miles from Executive’s principal place of employment immediately
prior to such relocation, (ii) a material adverse change in Executive’s job title or a material
reduction in Executive’s duties or responsibilities; (iii) material reduction in Executive’s Base
Salary, other than a general reduction in Base Salary affecting similarly situated senior executives
of the Company, or (iv) the Company’s breach of this Agreement in any material respect; provided, however, that there shall be no resignation for “Good Reason” after such time as the Company
delivers to Executive a notice of termination for one or more acts or omissions constituting Cause.
(c)Except as set forth below, if Executive terminates Executive’s
employment with Good Reason, in addition to the Accrued Obligations, in all cases subject to
Executive’s execution and non-revocation of the Release in the time frame provided, the Company
will provide Executive the severance benefits set forth in Section 5.3(b) at the same times specified
therein; provided, that if Executive’s Good Reason is a reduction in the Base Salary per clause (iii)
of Section 5.4(b), the rate of Base Salary for clause (i) of Section 5.3(b) shall be rate prior to
reduction.
5.4Termination by Executive without Good Reason. Executive may terminate Executive’s employment without Good Reason at any time upon two (2) weeks’ prior notice to the Company (which the Company may, in its sole discretion, make effective earlier; provided that the Company pays Executive’s Base Salary for the balance of the two (2)-week notice period). If Executive terminates Executive’s employment without Good Reason, except for the Accrued Obligations, the Company may immediately cease payment of any further wages, benefits, or other compensation under this Agreement. No severance or any other payments of any kind, other than the Accrued Obligations, shall be payable to Executive upon termination of employment by Executive, except as required by law.
5.5Termination due to Executive’s Death or Total Disability. Executive’s employment shall automatically terminate upon Executive’s death and may be terminated by the
Company for Total Disability (as defined below) upon thirty (30) days’ prior written notice to
Executive, which notice, for the avoidance of doubt, may be given in advance of the expiration of
the one hundred and twenty (120) consecutive days or the one hundred and fifty days (150) during
any twelve (12) month period referenced in Section 5.6(b).
(a)If Executive employment is terminated due to Executive’s death or
Total Disability, the Company will pay all Accrued Obligations and will cease payment of any
further wages, benefits or other compensation, and shall have no further payment obligations under
this Agreement or otherwise, except as required by law.
(b)For purposes of this Agreement, “Total Disability” means Executive
is unable to perform the essential functions of Executive’s job, with or without a reasonable
accommodation, for a period of (i) one hundred and twenty (120) consecutive days or (ii) any one
hundred and fifty (150) days during any twelve (12) month period. Any question as to the existence
of Executive’s Total Disability as to which Executive and the Company cannot agree shall be
determined in writing by a qualified medical doctor mutually selected by the Company and
Executive.
5.6Termination due to a Change in Control.
(a)If the Company terminates Executive’s employment without Cause
or Executive terminates Executive’s employment with Good Reason and during the period
commencing three (3) months prior to a Change in Control and ending twelve months (12)
following a Change in Control, in addition to the Accrued Obligations, in all cases subject to
Executive’s execution and non-revocation of the Release in the time frame provided, the Company
will (i) pay to Executive, as severance, a lump sum equal to one (1) times the sum of the Base
Salary plus the Target Bonus for the year of termination, with payment on the next regular pay
date following the sixtieth (60th) day after termination of employment; (ii) pay the cost of
Executive’s COBRA premiums to continue group health insurance coverage for twelve (12)
months if Executive or Executive’s dependents participate in the Company’s group health benefits
plan and timely elect to continue participating in the group health plan under COBRA; (iii) cause
one hundred percent (100%) of the unvested portion of any and all long-term incentive awards
held by Executive as of the closing of such Change in Control (to the extent such awards are
assumed or continued (in accordance with its terms) by the surviving, continuing, successor, or
purchasing entity or parent thereof, as the case may be, in such Change in Control) to immediately
vest and, if applicable, become exercisable (in the case of a long-term incentive award with
performance-based vesting, all performance goals and other vesting criteria will be deemed
achieved at one hundred percent (100%) of target levels); and (iv) extend the exercise period for
the vested portion of any and all stock options held by Executive as of the termination date to the
earliest to occur of the following: (A) the eighteenth (18th) month anniversary of the date of
Executive’s termination, (B) immediately prior to the Company’s consummation of a Change in
Control, or (C) the expiration date of each such option. Any provision contained in the
agreement(s) under which such options were granted that is inconsistent with the exercise period
extension as set forth herein is hereby modified to the extent necessary to provide for such
extension. Notwithstanding anything herein to the contrary, the provisions of this Section are
subject to the terms of the Plan which will govern in all cases. If Executive is terminated
pursuant
to this Section 5.7(a), the severance provisions of Section 5.3(b) and Section 5.4(c) will not apply;
provided, however, if after the Company terminates Executive without Cause per Section 5.3 or
Executive resigns for Good Reason per Section 5.4, it is determined such termination or
resignation occurred during the period commencing three (3) months prior to a Change in Control,
then the Company shall make a cash payment to Executive within sixty (60) days of the Change
in Control equal to the amount Executive would have received under this Section 5.7(a) less any
payment Executive already received by Executive under Section 5.3(b) or Section 5.4(c), and the
Executive shall receive severance payments and benefits in total that equate to the provisions of
this Section 5.7(a).
(b)For purposes of this Agreement, “Change in Control” shall have the
same meaning as in the Plan.
6.Miscellaneous Provisions.
6.1Resolution of Disputes. The parties recognize that litigation in federal or
state courts or before federal or state administrative agencies of disputes arising out of Executive’s employment with the Company or out of this Agreement, or Executive’s termination of
employment or termination of this Agreement, may not be in the best interests of either Executive or the Company, and may result in unnecessary costs, delays, complexities, and uncertainty. The
parties agree that any dispute between the parties arising out of or relating to the negotiation,
execution, performance or termination of this Agreement or Executive’s employment, including,
but not limited to, any claim arising out of this Agreement, claims under Title VII of the Civil
Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, Section 1981 of the Civil
Rights Act of 1966, as amended, the Family Medical Leave Act, the Executive Retirement Income
Security Act, and any similar federal, state or local law, statute, regulation, or any common law
doctrine, whether that dispute arises during or after employment, shall be settled by binding
arbitration in accordance with the JAMS Employment Arbitration Rules; provided however, that
this dispute resolution provision shall not apply to any separate agreements between the parties
that do not themselves specify arbitration as an exclusive remedy. Issues of procedure,
arbitrability, or confirmation of award will be governed by the Federal Arbitration Act, 9 U.S.C.
§§ 1-16. The location for the arbitration shall be the Plano, TX area. Any award made by such
panel shall be final, binding and conclusive on the parties for all purposes, and judgment upon the
award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The
Company shall pay for all fees and costs of the Arbitrator, including any fees and costs that
would
not be incurred in a court proceeding. The parties acknowledge and agree that their obligations to
arbitrate under this Section survive the termination of this Agreement and continue after the
termination of the employment relationship between Executive and the Company. The parties
each further agree that the arbitration provisions of this Agreement shall provide each party with
its exclusive remedy, and each party expressly waives any right it might have to seek redress in
any other forum, except as otherwise expressly provided in this Agreement. By election arbitration
as the means for final settlement of all claims, the parties hereby waive their respective rights to,
and agree not to, sue each other in any action in a Federal, State or local court with respect to such
claims, but may seek to enforce in court an arbitration award rendered pursuant to this Agreement.
6.2Governing Law and Jurisdiction. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without
regard to principles of conflict of laws.
6.3Entire Agreement. This Agreement, together with the exhibits attached
hereto (including but not limited to the PRA), which are hereby incorporated by reference contains
the entire agreement of the parties hereto relating to the employment of Executive by the Company
and the other matters discussed herein and supersedes all prior agreements and understandings
with respect to such subject matter, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement which are not set
forth herein. In the event of conflict between the terms of this Agreement and any equity or
compensation award agreement, the terms of this Agreement shall govern.
6.4Withholding Taxes. Parent and the Company may withhold from any compensation or other benefits payable under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
6.5Supplements and Amendments. This Agreement may be supplemented or amended only upon the written consent of each of the parties hereto.
6.6Assignment. Except as expressly provided below, this Agreement shall not
be assignable, in whole or in part, by either party without the prior written consent of the other
party. The Company may, without the prior written consent of Executive, assign its rights and
obligations under this Agreement to any other corporation, firm or other business entity with or
into which Parent or the Company may merge or consolidate, or to which Parent or the Company
may sell or transfer all or substantially all of its assets, or of which fifty percent (50%) or more of
the equity investment and of the voting control is owned, directly or indirectly, by, or is under
common ownership with, Parent or the Company; provided, however, that such assignment may
be made without Executive’s prior written consent only if (a) such assignment has a valid business
purpose and is not for the purpose of avoiding the Company’s obligations hereunder or Executive’s realization of the benefits of this Agreement and (b) the assignee expressly assumes in writing all obligations and liabilities to Executive hereunder. This Agreement shall be binding upon and inure
to the benefit of Parent and the Company and their successors and permitted assigns. This
Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable
by Executive’s heirs, personal or legal representatives and beneficiaries.
6.7Beneficiary in Event of Death. In the event of Executive’s death, any
payment or benefit to be paid to Executive per the terms of this Agreement as of, or due to, such
death shall be paid to the Beneficiary. The “Beneficiary” will be the beneficiary or beneficiaries
named by Executive in a written instrument that must be received by the Company prior to
Executive’s death. In the event there is no such named beneficiary, or no surviving named
beneficiary, then the Beneficiary shall be the Executive’s surviving spouse, or, if none, the
Executive’s surviving children per stirpes, or, if none, the Executive’s estate.
6.8No Waiver. No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel to enforce any provisions of this Agreement,
except by a statement in writing signed by the party against whom enforcement of the waiver or
estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically
stated, shall operate only as to the specific term or condition waived and shall not constitute a
waiver of such term or condition for the future or as to any act other than that specifically waived.
6.9Severability. The provisions of this Agreement are severable, and if any
one or more provisions may be judicially unenforceable and/or found invalid by a court of
competent jurisdictions, in whole or in part, the remaining provisions shall nevertheless be binding, enforceable and in full force and effect.
6.10Survival. The provisions of this Agreement shall survive the termination of
this Agreement and/or the termination of Executive’s employment to the extent necessary to
effectuate the terms contained herein.
6.11Titles and Headings. The titles and headings of the various sections of
this Agreement are intended solely for convenience of reference and not intended for any purpose whatsoever to explain, modify or place any construction upon any of the provisions hereof.
6.12Attorney’s Fees. If any party finds it necessary to employ legal counsel or
to bring an action at law or to commence mediation or arbitration or other proceedings against the
other party to enforce any of the terms or conditions of this Agreement, the court, mediator, or arbitrator shall award to the prevailing party in any such proceeding, the costs, fees and expenses
(including attorneys’ fees) reasonably incurred by such party in connection with such proceeding.
6.13Notices. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when hand delivered (which shall include personal delivery and delivery by
courier, messenger or overnight delivery service) or mailed by certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Executive: At Executive’s home address in accordance with the
Company’s records.
If to Parent or the Company: Katapult Holdings, Inc.
Katapult Group, Inc.
5204 Tennyson Pkwy, Suite 500
Plano, TX 75024
with a copy, which copy shall not constitute notice, to:
legal@katapult.com
or to such other address of which either party gives notice to the other party in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
6.14Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to be an original, and
all such counterparts shall together constitute but one and the same instrument. Counterpart
signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in
portable document format (.pdf), or by any other electronic means intended to preserve the original
graphic and pictorial appearance of a document (such as DocuSign or AdobeSign), will have the
same effect as physical delivery of the paper document bearing an original signature.
6.15Section 409A.
(a)This Agreement shall be interpreted to avoid any penalty sanctions
under Section 409A of the Internal Revenue Code (the “Code”). If any payment or benefit cannot
be provided or made at the time specified herein without incurring sanctions under Section 409A
of the Code, then such benefit or payment shall be provided in full (to extent not paid in part at
earlier date) at the earliest time thereafter when such sanctions will not be imposed. For purposes
of Section 409A of the Code, all payments to be made upon a termination of employment under
this Agreement may only be made upon the Executive’s “separation from service” (within the
meaning of such term under Section 409A of the Code), each payment made under this Agreement
shall be treated as a separate payment, and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. In no event shall the
Executive, directly or indirectly, designate the calendar year of payment, except as permitted under
Section 409A of the Code. Notwithstanding any provision of this Agreement to the contrary, in
no event shall the timing of the Executive’s execution of the Release, directly or indirectly, result
in the Executive designating the calendar year of payment, and if a payment that is subject to execution of the Release could be made in more than one taxable year, payment shall be made in
the later taxable year.
(b)Notwithstanding anything herein to the contrary, if, at the time of
the Executive’s termination of employment with the Company, Parent or the Company has
securities which are publicly traded on an established securities market and the Executive is a
“specified employee” (as such term is defined in Section 409A of the Code) and it is necessary to
postpone the commencement of any payments or benefits otherwise payable under this Agreement
as a result of such termination of employment to prevent any accelerated or additional tax under
Section 409A of the Code, then the Company will postpone the commencement of the payment of
any such payments or benefits hereunder (without any reduction in such payments or benefits
ultimately paid or provided to the Executive) that are not otherwise paid within the “short-term
deferral exception” under Treas. Reg. §1.409A-1(b)(4), and the “separation pay exception” under
Treas. Reg. §1.409A-1(b)(9)(iii), until the first payroll date that occurs after the date that is six
months following the Executive’s “separation of service” (as such term is defined under code
Section 409A of the Code) with the Company. If any payments are postponed due to such
requirements, such postponed amounts will be paid in a lump sum to the Executive on the first
payroll date that occurs after the date that is six months following Executive’s separation of service
with the Company. If the Executive dies during the postponement period prior to the payment of
postponed amount, the amounts withheld on account of Section 409A of the Code shall be paid to
the personal representative of the Executive’s estate within 60 days after the date of the Executive’s
death.
(c)All reimbursements and in-kind benefits provided under this
Agreement shall be made or provided in accordance with the requirements of Section 409A of the
Code, including, where applicable, the requirement that (A) any reimbursement shall be for
expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in
this Agreement), (B) the amount of expenses eligible for reimbursement, or in kind benefits
provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind
benefits to be provided, in any other calendar year, (C) the reimbursement of an eligible expense
will be made on or before the last day of the calendar year following the year in which the expense
is incurred and (D) the right to reimbursement or in kind benefits is not subject to liquidation or
exchange for another benefit.
6.16Government Agency Exception. Nothing in this Agreement or the PRA is intended to prohibit or restrict the Executive from: (i) making any disclosure of information
required by process of law; (ii) providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal or state regulatory or law enforcement agency
or legislative body, or any self-regulatory organization; or (iii) filing, testifying, participating in,
or otherwise assisting in a proceeding relating to an alleged violation of any federal, state, or
municipal law relating to fraud or any rule or regulation of the Securities and Exchange
Commission or any self-regulatory organization. In addition, this Agreement does not bar the
Executive’s right to file an administrative charge with the Equal Employment Opportunity
Commission (“EEOC”) and/or to participate in an investigation by the EEOC.
6.17Acknowledgement of Full Understanding. Executive acknowledges and
agrees that Executive has fully read, understands and voluntarily enters into this Agreement.
Executive acknowledges and agrees that Executive has had an opportunity to ask questions and consult with an attorney of Executive’s choice before signing this Agreement.
[Remainder of Page Intentionally Left Blank]
In Witness Whereof, the parties hereto have executed this Amended and Restated Employment Agreement on the day and year first written above.
Katapult Holdings, Inc.
By: /s/ Orlando Zayas
Orlando Zayas, Chief Executive Officer
Katapult Group, Inc.
By: /s/ Orlando Zayas
Orlando Zayas, Chief Executive Officer
EXECUTIVE:
/s/ Tahmineh Maloney
Tahmineh Maloney
[Signature Page to Employment Agreement]
Exhibit A
INDEMNIFICATION AGREEMENT
Exhibit B
CONFIDENTIALITY AND ASSIGNMENT AGREEMENT
Exhibit C
FORM OF SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS
This Separation Agreement and General Release Agreement (the “Agreement”) is made by and between Katapult Holdings, Inc., a Delaware corporation (“Parent”), Katapult Group, Inc., a wholly-owned subsidiary of Parent and a Delaware corporation (the “Company”), and Tahmineh Maloney (“you”). Capitalized terms not defined herein shall have the meanings ascribed to them in the Employment Agreement (as defined below).
Whereas, you and the Company entered into an Amended and Restated Employment
Agreement (this “Agreement”), dated September 13, 2021 (the “Employment Agreement”); and
Whereas, pursuant to the Employment Agreement, if either (i) the Company terminates
your employment without Cause pursuant to Section 5.3 of the Employment Agreement, or (ii) you resign for Good Reason pursuant to Section 5.4 of the Employment Agreement, then the Company shall provide to you certain benefits set forth in this Agreement in exchange for your execution, return and non-revocation of, and compliance with, this Agreement;
Now, Therefore, in consideration of the mutual promises and benefits set forth below
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, you and the Company agree as follows:
1.Separation. Your last day of work with the Company and your employment termination
date will be ______________ (the “Separation Date”).
2.Accrued Obligations. On the next regular payroll date following the Separation Date, the
Company shall provide you the Accrued Obligations (as defined in Section 5.1 of the
Employment Agreement). You are entitled to these payments regardless of whether or not
you sign this Agreement.
3.Separation Pay. If you sign this Agreement, return it by the deadline specified below, and
comply with its terms, the Company will provide you the severance benefits described in
Section 5.3(b) of the Employment Agreement in accordance with, and subject to, the
provisions of Section 5.3 and Section 6.14 of the Employment Agreement.
4.Health Insurance. Your group health insurance will cease on the last day of the month in
which your employment ends. At that time, you will be eligible to continue your group
health insurance benefits at your own expense, subject to Section 5.3(b) of the
Employment Agreement, the terms and conditions of the benefit plan, federal COBRA law,
and, as applicable, state insurance laws. You will receive additional information regarding
your right to elect continued coverage under COBRA in a separate communication.
5.Tax Matters. The Company will withhold required federal, state, and local taxes from
any and all payments contemplated by this Agreement. Other than the Company’s
obligation and right to withhold, you will be responsible for any and all taxes, interest, and
penalties that may be imposed with respect to the payments contemplated by this
Agreement (including, but not limited to, those imposed under Section 409A of the Code).
6.Other Compensation or Benefits. You acknowledge that, except as expressly provided
in this Agreement, you will not receive any additional compensation, benefits, or
separation pay after the Separation Date. Thus, for any employee benefits sponsored by
the Company not specifically referenced in this Agreement, you will be treated as a
terminated employee effective on your Separation Date. This includes but is not limited to
a 401(k) plan, life insurance, accidental death and dismemberment insurance, and short and
long-term disability insurance.
7.Expense Reimbursement. You agree that, within three (3) business days of the Separation
Date, you will submit your final documented expense reimbursement statement reflecting
all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its
regular business practice.
8.Return of Company Property. By the Separation Date or within seven (7) days, you
agree to return to the Company all hard copy and electronic documents (and all copies
thereof) and other Company property that you have had in your possession at any time,
including, but not limited to, files, notes, drawings, records, business plans and forecasts,
financial information, specifications, computer-recorded information (including email),
tangible property (laptop computer, cell phone, PDA, etc.), credit cards, entry cards,
identification badges and keys, and any materials of any kind that contain or embody any
proprietary or confidential information of the Company (and all reproductions thereof). If
you discover after the Separation Date that you have retained any Company proprietary or
confidential information, you agree immediately upon discovery to contact the Company
and make arrangements for returning the information.
9.Post Employment Restrictions. You acknowledge your continuing obligations under
your Confidentiality and Assignment Agreement (the “Proprietary Agreement”), which
prohibits disclosure of any confidential or proprietary information of the Company and
solicitation of Company employees and customers. A copy of your Proprietary Agreement
is attached hereto as Schedule 2.
10.Confidentiality. The existence of this Agreement and its provisions will be held in strictest
confidence by you and will not be publicized or disclosed in any manner whatsoever;
provided, however, that you may disclose this Agreement in confidence: (a) to your
spouse
or partner; (b) to your attorney, accountant, auditor, tax preparer, and financial advisor,
provided that such individuals first agree that they will treat such information as strictly
confidential and that you agree to be responsible for any disclosure by any such individual
as if you had made the disclosure; and (c) as necessary to enforce its terms or as otherwise
required by law. You agree not to disclose the terms of this Agreement to any current or
former Company employee.
11.Non-disparagement. You agree not to disparage the Parent, the Company, and their
officers, directors, employees, or agents, in any manner likely to be harmful to them or
their business, business reputation or personal reputation. The Company agrees not to
disparage you in any manner likely to be harmful to you or your business or personal
reputation; provided, however, that the Company’s obligation only applies to its officers
and its members of the Board of Directors at the time of the Separation Date for the period
such individuals are serving in such roles. Notwithstanding the foregoing, that statements
which are made in good faith in response to any question, inquiry, or request for
information required by legal process shall not violate this paragraph. Nothing in this
restriction is intended to limit you or the Company from giving honest statements before
an administrative agency investigating an alleged violation of discrimination laws.
12.Release of All Claims. Except as otherwise set forth in this Agreement, you hereby
release, acquit and forever discharge the Parent, the Company and their affiliates, officers,
agents, administrators, servants, employees, attorneys, successors, parent, subsidiaries,
assigns, and affiliates (the “Released Party” or “Released Parties”), of and from any and
all claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages,
indemnities, and obligations of every kind and nature, in law, equity, or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in
any way related to agreements, events, acts, omissions, or conduct at any time prior to and
including the date you sign this Agreement. This general release includes, but is not limited
to: (i) claims and demands arising out of or in any way connected with your employment
with the Company, or the termination of that employment; (ii) claims or demands related
to your compensation or benefits with the Company, including but not limited to, wages,
salary, bonuses, commissions, vacation pay, fringe benefits, expense reimbursements,
incentive pay, severance pay, or any other form of compensation; (iii) claims pursuant to
any federal, state or local law, statute, or cause of action including, but not limited to,
claims for discrimination, harassment, retaliation, attorneys’ fees or other claim arising
under the federal Civil Rights Act of 1964, as amended; the federal Americans with
Disabilities Act of 1990, as amended; the federal Age Discrimination in Employment Act
of 1967, as amended (the “ADEA”); the federal Family Medical Leave Act, as amended;
the federal Worker Adjustment and Retraining Notification Act, as amended; the Employee
Retirement Income Security Act of 1974, as amended; and New York Labor Law, New
York City Human Rights Law, and the New York Human Rights Law; (iv) all tort claims,
including without limitation, claims for fraud, defamation, emotional distress, and
discharge in violation of public policy; and (v) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing, including
claims arising out of an Employment Agreement, sales commission plan or incentive
compensation plan applicable to your employment with the Company.
Excluded from this Agreement are any claims (a) which by law cannot be waived in a
private agreement between an employer and employee, and (b) arising out of rights under
the Indemnification Agreement attached hereto as Schedule 3. Moreover, this Release does
not prohibit you from engaging in the activities protected pursuant to Section 6.15 of the
Employment Agreement. You do agree to waive your right to monetary or other recovery should any claim be pursued with the EEOC, state agency, or any other federal, state or local administrative agency your behalf arising out of or related to your employment with
and/or separation from the Company.
13.ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and
releasing any rights you may have under the ADEA, as amended. You also acknowledge
that the consideration given for the waiver and release herein is in addition to anything of
value to which you were already entitled. You further acknowledge that you have been
advised by this writing, as required by the ADEA, that: (a) your waiver and release do not
apply to any rights or claims that may arise after the execution date of this Agreement; (b)
you have been advised hereby that you have the right to consult with an attorney prior to
executing this Agreement; (c) you have up to twenty-one (21) days from the date of this
Agreement to execute this Agreement (although you may choose to voluntarily execute
this Agreement earlier); (d) you have seven (7) days following the execution of this
Agreement by the parties to revoke the Agreement; and (e) this Agreement will not be
effective until the date upon which the revocation period has expired, which will be the
eighth day after this Agreement is executed by you, provided that the Company has also
executed this Agreement by that date (“Effective Date”); and (f) this Agreement does not
affect your ability to test the knowing and voluntary nature of this Agreement.
14.No Actions or Claims. You represent that you have not filed any charges, complaints,
grievances, arbitrations, lawsuits, or claims against the Company, with any local, state or
federal agency, union or court from the beginning of time to the date of execution of this
Agreement and that you will not do so at any time hereafter, based upon events occurring
prior to the date of execution of this Agreement. In the event any agency, union, or court
ever assumes jurisdiction of any lawsuit, claim, charge, grievance, arbitration, or
complaint, or purports to bring any legal proceeding on your behalf, you will ask any such
agency, union, or court to withdraw from and/or dismiss any such action, grievance, or
arbitration, with prejudice.
15.Employment Rights. You hereby waive any and all rights to employment or re-
employment with the Company or any successor or affiliated organization (“Related
Entity”). You agree that the Company and the Related Entities have no obligation,
contractual or otherwise, to employ or re-employ you, now or in the future, either directly
or indirectly, on a full-time, part-time, or temporary basis, including, but not limited to,
utilizing your services as a temporary employee, worker, or contractor through any
temporary service providers, vendors, or agencies.
16.Acknowledgements and Representations. You acknowledge and represent that you have
not suffered any discrimination or harassment by any of the Released Parties on account of
your race, gender, national origin, religion, marital or registered domestic partner status,
sexual orientation, age, disability, medical condition, or any other characteristic protected
by law. You acknowledge and represent that you have not been denied any leave, benefits
or rights to which you may have been entitled under the FMLA or any other federal or state
law, and that you have not suffered any job-related wrongs or injuries for which you might
still be entitled to compensation or relief. You further acknowledge and represent that,
except as expressly provided in this Agreement, you have been paid all wages, bonuses,
compensation, benefits and other amounts that any of the Released Parties have ever owed
to you, and you understand that you will not receive any additional compensation,
severance, or benefits after the Separation Date, with the exception of any vested right you
may have under the terms of a written ERISA-qualified benefit plan.
17.Medical Bills, Liens, and Other Potential Rights for Reimbursement
(a)Responsibility for Satisfaction of All Liens. You represent and warrant that all bills,
costs, or liens resulting from or arising out of any injuries and claims are your
responsibility to pay. You agree to assume responsibility for satisfaction of any
and all demands for payment, claims or liens of any kinds, that arise from or are
related to payments made or services provided to you or on your behalf. You agree
to assume responsibility for all expenses, costs, or fees incurred by you related to
your alleged injuries and claims including without limitation, all Medicare
conditional payments, subrogation claims, liens, or other rights to payment, relating
to medical treatment or lost wages that have been or may be asserted by any health
care provider, insurer, governmental entity, employer, or other person or entity.
Further, you and your attorney (if any) will indemnify, defend and hold Released
Parties harmless from any and all damages, claims, and rights to payment, including
any attorneys’ fees, brought by any person, entity, or governmental agency to
recover any of these amounts. If any governmental entity, or anyone acting on
behalf of any governmental entity, seeks damages including multiple damages from
Released Parties relating to payment by such governmental entity, or anyone acting
on behalf of such governmental entity, relating to your alleged injuries and claims,
you will defend and indemnify Released Parties and hold Released Parties harmless
from any and all such damages, claims, liens, Medicare conditional payments,
and rights to payment, including any attorneys’ fees sought by such entities.
(b)Good Faith Resolution. This settlement is based upon a good faith determination
of you and the Company to resolve any potential claims. You and the Company
have not shifted responsibility of medical treatment to Medicare in contravention
of 42 U.S.C. Section 1395y(b). You and the Company have made every effort to
adequately protect Medicare’s interest and incorporate such in the settlement terms.
(c)Representation that Employee is Not a Medicare Beneficiary. You and your
counsel (if any) warrant that you are not a Medicare beneficiary as of the date of
this Agreement.
(d)Representation that No Medicare Conditional Payments Exist. You and your
counsel (if any) further represent and warrant that you are aware of no Medicare
conditional payments that have been made on your behalf.
18.No Admissions. By entering into this Agreement, the Parent and the Company make no
admission that they have engaged, or are now engaging, in any unlawful conduct. The
Parties understand and acknowledge that this Agreement is not an admission of liability
and shall not be used or construed as such in any legal or administrative proceeding.
19.Code Section 409A Compliance. Notwithstanding anything to the contrary in this
Agreement, no portion of the severance to be made under Section 3 hereof will be payable
until you has a “separation from service” from the Company within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The severance is
otherwise subject to Section 6.14 of the Employment Agreement. This provision shall not
be construed as a guarantee by the Company of any particular tax effect to you under this
Agreement. The Company shall not be liable to Executive for any payment made under
this Agreement or the Employment Agreement which is determined to result in an
additional tax, penalty or interest under Section 409A, nor for reporting in good faith any
payment as an amount includible in gross income under Section 409A.
20.Arbitration. The arbitration provisions of Section 6.1 of the Employment Agreement shall
apply to this Agreement. You and the Company agree that nothing in this Agreement is
intended to prevent either the Company or you from obtaining injunctive relief in court to
prevent irreparable harm pending the conclusion of any such arbitration pursuant to
applicable law.
21.Miscellaneous. This Agreement, including Schedule 1, Schedule 2, and Schedule 3,
constitutes the complete, final, and exclusive embodiment of the entire agreement between
you and the Company with regard to this subject matter. It is entered into without reliance
on any promise or representation, written or oral, other than those expressly contained
herein, and it supersedes any other such promises, warranties, or representations. You have
entered into separate agreements with the Parent related to equity that will survive
termination of your employment under this Agreement. This Agreement may not be
modified or amended except in a writing signed by both you and a duly authorized officer
of the Company. This Agreement will bind the heirs, personal representatives, successors,
and assigns of both you and the Company, and inure to the benefit of both you and the
Company, their heirs, successors, and assigns. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this determination will not
affect any other provision of this Agreement and the provision in question will be modified
by the court so as to be rendered enforceable. This Agreement will be deemed to have
been entered into and will be construed and enforced in accordance with the laws of the
State of New York.
THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.
KATAPULT HOLDINGS, INC.
By:
Orlando Zayas, Chief Executive Officer
KATAPULT GROUP, INC.
By:
Orlando Zayas, Chief Executive Officer
EXECUTIVE:
Tahmineh Maloney
Exhibit C
[Signature Page to Separation Agreement and General Release of Claims]
KATAPULT HOLDINGS, INC.2021 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Katapult Holdings, Inc. (the “Company”) has awarded to you (the “Participant”) the number of restricted stock units (“RSUs”) specified and on the terms set forth below in consideration of your services (the “RSU Award”). Your RSU Award is subject to all of the terms and conditions as set forth herein and in the Company’s 2021 Equity Incentive Plan (the “Plan”) and the Restricted Stock Unit Award Agreement (the “Agreement”), which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Agreement shall have the meanings set forth in the Plan or the Agreement.
Participant:
Date of Grant:
Vesting Commencement Date:
Number of Restricted Stock Units:
Vesting Schedule: The RSUs will vest over a 4-year period with twenty-five percent (25%) of the RSUs vesting on the first (1st) anniversary of the Vesting Commencement Date and the remaining seventy-five present (75%) of the RSUs vesting thereafter in twelve (12) substantially equal quarterly installments, rounded down to the nearest whole restricted stock unit (except for the last vesting installment), on the 15th of each of the months of February, May, August and November of each year; subject to the Participant’s continued Service through each such vesting date.
Notwithstanding the foregoing, if a Change in Control occurs and Participant’s Service is terminated by the Company without Cause or by Participant for Good Reason (as defined below), in either case, during the twelve (12) months following the date of such Change in Control, then one hundred percent (100%) of the then unvested RSUs shall be accelerated in full immediately upon Participant’s termination date. For purposes of this grant, “Good Reason” shall have the meaning ascribed to such term in the Participant’s Employment Agreement with the Company in effect as of the Date of Grant, or, if no Employment Agreement exists, then the employment offer letter by and between the Company and Participant.
Issuance Schedule: One share of Stock will be issued for each restricted stock unit which vests at the time set forth in Section 5 of the Agreement.
Participant Acknowledgements: By your signature below or by electronic acceptance or authentication in a form authorized by the Company, you understand and agree that:
•The RSU Award is governed by this RSU Grant Notice (the “Grant Notice”), and the provisions of the Plan and the Agreement, all of which are made a part of this document. Unless otherwise provided in the Plan, this Grant Notice and the Agreement (together, the “RSU Grant Package”) may not be modified, amended or revised except in a writing signed by you and a duly authorized officer of the Company.
•You have read and are familiar with the provisions of the Plan, the RSU Grant Package and the Prospectus. In the event of any conflict between the provisions in the RSU Grant Package, or the Prospectus and the terms of the Plan, the terms of the Plan shall control.
•The RSU Grant Package sets forth the entire understanding between you and the Company regarding the acquisition of Stock and supersedes all prior oral and written agreements, promises and/or representations on that subject with the exception of: (i) other equity awards previously granted to you, and (ii) any written employment agreement, offer letter, severance agreement, written severance plan or policy, or other written agreement between the Company and you in each case that specifies the terms that should govern this RSU Award.
Katapult Holdings, Inc. Participant:
By:
Title: Date:
Date:
Attachments: Restricted Stock Unit Award AgreementKPLT 2021 Equity Incentive Plan
KPLT 2021 Equity Incentive Plan Prospectus
Director Initial Award Form
KATAPULT HOLDINGS, INC.2021 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Katapult Holdings, Inc. (the “Company”) has awarded to you (the “Participant”) the number of restricted stock units (“RSUs”) specified and on the terms set forth below in consideration of your services (the “RSU Award”). Your RSU Award is subject to all of the terms and conditions as set forth herein and in the Company’s 2021 Equity Incentive Plan (the “Plan”) and the Restricted Stock Unit Award Agreement (the “Agreement”), which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Agreement shall have the meanings set forth in the Plan or the Agreement.
Participant:
Date of Grant:
Vesting Commencement Date:
Number of Restricted Stock Units:
Vesting Schedule: The RSUs will vest in three (3) substantially equal annual installments with one-third (1/3) of the RSUs vesting on the first anniversary of the Vesting Commencement Date, one-third (1/3) of the RSUs vesting on the second anniversary of the Vesting Commencement Date, and one-third (1/3) of the RSUs vesting on the third anniversary of the Vesting Commencement Date; subject to Participant’s continued service as a member of the Company’s Board of Directors through such vesting date.
Notwithstanding the foregoing, if a Change in Control occurs and Participant’s Service has not terminated as of immediately prior to such Change in Control, then the vesting of the restricted stock units will be accelerated in full immediately prior to such Change in Control.
Issuance Schedule: One share of Stock will be issued for each restricted stock unit that vests at the time set forth in Section 4 of the Agreement.
Participant Acknowledgements: By your signature below or by electronic acceptance or authentication in a form authorized by the Company, you understand and agree that:
•The RSU Award is governed by this RSU Grant Notice (the “Grant Notice”), and the provisions of the Plan and the Agreement, all of which are made a part of this document. Unless otherwise provided in the Plan, this Grant Notice and the Agreement (together, the “RSU Grant Package”) may not be modified, amended or revised except in a writing signed by you and a duly authorized officer of the Company.
•You have read and are familiar with the provisions of the Plan, the RSU Grant Package and the Prospectus. In the event of any conflict between the provisions in the RSU Grant Package, or the Prospectus and the terms of the Plan, the terms of the Plan shall control.
•The RSU Grant Package sets forth the entire understanding between you and the Company regarding the acquisition of Stock and supersedes all prior oral and written agreements, promises and/or representations on that subject with the exception of: (i) other equity awards previously granted to you, and (ii) any written employment agreement, offer letter, severance agreement, written severance plan or policy, or other written agreement between the Company and you in each case that specifies the terms that should govern this RSU Award.
Katapult Holdings, Inc. Participant:
By:
Title: Date:
Date:
Attachments: Restricted Stock Unit Award AgreementKPLT 2021 Equity Incentive Plan
KPLT 2021 Equity Incentive Plan Prospectus
Director Annual Award Form
KATAPULT HOLDINGS, INC.2021 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Katapult Holdings, Inc. (the “Company”) has awarded to you (the “Participant”) the number of restricted stock units (“RSUs”) specified and on the terms set forth below in consideration of your services (the “RSU Award”). Your RSU Award is subject to all of the terms and conditions as set forth herein and in the Company’s 2021 Equity Incentive Plan (the “Plan”) and the Restricted Stock Unit Award Agreement (the “Agreement”), which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Agreement shall have the meanings set forth in the Plan or the Agreement.
Participant:
Date of Grant:
Vesting Commencement Date:
Vesting Schedule: The RSUs will vest in full on the earlier to occur of (i) the date of the Company’s following year’s annual meeting of stockholders (“Annual Meeting”) (or the date immediately prior to the Annual Meeting if such Participant’s Service as a director ends at the Annual Meeting due to the director’s failure to be re-elected or the director not standing for re-election); or (ii) the one-year anniversary measured from the Vesting Commencement Date; subject to Participant’s continued service as a member of the Company’s Board of Directors through such vesting date.
Notwithstanding the foregoing, if a Change in Control occurs and Participant’s Service has not terminated as of immediately prior to such Change in Control, then the vesting of the restricted stock units will be accelerated in full immediately prior to such Change in Control.
Issuance Schedule: One share of Stock will be issued for each restricted stock unit that vests at the time set forth in Section 4 of the Agreement.
Participant Acknowledgements: By your signature below or by electronic acceptance or authentication in a form authorized by the Company, you understand and agree that:
•The RSU Award is governed by this RSU Grant Notice (the “Grant Notice”), and the provisions of the Plan and the Agreement, all of which are made a part of this document. Unless otherwise provided in the Plan, this Grant Notice and the Agreement (together, the “RSU Grant Package”) may not be modified, amended or revised except in a writing signed by you and a duly authorized officer of the Company.
•You have read and are familiar with the provisions of the Plan, the RSU Grant Package and the Prospectus. In the event of any conflict between the provisions in the RSU Grant Package, or the Prospectus and the terms of the Plan, the terms of the Plan shall control.
•The RSU Grant Package sets forth the entire understanding between you and the Company regarding the acquisition of Stock and supersedes all prior oral and written agreements, promises and/or representations on that subject with the exception of: (i) other equity awards previously granted to you, and (ii) any written employment agreement, offer letter, severance agreement, written severance plan or policy, or other written agreement between the Company and you in each case that specifies the terms that should govern this RSU Award.
Katapult Holdings, Inc. Participant:
By:
Title: Date:
Date:
Attachments: Restricted Stock Unit Award AgreementKPLT 2021 Equity Incentive Plan
KPLT 2021 Equity Incentive Plan Prospectus
Non-Employee Director Form
KATAPULT HOLDINGS, INC.2021 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
As reflected by your Restricted Stock Unit Grant Notice (“Grant Notice”), Katapult Holdings, Inc. (the “Company”) has granted you an RSU Award under the Company’s 2021 Equity Incentive Plan (the “Plan”) for the number of restricted stock units as indicated in your Grant Notice (the “RSU Award”). The terms of your RSU Award as specified in this Restricted Stock Unit Agreement (the “Agreement”) and the Grant Notice constitute your “RSU Grant Package”. Defined terms not explicitly defined in this Agreement but defined in the Grant Notice or the Plan shall have the same definitions as in the Grant Notice or Plan, as applicable.
The general terms applicable to your RSU Award are as follows:
1.Governing Plan Document. Your RSU Award is subject to all the provisions of the Plan, including but not limited to the provisions in:
(a)Section 4.3 of the Plan regarding the adjustments as a result of changes in the Stock or capital structure, a dissolution, a liquidation, a Change in Control or Ownership Change Event on your RSU Award (“Capitalization Adjustments”);
(b)Section 16 of the Plan regarding the tax consequences of your RSU Award; and
(c)Section 18.4 of the Plan regarding the Company’s retained rights to terminate your Service notwithstanding the grant of the RSU Award.
Your RSU Award is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the RSU Grant Package and the provisions of the Plan, the provisions of the Plan shall control.
2.Grant of the RSU Award. This RSU Award represents your right to be issued on a future date the number of shares of the Company’s Stock that is equal to the number of restricted stock units indicated in the Grant Notice as modified to reflect any Capitalization Adjustment and subject to your satisfaction of the vesting conditions set forth therein (the “Restricted Stock Units”). Any additional Restricted Stock Units that become subject to the RSU Award pursuant to Capitalization Adjustments as set forth in the Plan and the provisions of Section 3 below, if any, shall be subject, in a manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Restricted Stock Units covered by your RSU Award.
3.Dividends. You shall receive no benefit or adjustment to your RSU Award with respect to any cash dividend, stock dividend or other distribution that does not result from a Capitalization Adjustment; provided, however, that this sentence shall not apply with respect to any shares of Stock that are delivered to you in connection with your RSU Award after such shares have been delivered to you.
4.Date of Issuance.
(a)The issuance of Stock in respect of the Restricted Stock Units is intended to comply with Treasury Regulations Section 1.409A-1(b)(4) and will be construed and administered in such a manner. Subject to the satisfaction of the Withholding Obligation, if any, in the event one or more Restricted Stock Units vests, the Company shall issue to you one (1) share of Stock for each Restricted Stock Unit that vests on the applicable vesting date(s) (subject to any adjustment under Section 3 above,
and subject to any different provisions in the Grant Notice). Each issuance date determined by this paragraph is referred to as an “Original Issuance Date.”
(b)If the Original Issuance Date falls on a date that is not a business day, delivery shall instead occur on the next following business day. In addition, if:
(i)the Original Issuance Date does not occur (1) during an “open window period” applicable to you, as determined by the Company in accordance with the Company’s then-effective policy on trading in Company securities, or (2) on a date when you are otherwise permitted to sell shares of Stock on an established stock exchange or stock market (including but not limited to under a previously established written trading plan that meets the requirements of Rule 10b5-1 under the Exchange Act and was entered into in compliance with the Company’s policies (a “10b5-1 Arrangement)), and
(ii)either (1) a Withholding Obligation does not apply, or (2) the Company decides, prior to the Original Issuance Date, (A) not to satisfy the Withholding Obligation by withholding shares of Stock from the shares otherwise due, on the Original Issuance Date, to you under this Award, and (B) not to permit you to enter into a “same day sale” commitment with a broker-dealer (including but not limited to a commitment under a 10b5-1 Arrangement) and (C) not to permit you to pay your Withholding Obligation in cash,
then the shares that would otherwise be issued to you on the Original Issuance Date will not be delivered on such Original Issuance Date and will instead be delivered on the first business day when you are not prohibited from selling shares of the Company’s Stock in the open public market, but in no event later than December 31 of the calendar year in which the Original Issuance Date occurs (that is, the last day of your taxable year in which the Original Issuance Date occurs), or, if and only if permitted in a manner that complies with Treasury Regulations Section 1.409A-1(b)(4), no later than the date that is the 15th day of the third calendar month of the applicable year following the year in which the shares of Stock under this Award are no longer subject to a “substantial risk of forfeiture” within the meaning of Treasury Regulations Section 1.409A-1(d).
5.Transferability. Except as otherwise provided in the Plan, your RSU Award is not transferable, except by will or by the applicable laws of descent and distribution
6.Corporate Transaction. Your RSU Award is subject to the terms of any agreement governing a Change in Control or Transaction, involving the Company, including, without limitation, a provision for the appointment of a stockholder representative that is authorized to act on your behalf with respect to any escrow, indemnities and any contingent consideration.
7.No Liability for Taxes. As a condition to accepting the RSU Award, you hereby (a) agree to not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates related to tax liabilities arising from the RSU Award or other Company compensation and (b) acknowledge that you were advised to consult with your own personal tax, financial and other legal advisors regarding the tax consequences of the RSU Award and have either done so or knowingly and voluntarily declined to do so.
8.Severability. If any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid will, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
9.Other Documents. You hereby acknowledge receipt of or the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the prospectus (the “Prospectus”). In addition, you acknowledge receipt of the Company’s Trading Compliance Policy.
10.Questions. If you have questions regarding these or any other terms and conditions applicable to your RSU Award, including a summary of the applicable federal income tax consequences please see the Prospectus.
KATAPULT HOLDINGS, Inc.
Non-Employee Director Compensation Policy
Effective as of February 8, 2022
Each member of the Board of Directors (the “Board”) who is not also serving as an employee of or consultant to Katapult Holdings, Inc. (the “Company”) or any of its subsidiaries (each such member, an “Eligible Director”) will receive the compensation described in this Non-Employee Director Compensation Policy for his or her Board service following the date first set forth above (the “Effective Date”). An Eligible Director may decline all or any portion of his or her compensation by giving notice to the Company prior to the date cash may be paid or equity awards are to be granted, as the case may be. This policy is effective as of the Effective Date and may be amended at any time in the sole discretion of the Board.
Annual Cash Compensation
The annual cash compensation amount set forth below is payable to Eligible Directors in equal quarterly installments, payable in arrears on the last day of each fiscal quarter in which the service occurred. If an Eligible Director joins the Board or a committee of the Board at a time other than effective as of the first day of a fiscal quarter, each annual retainer set forth below will be pro-rated based on days served in the applicable fiscal quarter, with the pro-rated amount paid on the last day of the first fiscal quarter in which the Eligible Director provides the service and regular full quarterly payments thereafter. All annual cash fees are vested upon payment.
1. Annual Board Service Retainer:
a. All Eligible Directors: $50,000
2. Annual Board Chair Service Retainer:
a.Chair of the Board: $50,000
3. Annual Committee Chair Service Retainer:
a. Chair of the Audit Committee: $20,000
b. Chair of the Compensation Committee: $15,000
c. Chair of the Nominating and Corporate Governance Committee: $10,000
4. Annual Committee Member Service Retainer (not applicable to Committee Chairs):
a. Member of the Audit Committee: $10,000
b. Member of the Compensation Committee: $7,500
c. Member of the Nominating and Corporate Governance Committee: $5,000
Expenses
The Company will reimburse Eligible Directors for ordinary, necessary and reasonable out-of-pocket travel expenses to cover in-person attendance at and participation in Board and committee meetings; provided, that the Eligible Director timely submit to the Company appropriate documentation substantiating such expenses in accordance with the Company’s travel and expense policy, as in effect from time to time.
Equity Compensation
The equity compensation set forth below will be granted under the Company’s 2021 Equity Incentive Plan (the “Plan”).
1. Initial RSU Grants: For each Eligible Director who is first elected or appointed to the Board following the Effective Date, on the date of such Eligible Director’s initial election or appointment to the Board (or, if such date is not a market trading day, the first market trading day thereafter), the Eligible Director will be automatically, and without further action by the Board or the Compensation Committee of the Board, granted restricted stock units (“RSUs”) with respect to shares of Common Stock with an
aggregate Fair Market Value (as defined in the Plan) as of the grant date equal to $300,000 (the “Initial RSU Grant”). The Initial RSU Grant will vest over a three-year period, with one-third (1/3) of the Initial RSU Grant vesting on the first anniversary of the grant date, one-third (1/3) of the Initial RSU Grant vesting on the second anniversary of the grant date and the remaining one-third (1/3) of the Initial RSU Grant vesting on the third anniversary of the grant date, such that the Initial RSU Grant is fully vested on the third anniversary of the date of grant, subject to the Eligible Director’s continued service as a member of the Board through each such vesting date.
2. Annual RSU Grants: On the date of each annual stockholder meeting of the Company (each, an “Annual Meeting”) held after the Effective Date, each Eligible Director who continues to serve as a non-employee member of the Board following such Annual Meeting (excluding any Eligible Director who is first appointed or elected by the Board at Annual Meeting) will be automatically, and without further action by the Board or the Compensation Committee of the Board, granted RSUs with an aggregate Fair Market Value as of the grant date equal to $150,000 (the “Annual RSU Grant”). The Annual RSU Grant will vest in full on the earlier of (i) the date of the following year’s Annual Meeting (or the date immediately prior to the next Annual Meeting if the Non-Employee Director’s service as a director ends at such Annual Meeting due to the director’s failure to be re-elected or the director not standing for re-election); or (ii) the one-year anniversary measured from the date of grant, subject to the Eligible Director’s continued service as a member of the Board through such vesting date.
3. Accelerated Vesting. Notwithstanding the foregoing, each Initial RSU Grant and each Annual RSU Grant will vest in full upon a Change in Control (as defined in the Plan), subject to the Eligible Director’s continued service as a member of the Board through the date of such Change in Control.
Non-Employee Director Compensation Limit
Notwithstanding the foregoing, the aggregate value of all compensation granted or paid, as applicable, to any individual for service as a Nonemployee Director (as defined in the Plan) shall in no event exceed the limits set forth in Section 5.4 of the Plan.
$50,000,000 SENIOR SECURED REVOLVING LOAN FACILITY
LOAN AND SECURITY AGREEMENT
between
KATAPULT SPV-1 LLC,
as Borrower,
COGNICAL, INC.
and
MIDTOWN MADISON MANAGEMENT LLC
as Agent
and
THE FINANCIAL INSTITUTIONS PARTY HERETO FROM TIME TO TIME
as Lenders
Dated as of
May 14, 2019
TABLE OF CONTENTS
Page
EXHIBITS
Exhibit A Borrowing Base Certificate
Exhibit B Form of Note
Exhibit C Form of Monthly Servicing Report/Lease Contract Multiple
Exhibit D Form of Portfolio Documents
Exhibit E Underwriting Guidelines
Exhibit F Form of Request for Revolving Advance
Exhibit G Servicing Policy
Exhibit H Performance Covenant Tables
Exhibit I Permitted Holders
Exhibit J Approved States
Exhibit K Series C Convertible Preferred Stock Purchase Agreement
SCHEDULES
Schedule A Wiring Instructions
Schedule B Revolving Commitments
Schedule 1.1(a) Convertible Notes
Schedule 1.1(b) VPC Bridge Notes
Schedule 4.1 Required Consents
Schedule 5.3 Managers, Managing Members and Directors of Borrower
Schedule 5.5 Other Agreements
Schedule 5.15 Affiliate Agreements
Schedule 5.16 Insurance
Schedule 5.17A Names
Schedule 5.17B Location of Offices, Records and Collateral
Schedule 5.17C Deposit Accounts and Investment Property
Schedule 6.8 Further Assurances and Post Closing Deliverables
Schedule 7.13 Approved Sub-Servicers
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the “Agreement”) dated as of May 14, 2019, is entered into by and among KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), COGNICAL, INC., a Delaware corporation (“Holdings”), each of the lenders from time to time party hereto (individually each a “Lender” and collectively the “Lenders”) and MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for itself, as a Lender, and for the other Lenders (in such capacities, “Agent”).
WHEREAS, pursuant to the Purchase and Sale Agreement, the Borrower desires to purchase from Holdings all of its rights, title and interest in and to the Collateral, including, but not limited to, the Pledged Leases which were originated by Holdings and the Inventory related thereto;
WHEREAS, Borrower has requested that Lenders make available to Borrower a senior secured revolving credit facility in an initial maximum principal amount of up to Fifty Million and No/100 Dollars ($50,000,000.00) (the “Initial Commitment Amount”), as such Initial Commitment Amount may be increased from time to time pursuant to the terms of this Agreement, the proceeds of which shall be used by Borrower to fund the purchase of certain Pledged Leases and Inventory from Holdings;
WHEREAS, pursuant to the terms of this Agreement, Lenders shall have the exclusive right to increase the maximum commitment hereunder up to an aggregate total of One Hundred Fifty Million and No/100 Dollars ($150,000,000.00);
WHEREAS, Borrower is willing to grant Agent, for the benefit of itself and the other Lenders, a first priority lien on and security interest in the Collateral to secure the Loans and other financial accommodations being granted by the Lenders to Borrower; and
WHEREAS, Lenders are willing to make the Loans available to Borrower upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Borrower, Agent and Lenders hereby agree as follows:
I.DEFINITIONS
1.1General Terms
For purposes of the Loan Documents and all Annexes thereto, in addition to the definitions above and elsewhere in this Agreement or the other Loan Documents, the terms listed in this Article I shall have the meanings given such terms in this Article I. All capitalized terms used which are not specifically defined shall have the meanings provided in Article 9 of the UCC in effect on the date hereof to the extent the same are used or defined therein. Unless otherwise specified, if a provision of this Agreement or any other Loan Document requires the consent of or approval of Agent or any Lender, such consent or approval shall be in Agent’s or such Lender’s sole discretion. Unless otherwise specified herein, this Agreement and any agreement or contract referred to herein shall mean such agreement as modified, amended or supplemented from time to time. Unless otherwise specified, as used in the Loan Documents or in any certificate, report, instrument or other document made or delivered pursuant to any of the Loan Documents, all accounting terms not defined in this Article I or elsewhere in this Agreement shall have the meanings given to such terms in and shall be interpreted in accordance with
GAAP. Unless otherwise specified herein, the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.
“Account Lessee” shall mean any Person that is an obligor in respect of any Lease.
“Adjusted Current Lease Balance” shall mean for each Lease, (a) if the ratio of the Original Net Lease Cost to Lease Cost is equal to or greater than ninety percent (90%), the Current Lease Balance, and (b) if the ratio of the Original Net Lease Cost to Lease Cost is less than ninety percent (90%), the lesser of (i) the Original Net Lease Cost and (ii) the Current Lease Balance.
“Administration Fee” shall have the meaning set forth in Section 3.4.
“Advance” shall mean any borrowing under and advance of the Loan, including, but not limited to, each Revolving Advance and any Protective Advance. Any amounts paid by Agent on behalf of Borrower under any Loan Document shall be an Advance for purposes of this Agreement.
“Advance Rate” shall mean, as of any date of determination, (a) for the period beginning on the Closing Date and ending on the date that is nine (9) months after the Closing Date, eighty-five percent (85%) and (b) thereafter, so long as no Advance Rate Trigger Event, Default or Event of Default exists, ninety percent (90%). If any Advance Rate Trigger Event has occurred, the Advance Rate shall be immediately reduced by five percent (5%); provided, that if, following any such Advance Rate Trigger Event, there occurs three (3) consecutive calendar months in which such Advance Rate Trigger Event no longer exists and no other Advance Rate Trigger Event, Default or Event of Default has occurred, then the Advance Rate shall be increased by five percent 5%.
“Advance Rate Trigger Event” shall mean the occurrence of any of the following events with respect to the portfolio of Pledged Leases securing the Loan, in each case, to be tested as of the last day of each calendar month but without giving effect to any Vintage Pool created prior to the January 2019 Vintage Pool:
(a) The Charge-off Percentage Ratio for any Vintage Pool exceeds the Advance Rate Trigger Charge-off Percentage Ratio for the corresponding thirty (30) day period set forth on Exhibit H-4 since the first payment date for each Lease within each such Vintage Pool. For the avoidance of doubt, the first thirty day period following the first payment date for each Lease within each Vintage Pool shall be Period 1; or
(b) The Cumulative Cash Collection Percentage Ratio for any Vintage Pool is less than the Advance Rate Trigger Cumulative Cash Collection Percentage Ratio for the corresponding thirty (30) day period set forth on Exhibit H-3 since the first payment date for each Lease within each such Vintage Pool. For the avoidance of doubt, the first thirty day period following the first payment date for each Lease within each Vintage Pool shall be Period 1; or
(c) The average First Payment Default Ratio for the three most recent Vintage Pools (excluding the Vintage Pool originated during the month ending on the date of determination (i.e. as of end of December 2019, excluding the December 2019 Vintage Pool)) exceeds the Advance Rate Trigger First Payment Default Ratio (Trailing Three Months T+30) ratio set forth on Exhibit H-2; or
(d) The First Payment Default Ratio for any Vintage Pool within the three most recent Vintage Pools (excluding the Vintage Pool originated during the month ending on the date of determination (i.e. as of end of December 2019, excluding the December 2019 Vintage Pool)) exceeds the Advance Rate Trigger First Payment Default Ratio (T+30) ratio set forth on Exhibit H-1.
“Advensus” means Nearshore Call Center Services LTD, dba Advensus, a British Virgin Islands corporation.
“Affiliate” or “affiliate” shall mean, as to any Person, any other Person (a) that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, (b) who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to such Person. For purposes of this definition, the term “control” (and the correlative terms, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, whether through the ability to exercise voting power, by contract or otherwise.
“Agent” shall have the meaning assigned to it in the introductory paragraph hereof.
“Agent Advance” shall have the meaning assigned to it in Section 13.4.
“Agreement” shall have the meaning assigned to it in the introductory paragraph hereof.
“Allocation Notice” shall have the meaning assigned to it in Section 2.12(b).
“Amortized Lease Cost” shall mean, for any Lease and as of any date of determination, the product of (i) the cumulative payments received to date (excluding upfront payments, application fees and/or merchant discounts) related to such Lease and (ii) the quotient of (x) one and (y) the Lease Contract Multiple of such Lease.
“Applicable Rate” shall mean the interest rates applicable from time to time under this Agreement.
“Applicable Law” shall mean any and all federal, state, local and/or applicable foreign statutes, ordinances, rules, regulations, court orders and decrees, administrative orders and decrees, and other legal requirements of any and every conceivable type applicable to the Loan, the Loan Documents, Borrower, Guarantors or the Collateral or any portion thereof, including, but not limited to, in each case, as applicable, Credit Protection Laws, credit disclosure laws and regulations, the Fair Labor Standards Act, and all state and federal usury laws.
“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and (a) that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender or (b) is a Person (other than a natural person) primarily engaged in the making of commercial loans having total assets in excess of $500,000,000.
“Approved State” shall mean a state listed on Exhibit J attached hereto.
“Availability” shall mean, at any date of determination, the lesser of (a) the Borrowing Base or (b) the aggregate of the Revolving Loan Commitments, minus, in each case, the aggregate principal balance of the outstanding Advances.
“Available Amounts” shall mean, as of any Payment Date, the sum of (a) all payments, including all Scheduled Payments, any prepayments, fees or other amounts collected from or on behalf of the Account Lessees on the Pledged Leases during the related Due Period, (b) all liquidation proceeds from the sale or disposition of any Pledged Lease and/or any property related thereto during the related Due Period, whether to a third party purchaser or an Affiliate of the Borrower, (c) any amount received by the Borrower or the Servicer related to a payment from the Guarantors regarding any Guaranty since the most recent Payment Date, (d) all other proceeds of the Collateral received by the Borrower or Servicer during the Due Period, including, but not limited to, judgment awards or settlements, late charges and other income collected from any source arising in connection with the Collateral and (e) all interest earned on the amounts on deposit in the Collateral Account since the previous Payment Date.
“Backup Servicer” shall mean First Associates Loan Servicing, LLC, or such other Person designated and engaged by the Agent and, prior to the occurrence of an Event of Default, approved by the Borrower to succeed First Associates Loan Servicing, LLC as Backup Servicer to perform the duties described in Section 6.13 hereunder and such other duties as may be agreed to by such Person, all in accordance with the terms, provisions, and conditions a Backup Servicing Agreement.
“Backup Servicer Fee” shall mean any fee payable monthly by Borrower to a Backup Servicer, such fee, including, without limitation, fees for verification services, to be as specified in the applicable Backup Servicing Agreement.
“Backup Servicing Agreement” shall mean that any Backup Servicing Agreement, to be entered into by and among Agent, Borrower and Backup Servicer regarding the provision of certain services by the Backup Servicer with respect to the Leases, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.
“Bankruptcy Code” shall mean Title 11 of the United States Code, 11 U.S.C. §§ 101 et. seq., as amended from time to time.
“Board” shall have the meaning assigned to it in Section 6.18 hereof.
“Borrower” shall have the meaning assigned to it in the introductory paragraph hereof.
“Borrowing Base” shall mean the (a) product of (i) the Advance Rate multiplied by (ii) the aggregate sum of the Adjusted Current Lease Balance for all Eligible Leases pledged as Collateral hereunder.
“Borrowing Base Certificate” shall mean a Borrowing Base Certificate substantially in the form of Exhibit A hereto.
“Business Day” shall mean any day that is not a Saturday, Sunday or other day on which (a) commercial banks in New York City are authorized or required by law to remain closed or (b) with respect to LIBOR, banks are not open for dealings in dollar deposits in the London interbank market.
“Calculated Rate” shall have the meaning assigned to it in Section 2.2(a) hereof.
“Change in Law” shall mean (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 3.3 by any lending office of such Lender or by such holding company, if any) with any request, guideline or directive (whether or not
having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that notwithstanding anything herein to the contrary, all requests, rules, guidelines or directives concerning liquidity and capital adequacy issued by any Governmental Authority (x) under or in connection with the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended to the date hereof and from time to time hereafter, and any successor statute and (y) in connection with the implementation of the recommendations of the Bank for International Settlements or the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority), shall be a “Change in Law” regardless of the date adopted, issued, promulgated or implemented.
“Change of Control” shall mean the occurrence of any of the following:
(i)Blumberg Capital, CURO Financial Technologies Corp., Tribeca Ventures, Anchorage Capital and each other entity designated as a “Permitted Holder” on Exhibit I attached hereto, as amended from time to time with the consent of Agent (such consent not to be unreasonably withheld), at any time for any reason cease to collectively own at least 51% of the issued and outstanding Equity Interests of Parent Entity (as the same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units);
(ii)Parent Entity at any time for any reason ceases to own 100% of the issued and outstanding Equity Interests of Holdings (as the same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units), free and clear of all Liens, rights, options, warrants or other similar agreements or understandings other than in favor of Agent, Lenders or their Affiliates
(iii)Holdings at any time for any reason ceases to own 100% of the issued and outstanding Equity Interests of Borrower (as the same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units), free and clear of all Liens, rights, options, warrants or other similar agreements or understandings other than in favor of Agent, Lenders or their Affiliates; or
(iv)Parent Entity at any time ceases, directly or indirectly, to possess, directly or indirectly, the power to direct or cause the direction of the management or policies, whether through ownership of securities or other interests by contract or otherwise of Holdings; or
(v)any “change in/of control” or “sale” or “disposition” or “merger” or similar event as defined in any certificate of incorporation or formation or statement of designations or operating agreement or partnership agreement or trust agreement of Borrower or Holdings or in any document governing indebtedness of such Person (other than any Loan Documents) which in any such case gives the holder of such indebtedness the right to accelerate or otherwise require payment of such indebtedness prior to the maturity date thereof; or
(vi)with respect to Parent Entity, Borrower or Holdings, the consummation of an initial public offering which would cause Parent Entity, Borrower or Holdings to fail to comply with any other portion of this definition of “Change of Control”.
“Charged-off Lease” shall mean (a) any Pledged Lease for which any portion of a Scheduled Payment (without giving effect to any modifications of such Pledged Lease after the date such Pledged Lease was first pledged hereunder or under any other Loan Document) is delinquent more than ninety twenty (90) days, (b) with respect to which Servicer or Borrower shall have reasonably determined in good faith that the related Account Lessee will not resume
making Scheduled Payments, (c) unless otherwise approved by Agent in writing in its sole discretion, the related Account Lessee shall have become the subject of a proceeding under a Debtor Relief Law and Servicer or Borrower shall have been notified thereof or (d) that has been specifically and separately reserved against by Borrower or deemed charged-off or non-collectible by Borrower or Servicer.
“Charge-off Percentage Ratio” shall mean, with respect to any Vintage Pool, the percentage equivalent to a fraction, (a) the numerator of which is the aggregate Lease Cost of such Lease related to such Vintage Pool that have become and remain Charged-off Leases and (b) the denominator of which is the aggregate Lease Cost of the Pledged Leases in such Vintage Pool.
“Charter and Good Standing Documents” shall mean, for the applicable Person, (i) a copy of the certificate of incorporation, certificate of formation, statutory certificate of trust or other applicable charter document certified as of a date not more than five (5) Business Days before the Closing Date by the applicable Governmental Authority of the jurisdiction of incorporation of such Person, (ii) a copy of the bylaws, operating agreement, trust agreement or other applicable organizational document certified as of the Closing Date by the corporate secretary or assistant secretary of such Person, (iii) an original certificate of good standing as of a date not more than five (5) Business Days before the Closing Date issued by the applicable Governmental Authority of the jurisdiction of incorporation of such Person and of every other jurisdiction in which such Person is otherwise required to be in good standing, and (iv) copies of the resolutions of the Board of Directors (or other applicable governing body) and, if required, stockholders or other equity owners authorizing the execution, delivery and performance of the Loan Documents to which such Person, as applicable, is a party, certified by an authorized officer of such Person as of the Closing Date.
“Claims” shall mean any and all liabilities, obligations, losses, damages, penalties, claims, actions, litigation, proceedings, investigations, judgments, suits, fees, costs, expenses, charges, advances and disbursements of any kind (including, without limitation, fees, costs, expenses and charges of counsel (including in-house counsel)).
“Closing” shall mean the satisfaction, or written waiver by Agent and the Lenders, of all of the conditions precedent set forth in this Agreement required to be satisfied prior to the consummation of the transactions contemplated hereby.
“Closing Date” shall mean the date of this Agreement.
“Code” shall mean the Internal Revenue Code of 1986, as amended, and all rules and regulations promulgated thereunder.
“Collateral” shall mean, collectively and each individually, all collateral and/or security granted and/or securities pledged to Agent for the benefit of itself and the other Lenders, by Borrower pursuant to the Loan Documents including, without limitation, the items set forth in Section 2.8 of this Agreement.
“Collateral Assignment of Purchase Agreement” shall mean that certain Collateral Assignment of Purchase and Sale Agreement, dated on or about the Closing Date, executed by Borrower in favor of Agent and agreed to and acknowledged by Holdings, as the same may be amended, restated or modified from time to time.
“Collateral Account” shall mean, individually and collectively, (a) that certain deposit account at Collateral Account Bank held in the name of Borrower, with account number 1001851649 or (b) following the occurrence and during the continuance of an Event of Default,
such other deposit account as designated from time to time by Agent in a written notice to Borrower and Servicer.
“Collateral Account Bank” shall mean Pacific Western Bank or such other bank where the Collateral Account is being held from time to time in accordance with the terms of this Agreement.”
“Collateral Account Control Agreement” shall mean any full dominion account control agreement by and among Agent, Borrower and Collateral Account Bank, which pledges a Collateral Account and all funds and sums contained therein to Agent, for the benefit of the Lenders, and provides for disposition of funds therefrom, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.
“Contingent Obligations” shall mean, as to any Person, any obligation of such Person guaranteeing or intending to guaranty any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or to hold harmless the owner of such primary obligation against loss in respect thereof, provided, however, that the term “Contingent Obligation” shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.
“Contract Right” shall mean any right of Borrower to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance.
“Convertible Note” shall mean those certain convertible notes of Parent Entity listed on Schedule 1.1(a) attached hereto.
“Credit Card Account” shall mean an arrangement whereby an Account Lessee makes Scheduled Payments under a Lease via pre-authorized debit or charge to a Major Credit Card.
“Credit Protection Laws” shall mean all federal, state and local laws in respect of the business of extending credit to borrowers, including without limitation, the Truth in Lending Act (and Regulation M promulgated thereunder), Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Gramm-Leach-Bliley Financial Privacy Act, Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, all rules and regulations issued by the Consumer Financial Protection Bureau, Dodd–Frank Wall Street Reform and Consumer Protection Act, anti-discrimination and fair lending laws, laws relating to servicing procedures or maximum charges and rates of interest, and other similar laws, each to the extent applicable, and all applicable regulations in respect of any of the foregoing.
“Cumulative Cash Collection Percentage Ratio” shall mean, with respect to any Vintage Pool, the percentage equivalent to a fraction, the numerator of which is the sum of all payments
(including prepayments and application and/or other upfront payments, but excluding any sales tax payments) collected from or on behalf of the Account Lessees on each Pledged Lease in such Vintage Pool since the date that such Pledged Lease was originated and the denominator of which is the sum of the Lease Costs (as determined for each Pledged Lease as of the date such Pledged Lease was originated) of each Pledged Lease with respect to such Vintage Pool.
“Current Lease Balance” shall mean, for any Lease and as of any date of determination (i) the Lease Cost less (ii) the Amortized Lease Cost of such Lease at such time.
“Debtor Relief Law” shall mean, collectively, the Bankruptcy Code and all other United States or foreign applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as amended from time to time.
“Default” shall mean any event, fact, circumstance or condition that, with the giving of applicable notice or passage of time, if any, or both, would constitute or be or result in an Event of Default.
“Default Rate” shall have the meaning assigned to it in Section 3.2 hereof.
“Default Trigger Event” shall mean the occurrence of any of the following events with respect to the portfolio of Pledged Leases securing the Loan, in each case, to be tested as of the last day of each calendar month but without giving effect to any Vintage Pool created prior to the January 2019 Vintage Pool:
(a) The Charge-off Percentage Ratio for any Vintage Pool exceeds the Charge-off Trigger Percentage Ratio for the corresponding month set forth on Exhibit H-4 since the first payment date for each Lease within each such Vintage Pool. For the avoidance of doubt, the first thirty day period following the first payment date for each Lease within each Vintage Pool shall be Period 1; or
(b) The Cumulative Cash Collection Percentage Ratio for any Vintage Pool is less than the Default Trigger Cumulative Cash Collection Percentage Ratio for the corresponding month set forth on Exhibit H-3 since the first payment date for each Lease within each such Vintage Pool. For the avoidance of doubt, the first thirty day period following the first payment date for each Lease within each Vintage Pool shall be Period 1.
“Defaulted Lease” shall mean (a) any Pledged Lease for which any portion of a Scheduled Payment (without giving effect to any modifications of such Pledged Lease after the date such Pledged Lease was first pledged hereunder or under any other Loan Document) is delinquent more than sixty (60) days, (b) with respect to which Servicer or Borrower shall have reasonably determined in good faith that the related Account Lessee will not resume making Scheduled Payments, (c) unless otherwise approved by Agent in writing in its sole discretion, the related Account Lessee shall have become the subject of a proceeding under a Debtor Relief Law and Servicer or Borrower shall have been notified thereof or (d) that has been specifically and separately reserved against by Borrower or deemed charged-off or non-collectible by Borrower or Servicer.
“Defective Lease” shall mean any Pledged Lease with an uncured breach of any representation or warranty of Borrower or that Holdings made under the Purchase and Sale Agreement.
“Deposit Account” shall mean, individually and collectively, any bank or other depository accounts of Borrower (or if referring to another Person, such other Person’s).
“Designee” shall have the meaning assigned to it in Section 6.18 hereof.
“Determination Date” shall mean, with respect to any Payment Date, the third Business Day preceding such Payment Date.
“Division” shall mean, with respect to any Person which is an entity, the division of such Person into two (2) or more separate such Persons, with the dividing Person either continuing or terminating its existence as part of such division, including as contemplated under Section 18-217 of the Delaware Limited Liability Act for limited liability companies formed under Delaware law, or any analogous action taken pursuant to any other Applicable Law with respect to any corporation, limited liability company, partnership or other entity. The word “Divide,” when capitalized, shall have a correlative meaning.
“Dollars” and “$” shall mean lawful money of the United States of America.
“Due Period” shall mean, for any Payment Date, the calendar week ending on the immediately preceding Friday.
“Eligible Leases” shall mean those Leases that meet, as of any date of determination, all of the following requirements:
(i)such Lease has a Lease Term of no more than eighteen (18) months;
(ii)such Lease has a Current Lease Balance of not more than $3,500;
(iii)payments under such Lease are due in Dollars and the Portfolio Documents do not permit the currency in which such Lease is payable to be changed, and all previous payments have been made by the related Account Lessee and not by Holdings, Borrower or any Affiliate thereof;
(iv)payments in respect of such Lease shall be due and payable weekly, bi-weekly, monthly or semi-monthly in equal installments;
(v)such Lease and all related Portfolio Documents shall be in full force and effect and shall represent a legal, or valid and binding and absolute and unconditional payment obligation of the applicable Account Lessee enforceable against such Account Lessee in accordance with its terms for the amount outstanding thereof without any right of rescission, offset, counterclaim or defense, except to the extent that enforceability may be limited by Debtor Relief Laws and general principles of equity, and is not contingent in any respect for any reason;
(vi)to Borrower’s knowledge after due inquiry, the applicable Account Lessee is not the subject of any proceeding under any Debtor Relief Law;
(vii)such Lease is not a Defaulted Lease;
(viii)such Lease would not cause the percentage of Eligible Leases for which the Account Lessee thereon nor any guarantor thereof is an employee, officer, director or Affiliate of, Holdings or Borrower to exceed 1% of Eligible Leases;
(ix)Holdings or Borrower shall not be engaged in any adverse litigation with the applicable Account Lessee in respect of such Lease;
(x)such Lease shall have been originated, documented and closed in accordance with the Underwriting Guidelines in all material respects and such Lease and related Portfolio Documents shall not have been modified from their original terms in any material respect;
(xi)the applicable Account Lessee’s Lease application and the Portfolio Documents evidencing such Lease shall have been delivered to Agent or Backup Servicer in accordance with Section 2.8 hereof and the related Verification Certificate shall not have any exceptions noted by the Backup Servicer;
(xii)such Lease shall comply in all material respects with all Applicable Laws and all statutory or other applicable cancellation or rescission periods related thereto have expired;
(xiii)to Borrower’s knowledge, all amounts and information in respect of such Lease or furnished to Agent in connection therewith shall be true and correct and undisputed by the Account Lessee thereon or any guarantor thereof;
(xiv)such Lease shall not be a renewal, amendment, modification, waiver or extension of any Defective Lease or Defaulted Lease that was previously substituted with an Eligible Lease, except as otherwise approved in writing by Agent;
(xv)neither Borrower nor Holdings shall have made a Material Modification with respect to such Lease without the consent of Agent;
(xvi)such Lease shall not be evidenced by a judgment or have been reduced to judgment;
(xvii)such Lease shall not be a revolving line of credit;
(xviii)such Lease shall not have been specifically and separately reserved against by Borrower or Holdings (except for loss provisions that Borrower or Holdings makes as part of its policies in accordance with GAAP), have been the subject of fraud of any kind or deemed charged-off or non-collectible by Holdings, Borrower or Servicer in accordance with standard servicing procedures;
(xix)the form of Portfolio Documents relating to such Lease shall be (i) substantially in the form of the Portfolio Documents in use by Holdings or Borrower as of the Closing Date or as modified in accordance with Section 6.20 hereof, (ii) substantially in the form attached hereto as Exhibit D or (iii) otherwise in form and content acceptable to Agent in its sole discretion and approved in advance by Agent in writing, in each case, except as may be required by Applicable Law;
(xx)following the sale of such Lease to Borrower, such Lease shall be 100% owned by Borrower and no other Person (other than Borrower and Agent) owns or claims any legal or beneficial interest therein;
(xxi)the Lease and all other Portfolio Documents requiring the signature of an Account Lessee was signed with a digital or electronic signature that complies with the Uniform Electronic Transaction Act or, as applicable to the jurisdiction governing
such Lease, the Electronic Signatures in Global and National Commerce Act (E-Sign Act), including all consumer consent and other applicable provisions thereof;
(xxii)such Lease represents the undisputed, bona fide transaction created by Holdings in the ordinary course of Holdings’ business and completed in accordance with the terms and provisions contained in the related Portfolio Documents;
(xxiii)the Account Lessee thereunder is a resident of the United States and/or its territories;
(xxiv)such Lease and the Inventory related to such Lease has been absolutely sold, transferred and conveyed by Holdings to Borrower and purchased and accepted by Borrower from Holdings, pursuant to the Purchase and Sale Agreement and, after giving effect to such sale, transfer and conveyance, such Lease shall be 100% owned by Borrower and no other Person (other than Borrower) owns or claims any legal or beneficial interest therein;
(xxv)no facts, events or occurrences exist that, in any way, impair the validity or enforcement thereof or tend to reduce the amount payable thereunder from the amount of the Lease shown on any schedule, or on all contracts, invoices or statements delivered to Agent with respect thereto;
(xxvi)all Account Lessees in connection with such Lease were of sufficient age to have the legal capacity to contract at the time any contract or other document giving rise to the Lease was executed and generally have the ability to pay their debts as they become due;
(xxvii) no proceedings or actions are pending, in existence or are, to Borrower’s knowledge, threatened against any Account Lessee with respect to such Lease could reasonably be expected to materially impair such Account Lessee’s ability to perform its obligations under the applicable Lease, provided, that Borrower shall have no obligation to make any inquiry of any Account Lessee regarding the same;
(xxviii) such Lease and the Collateral related to such Lease have not been assigned or pledged to any Person other than Agent, for the benefit of itself and the other Lenders;
(xxix) except as would not result in a failure to satisfy the requirements set forth in clause (xiv) above no instrument of release or waiver has been executed in connection with any Portfolio Document with respect to such Lease, and the Account Lessee in respect of such Lease has not been released from its obligations thereunder, in whole or in part, and no action has been taken by the Borrower to release any collateral from the Portfolio Documents with respect to such Lease;
(xxx)the Account Lessee related to such Lease does not reside in a state for which a Regulatory Trigger Event has occurred and is continuing;
(xxxi)such Lease is not a Defective Lease;
(xxxii)no buyout or repurchase option with respect to such Lease or the Inventory that is the subject of such Lease has been exercised by the Account Lessee related to such Lease;
(xxxiii) the goods that are the subject of such Lease shall consist solely of Inventory and related items;
(xxxiv) the Lease Contract Multiple with respect to such Lease is not less than 1.9x.
(xxxv)such Lease is for the leasing of goods that have been fully delivered, and at the time of delivery were new and in good working order, and for which there are no outstanding disputes;
(xxxvi) the goods which are the subject of such Lease have not been (i) returned to Borrower by the Account Lessee, (ii) repossessed by Borrower, or (iii) acquired by the Account Lessee by exercising any option to acquire said goods;
(xxxvii)such Lease is not a Lease that would cause (a) the Eligible Leases pledged as Collateral with Account Lessees who resided in any single State at the time of the origination of such Lease to exceed thirty percent (30%) (as determined on the basis of the aggregate Current Lease Balances of the Eligible Leases pledged as Collateral) or (b) the Eligible Leases pledged as Collateral with Account Lessees who resided at the time of the origination of such Lease in all of the four (4) States with the highest aggregate Current Lease Balances of the Eligible Leases pledged as Collateral to exceed fifty-five percent (55%) (as determined on the basis of the aggregate Current Lease Balances and the Eligible Leases pledged as Collateral);
(xxxviii) such Lease is not a Lease that would cause Eligible Leases pledged as Collateral originated through (i) the Wayfair Inc. retail partnership to exceed sixty-five percent (65%) or (ii) any other single retail partnership of Borrower, Holdings or Parent Entity to exceed, unless otherwise upon by the Agent in writing, twenty-five percent (25%) (in each case, as determined on the basis of the aggregate Current Lease Balances of the Eligible Leases pledged as Collateral);
(xxxix) such Lease is not a Lease that would cause the quotient of Original Net Lease Cost to Lease Cost or all Eligible Leases to be less than 95%.
(xl)such Lease is not a Lease that would cause Eligible Leases pledged as Collateral that constitute Unmatured Defaulted Leases to exceed ten percent (10%) (as determined on the basis of the aggregate Current Lease Balances of the Eligible Leases pledged as Collateral);
(xli)such Lease is not a Lease that would cause the average Current Lease Balance of all Eligible Leases to exceed $1,000;
(xlii)such Lease shall have been originated in an Approved State.
“Equity Interests” shall mean, with respect to any Person, its equity ownership interests, its common stock and any other capital stock or other equity ownership units of such Person authorized from time to time, and any other shares, options, interests, participations or other equivalents (however designated) of or in such Person, whether voting or nonvoting, including, without limitation, common stock, options, warrants, preferred stock, phantom stock, membership units (common or preferred), stock appreciation rights, membership unit appreciation rights, convertible notes or debentures, stock purchase rights, membership unit purchase rights and all securities convertible, exercisable or exchangeable, in whole or in part, into any one or more of the foregoing.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
“ERISA Affiliate” shall mean, with respect to any Person, any trade or business (whether or not incorporated) which is treated as a single employer with such Person under Section 414 of the Code or Section 4001 of ERISA.
“Event of Default” shall mean the occurrence of any event set forth in Article VIII.
“Excluded Taxes” shall have the meaning assigned to it in Section 13.8(a) hereof.
“Fair Valuation” shall mean the determination of the value of the consolidated assets of a Person on the basis of the amount which may be realized by a willing seller within a reasonable time through collection or sale of such assets at market value on a going concern basis to an interested buyer who is willing to purchase under ordinary selling conditions in an arm’s length transaction.
“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“First Payment Default Ratio” shall mean, with respect to any Vintage Pool as of the date on which all Leases in such Vintage Pool have had their first Scheduled Payment date occur and, subsequently, thirty (30) calendar days have elapsed, the percentage equivalent of the fraction (a) whose numerator is the number of Pledged Leases comprising such Vintage Pool whose first Scheduled Payment (excluding any Scheduled Payment that was due on the date of origination of a Lease) was thirty (30) calendar days delinquent and (b) whose denominator is the number of all Pledged Leases comprising such Vintage Pool for which, as of the date of determination, have had their first Scheduled Payment date occur and, subsequently, thirty (30) calendar days have elapsed.
“First Payment Default Trigger Event” shall mean the occurrence of any of the following events with respect to the portfolio of Pledged Leases securing the Loan, in each case, to be tested as of the last day of each calendar month but without giving effect to any Vintage Pool created prior to the January 2019 Vintage Pool:
(a) The average First Payment Default Ratio for the three most recent Vintage Pools (excluding the Vintage Pool originated during the month ending on the date of determination (i.e. as of end of December 2019, excluding the December 2019 Vintage Pool)) exceeds the Default Trigger First Payment Default Ratio (Trailing Three Months T+30) set forth on Exhibit H-2; or
(b) The First Payment Default Ratio for any Vintage Pool (excluding the Vintage Pool originated during the month ending on the date of determination (i.e. as of end of December 2019, excluding the December 2019 Vintage Pool)) exceeds the Default Trigger First Payment Default Ratio (T+30) ratio set forth on Exhibit H-1.
“GAAP” shall mean generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Authority” shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia.
“Guarantor” shall mean, collectively and each individually, the Indemnity Guarantors.
“Guaranty” shall mean, collectively and each individually the Indemnity Guaranty.
“Holdings” shall have the meaning assigned to it in the introductory paragraph hereof.
“Increase OID” shall have the meaning assigned to it Section 3.5(c) hereof.
“Indebtedness” of any Person shall mean, without duplication, (a) all items which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness is to be determined, including any lease which, in accordance with GAAP would constitute Indebtedness, (b) all indebtedness of such Person secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, Equity Interests, equity or other ownership interest purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable and (d) any Contingent Obligations of such Person.
“Indemnified Persons” shall have the meaning assigned to it in Section 12.4 hereof.
“Indemnified Taxes” shall have the meaning assigned to it in Section 13.8(a) hereof.
“Indemnity Guarantor” shall mean each of Holdings, Parent Entity and each other Person party to the Indemnity Guaranty from time to time.
“Indemnity Guaranty” shall mean each Indemnity Guaranty, dated as of the date hereof, made by each Indemnity Guarantor in favor of Agent, as amended from time to time.
“Ineligible Lease” shall mean any Lease that fails at any time to meet all of the criteria set forth in the definition of “Eligible Lease” set forth herein.
“Ineligible Transferee” shall have the meaning assigned to it in Section 12.2(a) hereof.
“Insured Event” shall have the meaning assigned to it in Section 12.4 hereof.
“Interest Reserve Account” shall mean that certain deposit account at Silicon Valley Bank held in the name of Holdings, with account number 3302706538, funded solely via capital
contributions from the direct and indirect holders of its Equity Interests, which shall at all times contain cumulative gross deposits since the Closing Date in an amount equal to or greater than the product of (a) the sum of (i) one and (ii) the months that have elapsed since the Closing Date and (b) $75,000.00.
“Inventory” shall mean furniture, household furnishings, appliances, consumer electronics (including cell phones), fitness equipment, tools and/or other moveable but non-perishable goods, together with accessories related thereto.
“Ivy Management Indebtedness” shall mean all indebtedness or other obligations of Holdings (or any Subsidiary of Holdings other than the Borrower) incurred pursuant to the Ivy Management Loan Agreement.
“Ivy Management Loan Agreement” shall mean that certain Amended and Restated Loan Agreement, dated as of the Closing Date, by and among Ivy Mezzanine, LLC, a Delaware limited liability company, as Lender, Parent Entity, as debtor, and Holdings, as guarantor, as it has been amended and as it may be further amended, restated or otherwise modified in accordance with the provisions of this Agreement and the Subordination Agreement from time to time.
“Key Man Trigger Event” shall mean the failure of Orlando Zayas to be the Chief Executive Officer of Holdings, unless a successor chief executive officer approved by the Agent is appointed within ninety (90) days thereafter.
“Lease Contract Multiple” shall mean, for each Pledged Lease, quotient of (a) the aggregate dollar amount of the scheduled payments (excluding upfront payments, application fees, and/or merchant discounts) owed by an Account Lessee over the term of such Pledged Lease and (b) the Lease Cost of such Pledged Lease.
“Lease Cost” shall mean, for any Pledged Lease, the total purchase price paid (excluding any delivery, installation and warranty costs charged to the applicable Account Lessee) by Holdings to purchase the Inventory that is the subject of such Pledged Lease at the origination of such Pledged Lease.
“Lease Term” shall mean, with respect to any Pledged Lease, the original term of the Lease to expiration calculated in calendar months.
“Leases” shall mean all rights to payment (including, without limitation, the Scheduled Payments) owing by an Account Lessee in respect of a lease or leases, lease-to-own or other financial accommodations made or extended by Borrower (or a predecessor in interest, including, without limitation, Holdings) to or for the benefit of such Account Lessee in connection with the purchase of Inventory. Any such Lease shall include, without limitation, all rights (including payment rights and enforcement rights), claims and entitlements under or pursuant to all related Portfolio Documents in respect thereof, and all supporting obligations in connection therewith.
“Lender” and “Lenders” shall have the meanings assigned to them in the introductory paragraph hereof.
“Lender Addition Agreement” shall have the meaning assigned to it in Section 12.2(a) hereof.
“Lending Office” shall mean the office or offices of any Lender set forth opposite its name on the signature page hereto, as updated from time to time.
“LIBOR Rate” shall mean, in respect of any calendar month, a rate per annum rounded upwards, if necessary, to the nearest 1/1000 of 1% (3 decimal places) equal to the rate of interest which is identified and normally published by Bloomberg Professional Service page USD-LIBOR-ICE (or any equivalent page used by Bloomberg Professional Service from time to time or, if Bloomberg Professional Service no longer reports the LIBOR Rate, another nationally-recognized rate reporting source acceptable to Agent) as the offered rate for loans in United States dollars for a one (1) month period as of 11:00 a.m. (London time) first calendar day of such month (or, in the case of the month that includes the date hereof, the date hereof). If (i) Bloomberg Professional Service (or another nationally-recognized rate reporting source acceptable to Agent) no longer reports the LIBOR Rate or (ii) Agent determines in good faith that the rate so reported no longer accurately reflects the rate available to Agent in the London Interbank Market or (iii) if such index no longer exists or if page USD-LIBOR-ICE no longer exists or accurately reflects the rate available to Agent in the London Interbank Market, then in each case of the foregoing clauses (i) through (iii), Agent may select a comparable replacement index or replacement page, as the case may be, (provided that such replacement rate is approved by the Borrower (which approval shall not be unreasonably withheld or delayed); provided that (a) in the case that the conditions set forth in the foregoing clause (i) through (iii) are likely to continue to occur or exist for an indefinite time frame or (b) the supervisor for the administrator of the screen rate used by the Agent pursuant this definition or a Governmental Authority having jurisdiction over the Agent, in each case, has made a public statement identifying a specific date after which such screen rate shall no longer be used or published for determining interest rates for loans, in the case of the foregoing clauses (a) and (b), Agent in its Permitted Discretion, may select a comparable replacement index or replacement page that gives due consideration to the then prevailing market convention for determining a rate of interest for privately placed secured loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable to effect a comparable overall yield to that which was in place immediately prior to the occurrence of any of the foregoing events described by clauses (i) through (iii) in the foregoing clause (provided that such replacement rate and amendments are approved by the Borrower (which approval shall not be unreasonably withheld or delayed). Notwithstanding the foregoing, in no event shall the LIBOR Rate be less than two percent (2.00%) at any time.
“Lien” shall mean any mortgage, deed of trust, deed to secure debt, or pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested in some other Person for security purposes.
“Liquidity” means, as of any date of determination, the amount of unrestricted cash on hand of Parent Entity and its Subsidiaries as of such date.
“Loan” shall mean, collectively, each Revolving Advance made by Lenders to the Borrower, any Protective Advances or other Advances by Agent or Lenders pursuant to the terms hereof, and all Obligations related thereto.
“Loan Documents” shall mean, collectively and each individually, this Agreement, the Notes, the Security Documents, each Servicing Agreement, the Backup Servicing Agreement, the Borrowing Base Certificate, the Collateral Account Control Agreement, each Subordination Agreement, any other blocked account agreement or account control agreement and all other agreements, documents, instruments and certificates heretofore or hereafter executed or delivered to Agent and/or Lenders in connection with any of the foregoing or the Loan, as the same may be amended, modified or supplemented from time to time.
“Lockout Period Additional Interest” shall mean additional interest equal to the sum of (i) five percent (5.0%) of the then applicable Maximum Loan Amount plus (ii) an amount equal to the amount of interest that would have accrued on the sum of the principal balance of the Loan plus projected further utilization of the Loan hereunder (as determined by Agent in its Permitted Discretion), from such date of prepayment to May 14, 2021, at a per annum rate equal to the Calculated Rate.
“Major Credit Card” shall mean a bank card issued by any VISA USA, Inc., MasterCard International Incorporated, American Express Company or Discover Bank.
“Material Adverse Effect” shall mean any event, condition, obligation, liability or circumstance or set of events, conditions, obligations, liabilities or circumstances or any change(s) which:
(i) has had or reasonably could be expected to have a material adverse effect upon or change in (a) the legality, validity or enforceability of any Loan Document, (b) the perfection or priority of any Lien granted to Agent or any Lender under any of the Security Documents or (c) the value, validity, enforceability or collectability of a material portion of the Pledged Leases or any of the other Collateral;
(ii) has been or reasonably could be expected to be material and adverse to the value of the business, operations, properties, assets, liabilities or financial condition of the Borrower; or
(iii) has materially impaired or reasonably could be expected to materially impair the ability of Borrower to perform any of its Obligations or its obligations under the Loan Documents.
“Material Modification” means any modification of a Lease that would (a) forgive any scheduled repayment, (b) reduce the interest rate, (c) reduce the Current Lease Balance of the Lease or (d) be materially adverse to Agent and/or Lenders.
“Maturity Date” shall mean the earlier to occur of (a) May 14, 2023, and (b) the date that is six (6) months prior to the date of the earliest maturity date of any existing or future Significant Debt Facility of Parent Entity, Holdings and/or any of their Subsidiaries.
“Maximum Loan Amount” shall mean at any time the aggregate amount of the Revolving Loan Commitments held by all Lenders at such time.
“Maximum Rate” shall mean the highest lawful and non-usurious rate of interest applicable to the Loan, that at any time or from time to time may be contracted for, taken, reserved, charged, or received on the Loan and the Obligations under the laws of the United States and the laws of such states as may be applicable thereto, that are in effect or, to the extent allowed by such laws, that may be hereafter in effect and that allow a higher maximum nonusurious and lawful interest rate than would any Applicable Laws now allow.
“Minimum Utilization Additional Interest” shall have the meaning set forth in Section 3.5 hereof.
“Minimum Utilization Ratio” shall mean, for the periods described in the table below, the applicable percentage set forth below for such period:
| | | | | |
| Period | Minimum Utilization Ratio |
| Each of the first twelve (12) months following the Closing Date | 0% |
| Each of the months occurring thirteen (13) months following the Closing Date through (and including) twenty-four (24) months following the Closing Date | 25% |
| Each of the months occurring twenty five (25) months following the Closing Date through (and including) the end of the Maturity Date | 50% |
“Monthly Servicing Report” shall mean each monthly report prepared by the Servicer in accordance with the Servicing Agreement substantially in the form of Exhibit C attached hereto.
“New Equity” shall mean a primary issuance of Equity Interests by Parent Entity for cash, the proceeds of which are designated and used as operating cash by Parent Entity and are not used to repay any existing liabilities or redeem any equity interests of Parent Entity or any other Person. For the avoidance of doubt, the amounts raised pursuant to the Convertible Notes shall not constitute New Equity.
“Non-Consenting Lender” shall have the meaning assigned to it in Section 10.4(d).
“Non-Funding Lender” shall have the meaning assigned to it in Section 13.7.
“Note(s)” shall mean, individually and collectively, any Notes payable to the order of the Agent, for the benefit of Lenders, or payable to a Lender, executed by Borrower evidencing the Loan, as the same may be amended, modified, supplemented and/or restated from time to time.
“Obligations” shall mean, without duplication, all present and future obligations, Indebtedness and liabilities of Borrower to Agent and Lenders at any time and from time to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent, due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, under any of the Loan Documents or otherwise relating to this Agreement, any Notes and/or the Loan, including, without limitation, principal, interest, all applicable fees, charges and expenses and/or all amounts paid or advanced by Agent or a Lender on behalf of or for the benefit of Borrower for any reason at any time, and including, in each case, obligations of performance as well as obligations of payment and interest that accrue after the commencement of any proceeding under any Debtor Relief Law by or against Borrower.
“OFAC” shall mean the U.S. Department of Treasury’s Office of Foreign Asset Control.
“Original Net Lease Cost” shall mean, for each Lease, the difference between (a) the total retail price charged to the Account Lessee (including any delivery, installation and warranty costs) related to such Lease and (b) any upfront Account Lessee payments (including, but not limited to, application fees), and merchant discounts associated with such Lease.
“Other Lender” shall have the meaning assigned to it in Section 13.7 hereof.
“Other Taxes” shall have the meaning assigned to it in Section 13.8(b) hereof.
“PAC” shall mean an arrangement whereby an Account Lessee makes Scheduled Payments under a Pledged Lease via pre-authorized debit.
“Parent Consolidated Net Income” shall mean, for any period, an amount equal to (a) the net income (or loss) of the Parent Entity and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, minus (b) any net extraordinary, nonrecurring or unusual gains, plus (c) any net extraordinary, nonrecurring or unusual losses.
“Parent Entity” shall mean Cognical Holdings, Inc.
“Participant” shall have the meaning assigned to it in Section 12.2(b) hereof.
“Patriot Act” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56, as amended.
“Payment Date” shall mean the Wednesday of each calendar week that the Loans are outstanding, or if such day is not a Business Day, on the next succeeding Business Day.
“Permit” shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations and approvals.
“Permitted Discretion” shall mean a determination or judgment made in good faith in the exercise of reasonable (from the perspective of a secured lender) credit or business judgment.
“Permitted Indebtedness” shall have the meaning assigned to it in Section 7.1 hereof.
“Permitted Liens” shall mean Liens of Borrower permitted under Section 7.2 hereof.
“Person” shall mean an individual, a partnership, a corporation, a limited liability company, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature.
“Pledge Agreement” shall mean that certain Pledge Agreement made by Holdings in favor of Agent, as the same may be amended, modified, supplemented and/or restated from time to time.
“Pledged Leases” shall mean each Lease pledged as Collateral hereunder in accordance with Section 2.8 hereof or any other Loan Document. For the avoidance of doubt, the term “Pledged Leases” shall not include any Third Party Serviced Lease.
“Portfolio Documents” shall mean, collectively, any Lease or contract, and any other agreement or document executed and delivered by an Account Lessee in connection with such Lease to or for the benefit of Holdings or any subsequent transferee thereof, including renewals, extensions, modifications and amendments thereof.
“Positive Net Income Trigger Date” shall mean the earliest date on which the Borrower has furnished to Agent financial statements that evidence that the Trailing Six Month Parent Consolidated Net Income has been greater than zero for three (3) consecutive calendar months.
“Prepayment Date” shall have the meaning assigned to it in Section 2.5(b).
“Prepayment Additional Interest” shall mean additional interest payable to Agent upon any Prepayment Date in an amount equal to (i) if such Prepayment Date occurs after the Lockout Period Termination Date but on or prior to the thirty-six (36) month anniversary of the Closing Date, five percent (5.0%) of the then applicable Maximum Loan Amount, (ii) if such Prepayment Date occurs after the thirty-six month anniversary of the Closing Date but on or prior to the forty-two month anniversary of the Closing Date, three percent (3.0%) of the of the then applicable Maximum Loan Amount, provided, that if such prepayment is made pursuant to a refinancing of the Loan by Agent or any of its Affiliates, the Prepayment Additional Interest for such prepayment shall fifty percent (50%) of the amounts provided above.
“Pro Rata Share” shall mean, with respect to any Lender as to all Lenders, the percentage obtained by dividing (i) the aggregate amount of the Advances outstanding made by such Lender by (ii) the aggregate amount of all the Advances outstanding, as such percentage may be adjusted by assignments as permitted hereunder; provided, however, that if no Advances are outstanding, then the percentage shall be obtained by dividing (i) the Revolving Loan Commitment held by such Lender by (ii) the aggregate amount of all of the Revolving Loan Commitments.
“Protective Advance” shall have the meaning assigned to it Section 2.7(b).
“Purchase and Sale Agreement” shall mean that certain Master Purchase and Sale Agreement, dated as of the Closing Date, by and between Holdings, as seller of the Pledged Leases, and Borrower, as purchaser of the Pledged Leases, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.
“Receipt” shall have the meaning assigned to it in Section 12.5 hereof.
“Register” shall have the meaning assigned to it in Section 12.2(c) hereof.
“Regulatory Trigger Event” shall mean (x) a “Level One Regulatory Trigger Event” which shall mean, the commencement by any Governmental Authority of any formal inquiry or investigation (which for the avoidance of doubt excludes any Routine Inquiry), legal action or proceeding, against (i) any of Borrower, Holdings, Servicer, any third party that has been engaged by Servicer as a sub-servicer or any of Borrower’s Affiliates challenging its authority to originate, hold, own, service, collect, pledge or enforce any Pledged Lease with respect to the residents of any state, or otherwise alleging any non-compliance by any of Borrower, Holdings, Servicer, any third party that has been engaged by Servicer as a sub-servicer or any of Borrower’s Affiliates with such state’s Applicable Laws related to originating, holding, collecting, pledging, servicing or enforcing such Pledged Leases or otherwise related to such Pledged Leases; (ii) any of Borrower, Holdings, Servicer, any third party that has been engaged by Servicer or as a sub-servicer or any of Borrower’s Affiliates, relating to the operation of its business; or (iii) the consumer leasing industry or consumer retail installment contract industry or any member of such industries, which the Agent, in its Permitted Discretion, believes would have a material adverse effect on either of such industries, as a whole, which inquiry, investigation, legal action or proceeding is not released or terminated in a manner acceptable to Agent in its Permitted Discretion within forty-five (45) calendar days of commencement thereof or (y) a “Level Two Regulatory Trigger Event” which shall mean the issuance or entering of any stay, order, judgment, cease and desist order, injunction, temporary restraining order, or other judicial or non-judicial sanction, order or ruling against any of Borrower, Holdings, Servicer, any third party that has been engaged by Servicer as a sub-servicer or any of Borrower’s Affiliates related in any way to the originating, holding, collecting, pledging, servicing or enforcing of any Pledged Leases or rendering the Purchase and Sale Agreement or Portfolio Documents unenforceable in such state; provided, that, in each case, upon the favorable resolution of such inquiry, investigation, action or proceeding as determined by Agent in its Permitted Discretion and confirmed by written notice from Agent (whether by judgment, withdrawal of such action or
proceeding or settlement of such action or proceeding), such Regulatory Trigger Event for such Governmental Authority shall cease to exist immediately upon such determination by Agent.
“Release Price” shall mean an amount equal to the then Current Lease Balance of the Pledged Lease as of the close of business on the last Business Day of the Due Period relating to the Payment Date immediately preceding the date on which the release is to be made.
“Request for Revolving Advance” shall have the meaning assigned to it in Section 4.2(a) hereof.
“Required Loan Overadvance Principal Payment” shall mean, with respect to any Payment Date, the positive difference, if any, as of the last day of the calendar week immediately preceding such Payment Date of (a) the outstanding principal balance of the Loans (prior to giving effect to any payments to be made on such Payment Date) minus (b) the Borrowing Base.
“Requisite Lenders” shall mean at any time Lenders then holding fifty-one percent (51%) or more of the aggregate amount of the Advances then outstanding, provided, that at any time that Agent and its Affiliates collectively own more than thirty five percent (35%) or more of the aggregate amount of the Advances then outstanding, then Requisite Lenders must include Agent and any matter requiring the consent or approval of Requisite Lenders shall require the consent or approval of Agent.
“Responsible Officer” shall mean the chief executive officer, chief financial officer or the president of Borrower, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants or delivery of financial information, the chief financial officer, the treasurer or the controller of Borrower, or any other officer having substantially the same authority and responsibility, and in all cases such person shall be listed on an incumbency certificate delivered to Agent, in form and substance acceptable to Agent in its sole discretion.
“Revolving Advance” or “Revolving Loan Advance” shall have the meaning assigned to it in Section 2.1 hereof.
“Revolving Credit Period” shall mean the period beginning on the Closing Date and ending on the Maturity Date, unless terminated earlier in accordance with the provisions hereof.
“Revolving Loan Commitment” shall mean the commitment of a Lender to make or otherwise fund Revolving Loan Advances and “Revolving Loan Commitments” shall mean such commitments of all Lenders to fund Revolving Loan Advances in the aggregate. The initial amount of each Lender’s Revolving Loan Commitment, if any, is set forth on Schedule B attached hereto, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Loan Commitments as of the Closing Date is $50,000,000.00, provided, that, upon the election of the Agent and any Lenders that elect to increase their Revolving Loan Commitment, pursuant to Section 2.13, the Revolving Loan Commitments may be increased incrementally up to, but shall never exceed, $150,000,000.
“Routine Inquiry” shall mean, without limitation, any inquiry, written or otherwise, made by a competent Governmental Authority with legal authority to regulate the activities of Borrower, Holdings or their respective Affiliates with respect to the Leases, made via a form letter or otherwise in connection with the routine transmittal of a consumer complaint or an alleged failure to comply with such State’s lending licensing requirements or its deferred deposit or “payday” lending laws or similar laws that are not applicable to Borrower, Holdings or their respective Affiliates with respect to the Leases.
“Scheduled Payment” shall mean the originally scheduled weekly, bi-weekly or monthly payment by or on behalf of an Account Lessee on a Lease.
“Security Documents” shall mean this Agreement, each Guaranty, the Collateral Assignment of Purchase Agreement, the Pledge Agreement, UCC financing statements, the Collateral Account Control Agreement, other agreements related to Deposit Accounts, and all other documents or instruments necessary to create or perfect the Liens in the Collateral, as such may be modified, amended or supplemented from time to time.
“Servicer” shall mean Holdings or such other Person, prior to the occurrence of an Event of Default, designated and engaged by the Borrower and approved by Agent (including, without limitation, Advensus).
“Servicer Default” shall mean a “Servicer Event of Default” as such term is defined in the Servicing Agreement.
“Servicer Physical Payment Address” shall have the meaning assigned to it in Section 2.3(a) hereof.
“Servicing Agreement” shall mean (a) that certain Servicing Agreement, dated as of the Closing Date, by and among the Borrower, Holdings and Agent, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time and (b) each other agreement pursuant to which Pledged Leases will be serviced and administered in accordance with the terms of this Agreement.
“Servicing Fee” shall mean the fee payable monthly to Holdings pursuant to the Servicing Agreement, which shall be equal to the product of (i) three percent (3%) and (ii) the sum of the amounts described in clauses (a), (c) and (e) of the definition of “Available Amounts” collected by Servicer during the calendar month immediately preceding the Payment Date on which fee is to be paid to the Servicer.
“Servicing Policy” means servicing, collections and payment plan policies of each Servicer, copies of which are attached hereto as Exhibit G, as such policies may be amended from time to time in compliance with the applicable Servicing Agreement.
“Settlement Date” shall have the meaning assigned to it in Section 13.5(a)(ii) hereof.
“Significant Debt Facility” shall mean the credit facilities evidenced by (a) the Convertible Notes, (b) the VPC Bridge Notes, (c) the Ivy Management Loan Agreement, (d) any Subordinated Indebtedness facility, (e) any other facility, note, agreement or indenture evidencing Indebtedness of Parent Entity or Holdings and/or their Subsidiaries in excess of $1,000,000 (all indebtedness (x) made on substantially the same terms and (y) held by the same lenders or Affiliates of such lenders shall be considered in totality when calculating compliance with this threshold).
“Solvency Certificate” shall have the meaning assigned to it in Section 4.1(e) hereof.
“Specified Regulatory Change” means a legal or regulatory change, the effect of which is to materially and adversely impair the ability of any Borrower, Holdings or Parent Entity to originate, own, hold, pledge, service, collect or enforce the Pledged Leases or similar assets.
“Subordination Agreement” means, initially, that certain Subordination Agreement, dated as of the Closing Date, by and between Agent and each holder of Subordinated Indebtedness on the Closing Date, as amended, restated, supplemented, or otherwise modified from time to time,
and thereafter any other subordination and/or intercreditor agreement in form and substance acceptable to Agent, subordinating any Indebtedness of Borrower or Holdings to the Indebtedness evidenced by this Agreement and the other Loan Documents.
“Subordinated Indebtedness” shall mean any Indebtedness or other obligations of Borrower, Holdings or any of its Subsidiaries owing to any Person that is subordinated (pursuant to a Subordination Agreement), whether by written contract or otherwise, in right of payment, liens, security and remedies to all of the Obligations and all of Agent and Lenders’ rights, Liens and remedies in form and substance satisfactory to Agent in its sole discretion.
“Subsidiary” shall mean, as to any Person, any other Person in which more than fifty percent (50%) of all Voting Equity Interests is owned directly or indirectly by such Person or one or more of its Subsidiaries.
“Tangible Net Worth” shall mean, for any Person, without duplication, an amount equal to, such Person’s (a) total assets, minus (b) capitalized information technology expenses, capitalized transaction expense and other capitalized expenses, minus (c) prepaid expenses, minus (d) other intangible assets, minus (e) total liabilities.
“Taxes” shall mean present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (including penalties, interest and additions to tax), imposed by any Governmental Authority.
“Termination Date” shall have the meaning assigned to it in Section 11.1 hereof.
“Third Party Serviced Lease” shall mean any Lease originated through Holdings’ origination platform on behalf of a third-party (including Metro PCS) and serviced by Holdings.
“Trailing Six Month Parent Consolidated Net Income” shall mean the sum of the Parent Consolidated Net Income for the prior six (6) calendar month period.
“Transferee” shall have the meaning assigned to it in Section 12.2(a) hereof.
“UCC” shall mean the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” shall mean the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
“Underwriting Guidelines” shall mean Holdings’ customary credit and underwriting and guidelines as set forth in its underwriting model, a copy of each is attached hereto as Exhibit E, as such guidelines are amended from time to time with the consent of Agent (which consent may be provided in Agent’s Permitted Discretion), provided, that any material amendments thereto shall be subject to Agent’s consent, which may be granted in Agent’s Permitted Discretion.
“Unrelated Connections” shall have the meaning assigned to it in Section 13.8(a) hereof.
“Unmatured Defaulted Lease” shall mean any Pledged Lease for which any portion of a Scheduled Payment (without giving effect to any modifications of such Pledged Lease after the date such Pledged Lease was first pledged hereunder or under any other Loan Document) is delinquent more than thirty (30) but less than sixty (60) days.
“Utilization Ratio” shall mean, as of any date of determination, the percentage calculated as (a) the total outstanding principal balance of the Loans as of such date, divided by (b) the then applicable Maximum Loan Amount.
“Verification Certificate” shall mean the original certificate in the form annexed to the Backup Servicing Agreement, duly completed and signed by the Backup Servicer.
“Verification Deliverables” shall mean:
with respect to each Pledged Lease:
(a) an electronic schedule in a format described in the Backup Servicing Agreement containing a list of the proposed Leases to be pledged to Agent as Collateral for the Loan (including such Pledged Lease), and account information with respect thereto;
(b) complete and accurate copy of the electronic record of the original electronic credit application, Lease and the electronic signature by the related Account Lessee, and which shall originally be payable to Holdings and, with respect to each electronic Lease, a bill of sale (or other documentation acceptable to Agent in its Permitted Discretion) which evidences a complete chain of title and ownership from Holdings to Borrower, and such other documentation evidencing the pledge from Borrower in favor of Agent, all as further provided in the Backup Servicing Agreement;
(c) electronic copies of all other agreements and documents relating to such Lease; and
(d) a copy of each of the credit application, truth-in-lending disclosure, credit report and similar information provided by or related to each Account Lessee for such Lease; and
(e) such other documents not otherwise described above as Agent, as specified in writing to Borrower, may reasonably require from time to time.
“Vintage Pool” shall mean and refers to, at any given time, all Pledged Leases that were originated in a particular fiscal month. By way of example, and not by way of limitation, all Pledged Leases that were originated in a single fiscal month shall constitute one Vintage Pool, regardless of when Borrower purchases said Pledged Leases from Holdings.
“Voting Equity Interests” means, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right to so vote has been suspended by the happening of such contingency.
“VPC Bridge Notes” shall mean each of the promissory notes made by Holdings in favor of Victory Park Capital Management listed on Schedule 1.1(b) hereof.
II.LOAN, PAYMENTS, INTEREST AND COLLATERAL
1.1The Loan
(a)Subject to the provisions of this Agreement, including, without limitation satisfaction or waiver in writing by Agent of all conditions set forth in Article IV hereof, each Lender severally agrees to make Advances (or to request Agent to make Agent Advances pursuant to Section 13.4(b)) up to such Lender’s respective Revolving Loan Commitment to Borrower under the Loan from time to time on or prior to the last day of the Revolving Credit Period (collectively, the “Revolving Loan Advances”). Each Revolving Loan Advance shall be made in an amount requested by Borrower not to exceed the Availability as of such date of determination by deposit into a Deposit Account designated by Borrower; provided, that under no circumstances shall the outstanding amount of the Loan exceed the Maximum Loan Amount, and provided, further, no Lender shall be obligated to provide funding for any Advance that would increase the aggregate of all outstanding amounts funded by such Lender (including any Advances made by any predecessor in interest to such Lender) to an amount in excess of the stated principal amount of that Lender’s Note or such Lender’s Revolving Loan Commitment. Unless otherwise permitted by Agent, each Revolving Loan Advance shall be in an amount of at least Two Hundred Fifty Thousand Dollars ($250,000). No more than one (1) Revolving Loan Advance may be made hereunder in any calendar week. Any such request for an Advance by Borrower must be made by 1:00 p.m. EST two (2) Business Days prior to the proposed borrowing date and shall contain a certification from an officer of Borrower representing that all conditions precedent to the funding of such Revolving Advance contained herein are satisfied. Subject to the terms hereof Revolving Advances may be repaid and re-borrowed prior to the expiration of the Revolving Credit Period. The failure of any Lender to make any Advance required to be made by it shall not relieve any other Lender of its obligations hereunder; provided, that the Revolving Loan Commitment of each Lender is several and no Lender shall be responsible for any other Lender’s failure to make required Advances. Notwithstanding anything else herein to the contrary, no Revolving Loan Advances shall be made or requested after the last day of the Revolving Credit Period. In connection with the initial Revolving Advance made to Borrower on or after the Closing Date, Agent shall retain (for the benefit of Lenders), the OID required to be paid in accordance with Section 3.5(a). In the event the Maximum Loan Amount is increased in accordance with Section 2.14 hereof, Agent may retain (for the benefit of Lenders) from the next Revolving Advance made to Borrower, any Increase OID required to be paid in accordance with Section 3.5(b) or (c) hereof from the Revolving Loan Advance(s) following such increase.
(b)Notes. The Advances made by each Lender shall, to the extent requested by a Lender, be evidenced by a promissory note payable to the order of such Lender, substantially in the form of Exhibit B (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, a “Note”), executed by Borrower and delivered to the Agent on the Closing Date (or after the Closing Date in respect of any assignee of a Lender who becomes a Lender pursuant to Section 12.2 or any Lender who requests a Note after the Closing Date). The Note payable to the order of a Lender shall be in a stated maximum principal amount equal to such Lender’s applicable Revolving Loan Commitment.
(c)Payment of the Loan. Borrower shall repay the Loan pursuant to and in accordance with the terms of this Agreement and the Notes evidencing the Loans. Each Revolving Advance shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date. All other amounts outstanding under the Loan and all other Obligations under the Loan shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date.
(d)Promptly following receipt of a Request for Revolving Loan Advance in accordance with Section 4.2(a) and all other deliverables described therein, Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Advance to be made as a part of the requested Advance. Each Lender shall make each Advance to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon (New York City time) to the account of Agent most recently designated by it for such purpose by notice to Lenders. Unless Agent shall have received notice from a Lender prior to the proposed date of any Advance that such Lender will not make available to Agent such Lender’s share of such Advance, Agent may assume that such Lender has made such share available on such date in accordance with the previous sentence and may, in reliance upon such assumption, make available to Borrower a corresponding amount. In lieu of the foregoing, Agent may, on behalf of any Lender, make, or cause Lender that is an Affiliate of Agent to make, Advances hereunder upon satisfaction of the provisions of Section 4.2(a). Each Lender shall, upon demand, reimburse Agent (or such Affiliate of Agent) for such Lender’s Pro Rata Share of each such Advance. In such event, if a Lender has not in fact made its share of the applicable Advance available to Agent, then the applicable Lender and Borrower severally agree to pay to Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to Borrower to but excluding the date of payment to Agent, at the Calculated Rate and, until such Lender has paid such amount to Agent, all amounts owed to such Lender hereunder (whether interest, fees, principal or otherwise) shall paid to Agent (or any Affiliate of Agent that has funded such amounts in lieu of such Lender) in such amount as is necessary to repay in full such unfunded amounts owed by such Lender and such Lender shall not be entitled to receive any amounts hereunder until such unfunded amounts have been repaid in full. If such Lender pays such amount to Agent, then such amount shall constitute such Lender’s Pro Rata Share of such Advance. No Lender shall be obligated to make an Advance on behalf of another Lender.
1.2Interest on the Loan
(a)The Borrower agrees to pay interest in respect of the outstanding principal amount of the Loan, weekly in arrears in accordance with Section 3.4 to Agent for the account of Lenders, from the date the proceeds thereof are made available to the Borrower until paid in full, (x) at all times prior to the occurrence of a Positive Net Income Trigger Date, at a rate per annum equal to the lesser of (i)(A) the LIBOR Rate plus eleven (11%) per annum (such rate, the “Initial Calculated Rate”) and (ii) the Maximum Rate and (y) after the occurrence of a Positive Net Income Trigger Date, at a rate per annum equal to the lesser of (i)(A) the LIBOR Rate plus (B) seven and one half of one percent (7.5%) per annum (such rate, the “Positive Net Income Trigger Calculated Rate” and together with the Initial Calculated Rate, each a “Calculated Rate”) and (ii) the Maximum Rate. All such payments of interest shall be made weekly pursuant to Section 2.4, and, in any event, shall be due and owing no later than the Payment Date of each calendar week for the immediately preceding calendar week, provided, that, on any Interest Settlement Date on which interest has accrued, but has not been paid pursuant to Section 2.4, Agent shall be entitled to apply any or all Available Amounts on deposit in the Collateral Account to the payment of any accrued interest and fees for the preceding month payable to the Lenders pursuant to Section 13.5(a)(iii) hereof. If Lenders are prevented from charging or collecting interest at the Calculated Rate, to the extent permitted by law, then the interest rate shall continue to be the Maximum Rate until such time as Lenders have charged and collected the full amount of interest that would be chargeable and collectable if interest at the Calculated Rate had always been lawfully chargeable and collectible. Whenever, subsequent to the date of this Agreement, the LIBOR Rate is increased or decreased, the Applicable Rate shall be similarly changed without notice or demand of any kind by an amount equal to the amount of such change in the LIBOR Rate (subject to the Maximum Rate).
(b)The weekly interest due on the principal balance of the Loan outstanding shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days and shall be calculated by determining the average daily principal balance of the Obligations under the Loan Documents outstanding for each day.
1.3Loan Collections; Repayment.
(a)Borrower shall, or shall cause Servicer to, instruct the Account Lessee and the Servicer’s payment processing company of each Pledged Lease to pay directly to the Collateral Account or by delivery to the addresses set forth in the Servicing Agreement (the “Servicer Physical Payment Address, all Scheduled Payments, prepayments (both voluntary and mandatory), and other amounts received of any and every description payable to Borrower by or on behalf of such Account Lessee pursuant to the applicable Pledged Lease, the related Portfolio Documents, or any other related documents or instruments. All such amounts delivered to the Servicer Physical Payment Address shall be received and held in trust for the sole and exclusive benefit of the Agent and shall be directed to the Collateral Account within two (2) Business Days after such amounts so received and held by the Servicer equals or exceeds $25,000. In the event that Servicer or Borrower receives any payments on any Pledged Lease directly from or on behalf of the Account Lessee thereof in a manner other than through a deposit into the Collateral Account or a payment at a Servicer Physical Payment Address, the Servicer or Borrower, as applicable, shall receive and hold all such payments in trust for the sole and exclusive benefit of Agent, and Servicer or Borrower, as applicable, shall deliver to the Collateral Account within two (2) Business Days after such amounts so received and held by the Servicer equals or exceeds $25,000 all such payments (in the form so received) as and when received by Servicer or Borrower, as applicable, unless Agent shall have notified Servicer or Borrower, as applicable, to deliver directly to Agent all payments in respect of the Leases after the occurrence and during the continuance of an Event of Default, in which event all such payments (in the form received) shall be endorsed by Servicer or Borrower, as applicable, to Agent and delivered to Agent promptly upon Servicer or Borrower’s receipt thereof.
(b)At any time after the occurrence and during the continuance of an Event of Default, Agent shall have the right to notify any Account Lessee to mail or otherwise deliver payments directly to an address determined by Agent or to otherwise deposit such sums in the Collateral Account or any other deposit account established by Agent from time to time.
(c)All Scheduled Payments, interest, principal, prepayments (both voluntary and mandatory), and other amounts received of any and every description payable to Borrower by or on behalf of such Account Lessee pursuant to the applicable Lease, the related Portfolio Documents, or any other related documents or instruments with respect to the Leases pledged as Collateral for the Revolving Advances shall be paid directly to the Collateral Account.
1.4Promise to Pay; Manner of Payment.
(a)Payments. On each Payment Date, payments shall be made by the Agent from the Collateral Account in the following order of priority and to the extent of the Available Amounts:
(i)to the Borrower, the portion of the Available Amounts that are identifiable as sales tax receipts received by Borrower or Servicer during the period since the prior Payment Date with respect to any Pledged Lease;
(ii)on the last Payment Date to occur in each calendar month, to Servicer, the Servicing Fee for such calendar month until paid in full, and any such fees that remain unpaid with respect to one or more prior Payment Dates, provided, that if
Servicer is Holdings or an Affiliate of Holdings, such payments shall not be made if an Event of Default has occurred and is continuing as of such Payment Date unless otherwise agreed by Agent in its sole discretion;
(iii)on the last Payment Date to occur in each calendar month, to the Backup Servicer, the Backup Servicer Fee for such calendar month until paid in full, including any such fees that remain unpaid with respect to one or more prior Payment Dates;
(iv)to Agent, for the benefit of Lenders, first, any Protective Advances, together with all interest owed with respect to all Protective Advances, and second, any indemnities owed by Borrower or Guarantor to Agent or any Lender, in each case, to the extent not previously reimbursed or paid;
(v)to Agent, for the benefit of itself and the Lenders, (A) all accrued and unpaid, costs, fees and expenses relating to the Advances and (B) all accrued and unpaid costs, fees and expenses relating to the other Obligations as of such Payment Date;
(vi)to Agent, for the benefit of itself and the Lenders (A) all accrued and unpaid interest (including any Prepayment Additional Interest and Additional Interest) relating to the Advances and (B) all accrued and unpaid interest relating to the other Obligations as of such Payment Date;
(vii)if no Event of Default has occurred and is continuing, to Agent, for the benefit of itself and the Lenders, the Required Loan Overadvance Principal Payment, if any;
(viii)if no Event of Default has occurred and is continuing and if directed in writing by the Borrower, to Agent, for the benefit of itself and the Lenders, the Advances in the amount specified by the Borrower in such writing;
(ix)if an Event of Default has occurred and is continuing, to Agent, for the benefit of Lenders, any remaining Available Amounts in the Collateral Account to the extent of Obligations owing to Lenders to be applied in accordance with Section 2.4(c) hereof; and
(x)to the Borrower, any remaining Available Amounts in the Collateral Account.
(b)In the event that amounts distributed under Section 2.4(a) as of each Payment Date are insufficient for payment of the amounts set forth in Section 2.4(a)(i),(ii), (iii), (iv), (v) for such Payment Date, Borrower shall pay an amount equal to the extent of such insufficiency (i) through a Revolving Loan Advance (if available pursuant to the terms hereof) hereunder on such date of determination, or (ii) if insufficient Availability or another failure of a condition precedent to an Advance then exists, from a wire transfer of immediately available funds by Holdings or Borrower within two (2) Business Days of request by Agent. Agent shall distribute any such payment received by it for the account of any Lender to the appropriate Lender in accordance with the terms hereof.
(c)Following the occurrence and during the continuance of an Event of Default, Agent shall have the immediate right to direct and to apply all funds in the Collateral Account delivered to it pursuant to Section 2.4(a)(vi) and any other Scheduled Payments, prepayments and other amounts received of every description payable to Borrower or received
by the Lender on account of the exercise of its remedies hereunder or under any other Loan Document to the Obligations in such order and in such manner as Agent shall elect in its sole discretion.
(d)Borrower absolutely and unconditionally promises to pay, when due and payable pursuant hereto, principal, interest and all other amounts and Obligations payable, hereunder or under any other Loan Document, without any right of rescission and without any deduction whatsoever, including any deduction for set-off, recoupment or counterclaim, notwithstanding any damage to, defects in or destruction of the Collateral or any other event, including obsolescence of any property or improvements. Except as expressly provided for herein, Borrower hereby waives setoff, recoupment, demand, presentment, protest, and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under this Agreement and any other Loan Document, all to the extent permitted by law. Each Revolving Advance shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date. All other amounts outstanding under the Loan and all other Obligations under the Loan shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date.
1.5Voluntary Prepayments
(a)Except as set forth in Section 2.5(b) below, the Loan may be prepaid only through the collections of Scheduled Payments and any other amounts with respect to the Leases.
(b)Voluntary Prepayment. Borrower may voluntarily prepay, in whole, but not in part, the principal balance of the Loan at any time after (but not before) May 14, 2021 (“Lockout Period Termination Date”), so long as Borrower shall have identified such prepayment date (the “Prepayment Date”) and given Agent not less than thirty (30) calendar days prior written notice in advance of such proposed Prepayment Date. Notwithstanding anything herein to the contrary, Borrower shall be liable for the Prepayment Additional Interest with respect to any voluntary prepayment of the Loan to which such Prepayment Additional Interest applies, which Prepayment Additional Interest shall be paid concurrently with such prepayment. For the avoidance of doubt, in connection with any prepayment of the principal balance of the Loan made on or prior to the Lockout Period Termination Date, Borrower shall be liable for the Prepayment Additional Interest provided for in clause (i) of the definition thereof with respect to any such prepayment of the Loan. Upon the payment by the Borrower in cash in full of the Obligations (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made) pursuant to this Section 2.5(b), the Revolving Loan Commitments shall terminate.
1.6Mandatory Prepayments
(a)If a Change of Control occurs that has not been consented to in writing by Agent prior to the consummation thereof, on or prior to the first Business Day following the date of such Change of Control, Borrower shall prepay the Loan and all other Obligations (other than, indemnity obligations that are not then due and payable or with respect to which no claim has been made) in full in cash together with accrued interest thereon to the date of such prepayment and all other amounts owing to Agent and Lenders under the Loan Documents and the Prepayment Additional Interest that would be payable on such date, provided, that if such Change of Control occurs during the first twelve months following the Closing Date as a result of a Change of Control occurring pursuant to clause (iii) of the definition thereof, the Borrower shall also pay Agent, for the benefit of the Lenders, an amount equal to the Lockout Period Additional Interest; provided, further, that any such prepayment shall be in compliance with Section 6.16 hereof.
(b)In addition to and without limiting any provision of any Loan Document, if Borrower, in any transaction or series of related transactions, (a) sells any Pledged Lease or other material assets or other properties, (b) sells or issues any equity or debt securities, Equity Interests or other ownership interests other than, in each case, to Holdings or (c) incurs any Indebtedness except for Permitted Indebtedness, then it shall deposit 100% (or such lesser amount as is required to indefeasibly pay in cash in full the Obligations (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made)) of the cash proceeds thereof (net of reasonable transaction costs and expenses and taxes) to the Collateral Account, and the Prepayment Additional Interest provided for in clause (i) of the definition thereof, provided, that if such event occurs on or prior to May 14, 2021, Borrower shall also pay Agent, for the benefit of the Lenders, an amount equal to the amount of interest that would have accrued on the sum of the principal balance of the Loan plus projected further utilization of the Loan hereunder (as determined by Agent in its Permitted Discretion), from such date of prepayment to May 14, 2021, at a per annum rate equal to the Calculated Rate.
(c)In no event shall the sum of the aggregate outstanding principal balance of the Loan exceed the lesser of (i) the Borrowing Base and (ii) the Maximum Loan Amount. If at any time and for any reason, the outstanding unpaid principal balance of the Loan exceeds the Maximum Loan Amount, Borrower shall promptly, and in any event within five (5) Business Days, without the necessity of any notice or demand, whether or not a Default or Event of Default has occurred or is continuing, prepay the principal balance of the Loan in an amount equal to the difference between the then aggregate outstanding principal balance of the Loan and the Maximum Loan Amount. If at any time and for any reason, the outstanding unpaid principal balance of the Loan exceeds the Borrowing Base (including due to any Eligible Lease thereafter failing to meet the eligibility criteria and becoming an Ineligible Lease; provided, however, that if such Lease is an Ineligible Lease solely as a result of a Regulatory Trigger Event described in clause (xxix) of the definition of “Eligible Leases” Borrower shall have forty five (45) calendar days after the earlier of its discovery or receipt of notice thereof to comply with this clause(c) of Section 2.6), then Borrower shall without the necessity of any notice or demand, whether or not a Default or Event of Default has occurred or is continuing, either (x) prepay the principal balance of the Loan in an amount equal to the difference between the then aggregate outstanding principal balance of the Loan and the Borrowing Base or (y) increase the aggregate principal balance of Eligible Leases pledged to Agent in accordance with this Agreement so that the Borrowing Base is equal to or exceeds the then outstanding principal balance of the Loan. The pledge and delivery to Agent of additional Eligible Leases shall comply with the document delivery requirements set forth in Sections 2.9 and 4.2 of this Agreement, as applicable, and shall be accompanied by a certification from Borrower that demonstrates that after giving effect to the pledge to Agent of such additional Eligible Leases, the outstanding unpaid principal balance of the Loan is equal to or less than the Borrowing Base.
1.7Payments by Agent; Protective Advances
(a)Should any amount required to be paid under any Loan Document be unpaid beyond any applicable cure period, such amount may be paid by Agent, for the account of Lenders, which payment shall be deemed a request for an Advance under the Loan as of the date such payment is due, and Borrower irrevocably authorizes disbursement of any such funds to Agent, for the benefit of itself and the Lenders, by way of direct payment of the relevant amount, interest or Obligations in accordance with Section 2.4 without necessity of any demand whether or not a Default or Event of Default has occurred or is continuing. No payment or prepayment of any amount by Agent, Lenders or any other Person shall entitle any Person to be subrogated to the rights of Agent and/or Lenders under any Loan Document unless and until the Obligations are repaid in full and the Loan Agreement and the other Loan Documents have been terminated. Any sums expended or amounts paid by Agent and/or Lenders as a result of Borrower’s failure
to pay, perform or comply with any Loan Document or any of its Obligations may be charged to Borrower’s account as an Advance under the Loan and added to the Obligations.
(b)Notwithstanding any provision of any Loan Document, Agent, in its sole discretion, shall have the right, but not any obligation, at any time that Borrower fails to do so, and from time to time, without prior notice, to: (i) discharge (at the Borrower’s expense) taxes or Liens affecting any of the Collateral that have not been paid in violation of any Loan Document or that jeopardize the Agent’s Lien priority in the Collateral, including any underlying collateral securing any Lease; or (ii) make any other payment (at the Borrower’s expense) for the administration, servicing, maintenance, preservation or protection of the Collateral, or any underlying collateral securing any Lease (each such advance or payment set forth in clauses (i) and (ii), a “Protective Advance”). Agent shall be reimbursed for all Protective Advances pursuant to Section 2.4 and any Protective Advances shall bear interest at the Applicable Rate plus the Default Rate from the date the Protective Advance is paid by Agent until it is repaid. No Protective Advance by Agent shall be construed as a waiver by Agent, or any Lender of any Default, Event of Default, Default Trigger Event, First Payment Default Trigger Event or any of the rights or remedies of Agent or any Lender.
1.8Grant of Security Interest; Collateral
(a)To secure the payment and performance of the Obligations, Borrower hereby grants to Agent, for the benefit of itself and the other Lenders, a valid, perfected and continuing first priority Lien upon all of Borrower’s right, title, and interest, whether now owned or existing or hereafter from time to time acquired or coming into existence, in, to, and under all of Borrower’s assets (collectively, the “Collateral”), including, but not limited to Borrower’s right, title and interest, if any, in, to and under: (i) all Leases and all amounts due or to become due under the Leases, (ii) all Inventory and other personal property securing the payment of any Lease, (iii) all Portfolio Documents and all rights, remedies, powers, privileges, and claims under the Portfolio Documents, (iv) the Collateral Account and all funds and other property credited to the Collateral Account; (v) the Purchase and Sale Agreement, each Servicing Agreement, and the Backup Servicing Agreement and all rights, remedies, powers, privileges, and claims under those contracts, (vi) all Accounts, General Intangibles, Chattel Paper, Instruments, Documents, Goods, money and any rights to the payment of money or other forms of consideration of any kind, Deposit Accounts, Investment Property, letters of credit, Letter-of-Credit Rights, Contract Rights, Contracts, Supporting Obligations, Equipment, Inventory, Fixtures, Computer Hardware, Software, securities, Permits, intellectual property, and oil, gas and other minerals; (vii) all other personal property and other types of property of Borrower (except as limited in clause (iv) above), including, but not limited to, all goods (including, but not limited to, the Inventory) owned by Borrower, whether or not such goods are the subject of a Lease and (viii) all Proceeds of all of the foregoing and all other types of property of Borrower (except as limited in clause (iv) above).
(b)Borrower shall promptly notify Agent of any Commercial Tort Claims of the Borrower, individually or in the aggregate, involving damages of more than $500,000 related to any Collateral in which Borrower has an interest arising after the Closing Date and shall provide all necessary information concerning each such Commercial Tort Claim and take all necessary action with respect thereto to grant and perfect a first priority Lien thereon in favor of Agent for the benefit of itself and the other Lenders.
(c)Borrower has full right and power to grant to Agent, for the benefit of itself and the other Lenders, a perfected, first priority Lien on the Collateral pursuant to this Agreement, subject to Permitted Liens. Upon the execution and delivery of this Agreement, and upon the filing of the necessary financing statements and other documents and the taking of all other necessary action, Agent will have a valid and first priority perfected Lien on the Collateral,
subject to no transfer or other restrictions or Liens of any kind in favor of any other Person other than Permitted Liens. As of the Closing Date, no financing statement naming Borrower as debtor and describing any of the Collateral is on file in any public office except those naming Agent as secured party and those related to the Permitted Liens. As of the Closing Date, Borrower is not party to any agreement, document or instrument that conflicts with this Section 2.8.
(d)Borrower hereby authorizes Agent to prepare and file financing statements provided for by the UCC with all appropriate jurisdictions to perfect or protect the Lenders’ security interest or rights hereunder, and to take such other action as may be required, in Agent’s Permitted Discretion, in order to perfect and to continue the perfection of Agent’s Lien on the Collateral, for the benefit of itself and the other Lenders, including a notice that any disposition of the Collateral, by either the Borrower or any other Person, shall be deemed to violate the rights of the Lender under the UCC. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in the Agent’s sole discretion.
(e)For the avoidance of doubt, no Collateral shall be released (except as specifically set forth herein) until payment in full of all of the Obligations.
(f)Agent, Lenders and Borrower hereby agree that upon funding of any Revolving Loan Advance, the Borrowing Base Certificate prepared by Borrower and approved by Agent shall automatically supplement and add the Leases described therein to any Leases described in any previously-delivered Borrowing Base Certificate and shall constitute Collateral for purposes of this Agreement.
1.9Collateral Administration
(a)All tangible Collateral (except Collateral in the possession of Backup Servicer or Agent) will at all times be kept by Borrower or Servicer at the locations set forth on Schedule 5.17B hereto, and shall not, without thirty (30) calendar days prior written notice to Agent, be moved therefrom other than to another such location, and in any case shall not be moved outside the continental United States. Borrower hereby agrees to deliver to the Agent and Backup Servicer or, upon the request of the Agent, to the Servicer, on or prior to the date of each Revolving Advance, the Verification Deliverables for each Lease that is to be added to the Collateral in connection with such Revolving Advance. From and after the funding of each Advance hereunder, the originals of all Leases constituting Collateral in respect of such Advance shall, regardless of their location, be deemed to be under Agent’s dominion and control and deemed to be in Agent’s possession. Any of Agent’s officers, employees, representatives or agents, including, without limitation, Backup Servicer, shall have the right upon reasonable notice, at any time during normal business hours, in the name of Agent or any designee of Agent or Borrower, to verify the validity, amount or any other matter relating to the Collateral. Borrower shall cooperate fully with Agent in an effort to facilitate and promptly conclude such verification process. In addition to any provision of any Loan Document, Agent shall have the right at all times after the occurrence and during the continuance of an Event of Default to notify Account Lessees party to Leases held by Borrower that their Leases have been assigned to Agent and to collect such Leases directly in Agent’s own name, for the benefit of itself and the Lenders, and to charge collection costs and expenses, including attorney’s fees, to Borrower.
(b)As and when determined by Agent in its sole discretion, Agent will perform the searches described in clauses (i) and (ii) below against Borrower, Servicer and Holdings: (i) UCC searches with the Secretary of State and local filing offices of each jurisdiction where Borrower, Servicer or Holdings is organized; and (ii) judgment, bankruptcy, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction where
Borrower, Servicer or Holdings maintains their executive offices, a place of business or any assets.
(c)Borrower shall keep accurate and complete records of the Collateral and all payments and collections thereon and shall submit such records to Agent on such periodic basis as Agent may request in its Permitted Discretion.
(d)In respect of the portion of the Collateral consisting of any Lease which is evidenced by an electronic record that is not a transferable record under Applicable Law, Borrower shall deliver to Agent or, at the request of Agent, Servicer (i) the original Portfolio Documents; and (ii) originals or true copies of the truth-in-lending disclosure statements and, if required by Agent, lease applications, any related Account Lessee’s acknowledgments and understandings, and other receipts and payment authorization agreements, which shall be delivered, at Borrower’s expense, to Agent at its address set forth herein or as otherwise specified by Agent and, except as otherwise expressly provided herein to the contrary, held in Agent’s custody or, if Agent has so requested, Servicer’s or Backup Servicer’s custody until all of the Obligations have been fully satisfied or Agent expressly agrees to release such custody of such documents. In respect of the portion of the Collateral consisting of any Lease which is evidenced by an electronic record that is a transferable record under applicable law, Borrower shall deliver to Agent the control of such transferable electronic record in accordance with Applicable Law (to ensure, among other things, that Agent has a first priority perfected Lien in such Collateral), which shall be delivered, at Borrower’s expense, to Agent at its address as set forth herein or as otherwise specified by Agent and, except as otherwise expressly provided herein to the contrary, held in Agent’s possession, custody, and control until all of the Obligations have been fully satisfied or Agent expressly agrees to release such documents. Alternatively, Agent, in its sole discretion, may elect for the Servicer or Backup Servicer or any other agent to accept delivery of and maintain possession, custody, and control of all such documents and any instruments on behalf of Agent during such period of time. Borrower shall identify (or cause any applicable servicing agent to identify) on the related electronic record the pledge of such Lease by Borrower to Agent.
(e)Borrower hereby agrees to, and to cause Servicer to, take the following protective actions to prevent destruction of records pertaining to the Collateral: create an electronic file of the computerized information regarding the Collateral and provide Agent and Backup Servicer monthly with a copy of such file (A) no later than fifteen (15) days following the Closing Date and (B) no later than fifteen (15) days following the end of each calendar month following the Closing Date. Subject to the limitations set forth in Section 6.7 of this Agreement, Agent at all times during regular business hours (provided, that any electronic materials available on a website or through other remote electronic means for which Agent has been given access shall be available to Agent at all times) shall have the right to access and review any and all Portfolio Documents in Borrower’s or Servicer’s possession and any and all data and other information relating to Portfolio Documents as may from time to time be input to or stored within Borrower’s or Servicer’s computers and/or computer records including, without limitation, diskettes, tapes and other computer software and computer systems.
1.10Power of Attorney
Borrower hereby acknowledges and agrees that Agent is hereby irrevocably made, constituted and appointed the true and lawful attorney for Borrower (without requiring Agent to act as such) with full power of substitution to do the following upon the occurrence and during the continuation of an Event of Default: (i) endorse the name of Borrower upon any and all checks, drafts, money orders and other instruments for the payment of money that are payable to Borrower and constitute collections on the Pledged Leases; (ii) execute and/or file in the name of Borrower any financing statements, amendments to financing statements, schedules to financing
statements, releases or terminations thereof, assignments, instruments or documents that it is obligated to execute and/or file under any of the Loan Documents (to the extent Borrower fails to so execute and/or file any of the foregoing within two (2) Business Days of Agent’s request or the time when Borrower is otherwise obligated to do so); (iii) execute and/or file in the name of Borrower assignments, instruments, documents, schedules and statements that it is obligated to give Agent under any of the Loan Documents (to the extent Borrower fails to so execute and/or file any of the foregoing within two (2) Business Days of Agent’s request or the time when Borrower is otherwise obligated to do so); (iv) execute and/or file such documents as may be necessary to register and/or otherwise perfect Agent’s Lien on Borrower’s owned goods, including, but not limited to, the Inventory, and (v) do such other and further acts and deeds in the name of Borrower that Agent may deem necessary to enforce, make, create, maintain, continue, enforce or perfect Lender’s security interest, Lien or rights in any Collateral.
1.11Deposit of Release Price or Substitution of Eligible Lease. (a) Subject to Section 2.11(b), at any time, upon discovery by Borrower or upon notice from Holdings, Servicer or Agent that (i) any Lease is a Defaulted Lease, Borrower may, within ten (10) calendar days after the earlier of its discovery or receipt of notice thereof deposit the Release Price for such Lease in the Collateral Account. Notwithstanding the foregoing, Borrower may exercise its rights pursuant to this Section 2.11 solely with respect to the repurchase of Pledged Leases in a pool of Eligible Leases having an aggregate Current Lease Balance (measured as of the date of such repurchase) that is less than or equal to five percent (5%) of the sum of the funded Revolving Advances and the total unfunded Revolving Loan Commitment held by the Lenders with respect to such pool of Eligible Leases. Borrower shall deliver, or cause Servicer to deliver, a schedule of any Defaulted Leases so removed to Agent in connection with the Monthly Servicing Report and shall update all other reports and schedules accordingly.
(b) Release of Ineligible Lease. If the Release Price for any Defaulted Lease is deposited in the Collateral Account then, (a) the Agent’s Lien on such Defaulted Lease and all related Collateral is automatically released without any further action and (b) Agent shall, and shall cause Backup Servicer to, at Borrower’s sole cost and expense, deliver the related Portfolio Documents to Borrower or its designee and shall execute such documents, releases and instruments of transfer, prepared by Borrower at its sole cost and expense, or assignment and take such other actions as shall reasonably be requested by the Borrower to effect the release of such Defaulted Lease and the related Collateral.
1.12Collateral Account
(a)Collateral Account. Deposits made into the Collateral Account shall be limited to amounts deposited therein by, or at the direction of, Borrower or Servicer in accordance with this Agreement or the Purchase and Sale Agreement, as applicable, and Available Amounts.
(b)Withdrawals. Other than as set forth in clause (c) below, Agent shall have the sole and exclusive right to withdraw or order a transfer of funds from the Collateral Account, in all events in accordance with the terms and provisions of the Collateral Account Control Agreement, the Monthly Servicing Report and this Agreement. In addition, notwithstanding anything in the foregoing to the contrary, the Servicer may request, but Agent is obligated to comply only if an Event of Default has not occurred and is then continuing with such request, withdrawals or order transfers of funds from the Collateral Account, to the extent such funds either (i) have been mistakenly deposited into the Collateral Account or (ii) related to items subsequently returned for insufficient funds or as a result of stop payments. In the case of any withdrawal or transfer pursuant to the foregoing sentence, the Servicer shall provide Agent with notice of such request of withdrawal or transfer, together with reasonable supporting details, on the next Monthly Servicing Report to be delivered by the Servicer following the date of such
withdrawal or transfer (or in such earlier written notice as may be required by Agent from the Servicer from time to time). Borrower shall cause the Servicer to deposit all proceeds of the Collateral processed by the Servicer to the Collateral Account within two (2) Business Days of receipt. On each Payment Date, amounts in the Collateral Account shall be applied to make the payments and disbursements described in Section 2.4 and this Section 2.12. Agent agrees to use its best efforts to provide Borrower and Servicer, at all times other than during the continuance of an Event of Default, with on-line access to view account related activity (such as deposits to and withdrawals from) the Collateral Account to view account related activity such as deposits to and withdrawals from the Collateral Account. On the date that is two (2) Business Days prior to each Payment Date, Agent shall deliver to Borrower a notice setting forth the allocation of funds in the Collateral Account to be made on such Payment Date in accordance with Section 2.4 hereto (each such notice, an “Allocation Notice”), provided, that the failure of Agent to deliver an Allocation Notice to Borrower with respect to any Payment Date shall not affect any of the rights of Agent or any Lender or any obligation of Borrower under this Agreement or any other Loan Document. Except with respect to any manifest error in any Allocation Notice, the application of funds pursuant to Section 2.4 for the following Payment Date shall be made in accordance with such Allocation Notice.
(c)Irrevocable Deposit. Any deposit made into the Collateral Account hereunder shall, except as otherwise provided herein, be irrevocable, and the amount of such deposit and any money, instruments, investment property or other property on deposit in, carried in or credited to such Collateral Account hereunder and all interest thereon shall be held in trust by the Agent and applied solely as provided herein.
1.13 Maximum Loan Amount; Exclusive Right to Finance.
(a)At any time that the outstanding principal amount of the Loans is equal to 80% of the then-existing Maximum Loan Amount, Agent and the Lenders that are Affiliates of the Agent may, in their sole discretion, elect to provide Borrower one or more increases to the Maximum Loan Amount up to an aggregate amount after giving effect to all such increases equal to $150,000,000 with additional Revolving Loan Commitments from Lenders that are Affiliates of the Agent or new Revolving Loan Commitments from Persons acceptable to Agent, provided, that: (A) unless waived by Agent, in its sole discretion, at the time of any such increase, no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing; (B) unless waived by each Lender, in its sole discretion, no Lender shall be obligated to participate in any such increase by increasing the amount of its own Revolving Loan Commitment, which decision shall be in the sole discretion of each Lender whose Revolving Loan Commitment is being increased; (C) no such increase shall exceed $25,000,000; (D) Agent and Lenders shall have received any reasonable and documented fees or other amounts required by Agent and Lenders (including, without limitation, the payment (or net funding) of the applicable Increase OID) and (E) all documents reasonably required by Agent to evidence any such increase shall be executed and delivered to Agent on or before the effective date of such increase, including, without limitation, one or more new or replacement Notes.
(b)Reserved.
(c)Subject to Section 6.16 (Right of First Refusal), until such time as (i) the outstanding principal amount of the Loans is equal to and remains 95% or more of the Maximum Loan Amount in effect as of the Closing Date and (ii) the Agent and the Lenders have elected not to increase such Maximum Loan Amount pursuant to clause (a) above, Agent and Lenders shall have the exclusive right to finance on a first lien basis all Leases originated, acquired or held by
Borrower, Holdings, the Parent Entity (if any) and/or their respective Subsidiaries (it being understood that sales of Defaulted Leases otherwise permitted under this Agreement and the other Loan Documents shall not be treated as a financing), which Leases are serviced (or sub-serviced) by (x) Borrower, Holdings or any of their respective Subsidiaries (or any Person who performs servicing with respect to such Leases using the employees, facilities, equipment, systems or any other property that is owned by (or was previously owned by) Borrower, Holdings or their respective Subsidiaries) or (y) any third party servicer that is not an Affiliate of Borrower or Holdings on the same terms and conditions set forth in this Agreement. Borrower and Holdings covenant and agree not to form, or consent to or otherwise acquiesce in the formation of, any Affiliate or Subsidiary, or otherwise use any Affiliate or Subsidiary, or participate in any reorganization of or transfer of assets between Borrower or Holdings and any Affiliate or Subsidiary in an effort to circumvent the intent of the covenants, agreements and obligations set forth in this Section 2.13(c).
III.FEES AND OTHER CHARGES
1.1Computation of Fees; Lawful Limits
All fees hereunder shall be computed on the basis of a 360-day year consisting of twelve 30-day months. In no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Agent, for the benefit of itself and the other Lenders, for the use, forbearance or detention of money hereunder exceed the Maximum Rate permissible under Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Agent or Lenders shall have received interest or any other charges of any kind which might be deemed to be interest under Applicable Law in excess of the Maximum Rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrower hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance, Agent and Lenders shall promptly refund such excess amount to Borrower and the provisions hereof shall be deemed amended to provide for such permissible rate. The terms and provisions of this Section 3.1 shall control to the extent any other provision of any Loan Document is inconsistent herewith.
1.2Default Rate of Interest
Upon the occurrence and during the continuation of a Default or an Event of Default, the Applicable Rate of interest then in effect at such time with respect to the Obligations shall be increased by three percent (3.0%) per annum (subject to the Maximum Rate) (the “Default Rate”). Interest at the Default Rate shall accrue from the initial date of such Default or Event of Default until such Default or Event of Default is waived or ceases to continue, and shall be payable upon demand.
1.3Increased Costs; Capital Adequacy
(a)If any Change in Law shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (other than a Non-Funding Lender) and the result of any of the foregoing shall be to increase the cost (other than for Indemnified Taxes, Excluded Taxes or Other Taxes) to such Lender of making or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then Borrower will pay to such Lender on demand (which demand shall be accompanied by a statement setting forth the
basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent) such additional amount or amounts as will compensate Lender for such additional costs incurred or reduction suffered.
(b)If any Lender (other than a Non-Funding Lender) determines that any Change in Law regarding capital requirements (other than in respect of Taxes) has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level materially below that which such Lender or such Lender’s holding company, as applicable, could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company, as applicable, with respect to capital adequacy), then from time to time Borrower will pay to such Lender on demand (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent) such additional amount or amounts as will compensate such Lender’s or such Lender’s holding company, as applicable, for any such reduction suffered.
(c)A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or such Lender’s holding company, as the case may be, as specified in Sections 3.3(a) and (b), shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender on demand the amount shown as due on any such certificate pursuant to Section 2.4 of this Agreement.
(d)Failure or delay on the part of any Lender to demand compensation pursuant to this Section 3.3 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Borrower shall not be required to compensate a Lender pursuant to this Section 3.3 for any increased costs or reductions incurred more than 180 days prior to the date such Lender notifies Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
(e)Each Lender shall promptly notify Borrower and Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender's sole judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by Borrower to pay any amount pursuant to Sections 3.3(a) or (b) or (ii) the occurrence of any circumstances described in Sections 3.3(a) or (b) (and, if any Lender has given notice of any such event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify Borrower and Agent).
1.4Administration Fee
Borrower hereby agrees to pay to Agent, solely for the account of Agent, an administration fee (the “Administration Fee”) in the sum of Twelve Thousand Five Hundred and No/100 Dollars ($12,500), which fee shall be payable on the Closing Date and on the first Payment Date of each calendar quarter thereafter, in advance, for such calendar quarter.
1.5Original Issue Discount
(a)In connection with the initial Revolving Loan Advance, Borrower agrees that the funded amount of such initial Revolving Loan Advance shall be reduced by an original issue discount of $250,000.00 (the “Closing Date OID”), which Closing Date OID shall be
retained by the Agent, for the benefit of the Lenders, provided, that for the avoidance of doubt, Borrower agrees that, notwithstanding such deduction from the funded amount of the initial Revolving Loan Advance, Borrower remains liable to pay (a) the full principal amount of such Revolving Loan Advance (inclusive of such Closing Date OID), without giving effect to such deduction, which shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date and (b) accrued interest shall be payable on the full outstanding principal amount of such Revolving Loan Advance (inclusive of such Closing Date OID), without giving effect to such deduction.
(b)In connection with each Revolving Loan Advance made after the initial Revolving Loan Advance hereunder, until the sum of the Closing Date OID and Post-Closing OID (as defined below) equals $500,000.00, Borrower agrees that the funded amount of such Revolving Loan Advance shall be reduced by an original issue discount equal to the product of (x) 1.50% and (y) the amount of such Revolving Loan Advance (the “Post-Closing OID”), which OID shall be retained by the Agent, for the benefit of the Lenders, provided, that for the avoidance of doubt, Borrower agrees that, notwithstanding such deduction from the funded amount of the initial Revolving Loan Advance, Borrower remains liable to pay (a) the full principal amount of such Revolving Loan Advance (inclusive of such Post-Closing OID), without giving effect to such deduction, which shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date and (b) accrued interest shall be payable on the full outstanding principal amount of such Revolving Loan Advance (inclusive of such Post-Closing OID), without giving effect to such deduction. For the avoidance of doubt, if the sum of the Closing Date OID and the Post-Closing OID does not equal $500,000.00 by the date that is eighteen (18) months following the Closing Date, the difference shall be immediately earned by Agent, for the benefit of Lenders, and shall be withheld from the first Advance made to or on account of the Borrower following such date.
(c)In connection with each increase of the Maximum Loan Amount pursuant to Section 2.14(a)(i) hereof, Borrower agrees that the funded amount of the initial Revolving Loan Advance after giving effect to each such increase shall be reduced by an original issue discount equal to one percent (1.00%) of the aggregate Revolving Loan Commitments being added on such date (the “Increase OID”), which Increase OID shall be retained by the Agent, for the benefit of the Lenders, provided, that for the avoidance of doubt, Borrower agrees that, notwithstanding such deduction from the funded amount of any such Revolving Loan Advance, Borrower remains liable to pay (a) the full principal amount of such Revolving Loan Advance (inclusive of such Increase OID), without giving effect to such deduction, which shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date and (b) accrued interest shall be payable on the full outstanding principal amount of such Revolving Loan Advance (inclusive of such Increase OID), without giving effect to such deduction.
(d)The parties hereto agree to treat such Closing Date OID, Post-Closing OID and Increase OID as original issue discount under the Code and to account for the annual income and expense for such original issue discount consistently and as required by the Code.
1.6Additional Interest.
(a)On each Payment Date prior to the last day of the Revolving Credit Period, as well as on the Payment Date immediately following the expiration of the Revolving Credit Period, Borrower shall pay to Agent, for the benefit of Lenders, with respect to the Due Period occurring since the immediately prior Payment Date (or, with respect to the first Payment Date, for the Due Period occurring since the Closing Date and, with respect to the Payment Date immediately following the expiration of the Revolving Credit Period, for the Due Period up to and including the last day of the Revolving Credit Period, as additional interest (the “Unused Additional Interest”) an amount equal to the product of (A) one-half of one percent (0.50%)
multiplied by (B) the difference between the then-applicable Maximum Loan Amount and the average daily principal balance of the Obligations for such period multiplied by (C) the number of days in the applicable Due Period, divided by (d) 360.
(b)In addition to the above, if, as of any Payment Date prior to the last day of the Revolving Credit Period, as well as on the Payment Date immediately following the expiration of the Revolving Credit Period, the Utilization Ratio is less than the Minimum Utilization Ratio for the correlative time period, Borrower shall pay to Agent, for the benefit of Lenders, with respect to the Due Period occurring since the immediately prior Payment Date (or, with respect to the first Payment Date, for the Due Period occurring since the Closing Date and, with respect to the Payment Date immediately following the expiration of the Revolving Credit Period, for the Due Period up to and including the last day of the Revolving Credit Period, as additional interest an amount equal to (a) the Calculated Rate multiplied by (b) the total amount of additional principal balance of the Loan that would have needed to be outstanding in order to cause the Utilization Ratio to be equal to Minimum Utilization Ratio for the correlative time period (the “Minimum Utilization Additional Interest” and together with the Unused Additional Interest, collectively, the “Additional Interest”). For the avoidance of doubt, if the Minimum Utilization Additional Interest is paid on any Payment Date, the Borrower shall not be required to pay any Unused Additional Interest solely with respect to the total amount of additional principal balance of the Loan that would have needed to be outstanding in order to cause the Utilization Ratio to be equal to Minimum Utilization Ratio for the correlative time period.
IV.CONDITIONS PRECEDENT
1.1Conditions to Closing
The obligations of Agent and Lenders to consummate the transactions contemplated herein and the obligations of Lenders to make the initial Revolving Advance under the Loan are subject to the satisfaction (or waiver), in the sole judgment and discretion of Agent, of the following:
(a)Borrower shall have delivered to Agent (i) a Note payable to each Lender in an aggregate amount up to such Lender’s Revolving Loan Commitment, (ii) the other Loan Documents to which it or any Guarantor is a party, each duly executed by a Responsible Officer of Borrower and the Guarantors parties thereto, and (iii) a Borrowing Base Certificate for the initial Revolving Advances, executed by a Responsible Officer of Borrower;
(b)all in form and substance satisfactory to Agent in its Permitted Discretion, Agent shall have received (i) a report of UCC financing statement, bankruptcy, tax and judgment lien searches performed with respect to Borrower and each Guarantor in each jurisdiction determined by Agent in its Permitted Discretion, and such report shall show no Liens on the Collateral (other than Permitted Liens), (ii) each document (including, without limitation, any UCC financing statement) required by any Loan Document or under law or requested by Agent to be filed, registered or recorded to create, in favor of Agent, for the benefit of itself and the other Lenders, a first priority and perfected security interest upon the Collateral, and (iii) evidence of each such filing, registration or recordation and of the payment by Borrower of any necessary fee, tax or expense relating thereto;
(c)Agent shall have received (i) the Charter and Good Standing Documents of Borrower and each Guarantor (to the extent applicable), all in form and substance acceptable to Agent in its Permitted Discretion, (ii) a certificate of the secretary or assistant secretary of Borrower and each Guarantor in his or her capacity as such and not in his or her individual capacity dated the Closing Date, as to the incumbency and signature of the Persons executing the Loan Documents on behalf of such Person in form and substance acceptable to Agent in its
Permitted Discretion, and (iii) a certificate executed by an authorized officer of Borrower, which shall constitute a representation and warranty by Borrower as of the Closing Date that the conditions contained in this Agreement have been satisfied;
(d)Agent shall have received the written (i) legal opinion of Borrower’s outside legal counsel regarding certain customary closing matters, (ii) true-sale opinion of Borrower’s outside counsel and (iii) non-consolidation opinion of Borrower’s outside counsel, each in form and substance satisfactory to Agent;
(e)Agent shall have received a certificate of the chief financial officer (or, in the absence of a chief financial officer, the chief executive officer) of Borrower, in his or her capacity as such and not in his or her individual capacity, in form and substance satisfactory to Agent in its Permitted Discretion (each, a “Solvency Certificate”), certifying the solvency of Borrower, after giving effect to the transactions and the Indebtedness contemplated by the Loan Documents;
(f)Agent shall have completed examinations, the results of which shall be satisfactory in form and substance to Agent, in its Permitted Discretion, of Borrower and each Guarantor, including, without limitation, (i) an examination of background checks with respect to the chief executive officer, chief financial officer and chief operating officer of Holdings and (ii) an examination of the Collateral and the Underwriting Guidelines, and Borrower shall have demonstrated to Agent’s satisfaction, in its Permitted Discretion, that (x) the forms of Portfolio Documents used by Borrower and Holdings comply, in all respects deemed material by Agent, in its Permitted Discretion, with all Applicable Law and (y) no operations of Borrower or Holdings are the subject of any governmental investigation, evaluation or any remedial action which would be reasonably expected to result in it being unable to perform its obligations in connection with these transactions, and (z) Borrower has no liabilities or obligations (whether contingent or otherwise), other than the Obligations, that are deemed material by Agent, in its Permitted Discretion;
(g)Agent shall have received (or is satisfied that it will receive simultaneously with the funding of the initial Revolving Advance) all fees, charges and expenses due and payable to Agent and Lenders on or prior to the Closing Date pursuant to the Loan Documents;
(h)all in form and substance satisfactory to Agent, in its Permitted Discretion, Agent shall have received such consents, approvals and agreements from such third parties as set forth on Schedule 4.1 hereto;
(i)all corporate and other proceedings, documents, instruments and other legal matters of Borrower and any Guarantor (to the extent applicable) in connection with the transactions contemplated by the Loan Documents (including, but not limited to, those relating to corporate and capital structures of the Borrower) shall be satisfactory to Agent in its Permitted Discretion;
(j)the making of the Loans shall not contravene in any material respects any Applicable Laws and there shall exist no Material Adverse Effect;
(k)each Lender shall have received all required internal approvals;
(l)Agent shall have received duly executed copies of the Ivy Management Loan Agreement and the documents, agreements, instruments and certificates executed in connection therewith, which shall evidence a minimum principal commitment amount of no less than $12,000,000;
(m)Agent shall have received a duly executed copy of the Convertible Note;
(n)Agent shall have received evidence that the VPC Bridge Notes have been extended to at least December 31, 2021;
(o)Agent shall have received evidence of release and termination of, or Agent’s authority to release and terminate, any and all Liens and/or UCC financing statements in, on, against or with respect to any of the Collateral (other than Permitted Liens);
(p)Backup Servicer shall have received the Verification Deliverables with respect to each Pledged Lease, and shall have issued and delivered to Agent the initial Verification Certificate (without any exceptions noted thereon unless otherwise waived by Agent) provided for in the Backup Servicing Agreement, all in form and substance acceptable to Agent;
(q)Agent shall have received evidence to the effect that Borrower, and Servicer have caused the portions of the computer files relating to the Pledged Leases and other Collateral pledged to the Agent on the Closing Date to be clearly and unambiguously marked to indicate that such Leases constitute part of the Collateral pledged by the Borrower in accordance with the terms of the Loan Documents;
(r)Agent shall have received a copy of the Purchase and Sale Agreement, together with a certificate of the Secretary of Borrower certifying such document as being a true, correct and complete copy thereof;
(s)Parent Entity shall have received not less than $5,000,000 from the issuance of Series C stock on terms substantially similar to those set forth in the Series C Convertible Preferred Stock Purchase Agreement attached hereto as Exhibit K; and
(t)Agent shall have received evidence that Borrower has deposited an amount of not less than $75,000 into the Interest Reserve Account.
1.2Conditions to Initial Revolving Advances and Subsequent Revolving Advances
The obligations of Lenders to make any Revolving Advance under the Loan are subject to the satisfaction (or waiver), in the sole judgment and discretion of Agent, of the following:
(a)Borrower shall have delivered to Agent, not later than 12:59 p.m. (Eastern Standard Time) two (2) Business Days prior to the proposed date for such requested Revolving Advance, a request for advance in the form of Exhibit F hereto (a “Request for Revolving Advance”), and a Borrowing Base Certificate for such Revolving Advance with necessary supporting documentation executed by a Responsible Officer of Borrower, which shall constitute a representation and warranty by Borrower as of the date of such Revolving Advance that the conditions contained in this Section 4.2 have been satisfied;
(b)Borrower shall own or, after payment of the purchase price pursuant to the Purchase and Sale Agreement, will have the unconditional right to purchase from Holdings, the Leases to be financed by such Revolving Advance and the Inventory related to such Leases free and clear of any Liens, encumbrances or other rights of third parties, with respect to any of the Leases or other Collateral sold to Borrower pursuant to the Purchase and Sale Agreement, and Agent shall have received evidence satisfactory to Agent that all such Liens have been released and UCC Financing Statements terminated or partially released and filed;
(c)each of the representations and warranties made by Borrower or any Affiliate of the Borrower in or pursuant to the Loan Documents shall be accurate in all material respects before and after giving effect to the making of such Revolving Advance (except for those representations and warranties made as of a specific date) and no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to the requested Revolving Advance on such date;
(d)immediately after giving effect to the requested Revolving Advance, the aggregate outstanding principal amount of Advances under the Loan shall not exceed the lesser of (i) the Maximum Loan Amount and (ii) the Borrowing Base;
(e)Agent shall have received all fees, charges and expenses to the extent due and payable to Agent and Lenders on or prior to such date pursuant to the Loan Documents;
(f)there shall not have occurred any Material Adverse Effect; and
(g)Backup Servicer shall have received the Verification Deliverables with respect to each Lease to be pledged pursuant to such Revolving Advance, and shall have issued and delivered to Agent a Verification Certificate (without any exceptions noted thereon unless otherwise waived by Agent) provided for in the Backup Servicing Agreement, all in form and substance acceptable to Agent at its Permitted Discretion.
V.REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants, as of the Closing Date and as of the date of any Request for Advance and the making of each Revolving Advance, as follows:
1.1Organization and Authority
Borrower is a limited liability company, duly organized, validly existing and in good standing under the laws of its state of organization. Holdings is a limited liability company, duly organized, validly existing and in good standing under the laws of its state of organization. Each of Borrower and Holdings (a) has all requisite power and authority to own its properties and assets (including, without limitation, the Collateral) and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (b) is duly qualified to do business in each jurisdiction in which failure to so qualify could reasonably be likely to have or result in a Material Adverse Effect. Borrower has all requisite power and authority (i) to execute, deliver and perform the Loan Documents to which it is a party, (ii) to acquire the Pledged Leases and other Collateral under the Purchase and Sale Agreement, (iii) to consummate the transactions contemplated under the Loan Documents to which it is a party, and (iv) to grant the Liens with regard to the Collateral pursuant to the Security Documents to which it is a party. Holdings has all requisite power and authority (i) to execute, deliver and perform the Loan Documents to which it is a party and (ii) to consummate the transactions contemplated under the Loan Documents to which it is a party. Borrower has all requisite power and authority to borrow hereunder. Neither Borrower nor Holdings is an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, nor controlled by such an “investment company.” No transaction contemplated in this Agreement or the other Loan Documents requires compliance with any bulk sales act or similar law.
1.2Loan Documents
The execution, delivery and performance by Borrower and Holdings of the Loan Documents to which it is a party, and the consummation by such parties of the transactions contemplated thereby, (a) have been duly authorized by all requisite action of such parties and
have been duly executed and delivered by such parties; (b) do not violate any provisions of (i) any Applicable Law, (ii) any order of any Governmental Authority binding on any such party or any of their respective properties, or (iii) the limited liability company agreement (or any other equivalent governing agreement or document) of any such party, or any agreement between any such party and its equity owners or among any such equity owners; (c) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which any such party is a party, or by which the properties or assets of such party are bound, the effect of which could reasonably be expected to be, have or result in a Material Adverse Effect; (d) except as set forth herein or therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of such party, and (e) except for filings in connection with the perfection of Agent’s Liens, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person that has not been obtained. When executed and delivered, each of the Loan Documents will constitute the legal, valid and binding obligation of each party signatory thereto (other than Agent and the Lenders), enforceable against such parties in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors’ rights generally and to the effect of general principles of equity (whether in a proceeding at law or in equity). The Purchase and Sale Agreement is the only agreement pursuant to which the Borrower purchases the Pledged Leases and the related Collateral. The Borrower has furnished to the Agent a true, correct and complete copy of the Purchase and Sale Agreement. The purchase by the Borrower under the Purchase and Sale Agreement constitutes a true sale at a fair market valuation enforceable against creditors of Holdings and is not merely a financing or extension of credit.
1.3Subsidiaries, Capitalization and Ownership Interests
Borrower has no Subsidiaries as of the Closing Date. 100% of the outstanding Equity Interest in the Borrower is directly owned (both beneficially and of record) by Holdings. The outstanding ownership or voting interests of Borrower have been duly authorized and validly issued. Schedule 5.3 lists the managers or managing members or directors of Borrower and Holdings as of the Closing Date. Borrower does not (i) own any Investment Property or (ii) own any interest or participate or engage in any joint venture, partnership or similar arrangements with any Person. Borrower will only purchase Leases and other Collateral pursuant to the Purchase and Sale Agreement with Holdings.
1.4Properties
Borrower is the lawful owner of, and has good title to, each Pledged Lease, free and clear of any Liens (other than the Lien of this Agreement and any Permitted Liens).
1.5Other Agreements
Neither Borrower nor Holdings is (a) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would have a Material Adverse Effect its ability to execute and deliver, or perform under, any Loan Document or to pay the Obligations or (b) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period, could reasonably be expected to be, have or result in a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of
default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to be, have or result in a Material Adverse Effect.
1.6Litigation
(a) Borrower nor Holdings is a party to any material pending or, to the knowledge of Borrower or Holdings, threatened action, suit, proceeding or investigation related to its respective business that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (b) there is no pending or, to the knowledge of Borrower or Holdings, threatened action, suit, proceeding or investigation against Borrower or Holdings that could reasonably be expected to prevent or materially delay the consummation by Borrower or Holdings of the transactions contemplated herein, (c) neither Borrower nor Holdings is a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority and (d) there is no action, suit, proceeding or investigation initiated by Borrower or Holdings currently pending that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
1.7Tax Returns; Taxes
Borrower has timely filed or caused to be timely filed all federal, state, local and foreign tax returns which are required to be filed by Borrower, has paid or caused to be paid all taxes shown thereon to be due and owing by it, and has paid or caused to be paid all property taxes due and owing by it with respect to any Inventory related to Pledged Leases except for (i) any taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings timely instituted and diligently pursued and with respect to which Borrower has set aside adequate reserves on its books in accordance with GAAP and which proceedings have not given rise to any Lien or (ii) any taxes or assessments which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
1.8Financial Statements and Reports
All financial statements and financial information relating to Borrower, Holdings or Parent Entity that have been or may hereafter be delivered to Agent by Borrower, Holdings or Parent Entity (a) are consistent with the books of account and records of Borrower, Holdings or Parent Entity, (b) have been prepared in accordance with GAAP, on a consistent basis throughout the indicated periods, except that the unaudited financial statements contain no footnotes or year-end adjustments, and (c) present fairly in all material respects the financial condition, assets and liabilities and results of operations of Borrower, Holdings and Parent Entity at the dates and for the relevant periods indicated in accordance with GAAP on a basis consistently applied. Neither Borrower, Holdings nor Parent Entity has any material obligations or liabilities of any kind required to be disclosed therein that are not disclosed in such financial statements, and since the date of the most recent financial statements submitted to Agent pursuant to Section 6.1, there has not occurred any Material Adverse Effect.
1.9Compliance with Law
Borrower and Holdings (a) are in compliance with all Applicable Laws, and (b) are not in violation of any order of any Governmental Authority or other board or tribunal, except, in the case of both (a) and (b), where noncompliance or violation could not reasonably be expected to be, have or result in a Material Adverse Effect. Neither Borrower nor Holdings has received any written notice that Borrower or Holdings is not in material compliance in any respect with any of the requirements of any of the foregoing. Neither Borrower nor Holdings has established or maintains or contributes (or has an obligation to contribute) to, or otherwise has any liability (including any liability as an ERISA Affiliate of another entity) with respect to any “employee
benefit plan” that is covered by Title IV of ERISA or Section 412 of the Code. Borrower and Holdings have maintained in all material respects all records required to be maintained by any applicable Governmental Authority, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. Since its formation, Borrower has not engaged, directly or indirectly, in any business other than the activities set forth herein and in the Purchase and Sale Agreement and the Loan Documents.
1.10Intellectual Property
Borrower does not own, license, utilize, and is not a party to, any patents, patent applications, registered trademarks, trademark applications, registered service marks, service mark applications, registered copyrights, domain name registrations, copyright applications, trade secrets, trade names, software (other than mass marketed, commercially available software) or licenses or other registrations or applications for registration of intellectual property. Borrower is not in breach of or default under the provisions of any license agreement, domain name registration or other agreement related to intellectual property, nor is there any event, fact, condition or circumstance which breach or default would reasonably be expected to be, have or result in a Material Adverse Effect.
1.11Licenses and Permits; Labor
Borrower and Holdings are in compliance with and have all Permits necessary or required by Applicable Law or any Governmental Authority for the operation of their respective businesses as presently conducted and as proposed to be conducted except where noncompliance, violation or lack thereof could not reasonably be expected to be, have or result in a Material Adverse Effect. All Permits necessary or required by Applicable Law or Governmental Authority for the operation of Borrower’s and Holdings’ respective businesses are in full force and effect and not in known conflict with the rights of others, except where such conflict or lack of being in full force and effect could not reasonably be expected to be, have or result in a Material Adverse Effect. Neither Borrower nor Holdings has been involved in any labor dispute, strike, walkout or union organization which could reasonably be expected to be, have or result in a Material Adverse Effect.
1.12No Default; Solvency
There does not exist any Default or Event of Default. Borrower is and, after giving effect to the transactions and the Indebtedness contemplated by the Loan Documents, will be solvent and able to meet its obligations and liabilities as they become due, and the assets of the Borrower, at a Fair Valuation, exceed the total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of Borrower, and no unreasonably small capital base exists with respect to Borrower.
1.13Disclosure
No Loan Document nor any other agreement, document, certificate, or statement furnished to Agent and Lenders and prepared by or on behalf of Borrower in connection with the transactions contemplated by the Loan Documents, nor any representation or warranty made by Borrower in any Loan Document, contains any untrue statement of material fact or omits to state any fact necessary to make the factual statements therein taken as a whole not materially misleading in light of the circumstances under which it was furnished. There is no fact known to Borrower which has not been disclosed to Agent in writing which could reasonably be expected to be, have or result in a Material Adverse Effect.
1.14Existing Indebtedness; Investments, Guarantees and Certain Contracts
Borrower does not (a) have any outstanding Indebtedness, except Indebtedness under the Loan Documents, or (b) own or hold any equity or long-term debt investments in, or have any outstanding advances to or any outstanding guarantees for, the obligations of, or any outstanding borrowings from, any other Person, except as permitted under Section 7.4.
1.15Affiliated Agreements
Except for the Loan Documents, the Charter and Good Standing Documents of the Borrower and those set forth on Schedule 5.15, (i) there are no existing or proposed agreements, arrangements, understandings or transactions between Borrower, on the one hand, and Borrower’s members, managers, managing members, investors, officers, directors, stockholders, other equity holders, employees, or Affiliates or any members of their respective families, on the other hand, and (ii) to Borrower’s knowledge, none of the employees or officers of the Parent Entity or its Subsidiaries are directly or indirectly, indebted to or have any direct or indirect ownership or voting interest in any Person with which Borrower has a business relationship or which competes with Borrower (except that any such Person may own Equity Interests in any publicly traded company that may compete with Borrower.
1.16Insurance
As of the Closing Date, Borrower has in full force and effect such insurance policies as are listed on Schedule 5.16.
1.17Names; Location of Offices, Records and Collateral; Deposit Accounts and Investment Property
Neither Borrower nor any of its predecessors has conducted business under or used any name (whether corporate, partnership or assumed) other than as shown on Schedule 5.17A. Borrower is (or Borrower’s predecessors were) the sole owner(s) of all of its names listed on Schedule 5.17A, and any and all business done and invoices issued in such names are Borrower’s (or any such predecessors’) sales, business and invoices. Borrower maintains, and during the preceding five (5) years, its predecessors maintained, respective places of business and chief executive offices only at the locations set forth on Schedule 5.17B or, after the Closing Date, as additionally disclosed to Agent in writing, and all Leases of Borrower arise, originate and are located, and all of the Collateral and all books and records in connection therewith or in any way relating thereto or evidencing the Collateral are located and shall be only, in and at such locations (other than (i) Deposit Accounts, and (ii) Collateral in the possession of Agent or the Backup Servicer). All of the Collateral is located only in the continental United States. Schedule 5.17C lists all of Borrower’s Deposit Accounts and Investment Property as of the Closing Date.
1.18Non-Subordination
The Obligations are not subordinated in any way to any other obligations of Borrower or to the rights of any other Person.
1.19Leases
With respect to each Pledged Lease, Borrower continuously warrants and represents to Agent and Lenders that until the Maturity Date and so long as any of its Obligations remain unpaid: (i) as of the Closing Date and each date any Revolving Advance is made, each of the Pledged Leases set forth in the Borrowing Base Certificate delivered in connection therewith
constitutes an Eligible Lease and (ii) in determining which Leases are “Eligible Leases,” Lender may rely upon all statements or representations made by Borrower.
1.20Servicing
Borrower has entered into the each Servicing Agreement with Servicer pursuant to which Borrower has engaged each Servicer, as servicer and as Borrower’s agent, to monitor, manage, enforce and collect the Pledged Leases and disburse any collections in respect thereof as provided by the applicable Servicing Agreement, subject to this Agreement. Borrower acknowledges that each Servicer has the requisite knowledge, experience, expertise and capacity to service the Pledged Leases.
1.21Legal Investments; Use of Proceeds
Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying any “margin stock” or “margin security” (within the meaning of Regulations T, U or X issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Loan will be used to purchase or carry any margin stock or margin security or to extend credit to others for the purpose of purchasing or carrying any margin stock or margin security.
1.22Broker’s or Finder’s Commissions
No broker’s, finder’s or placement fee or commission will be payable to any broker or agent engaged by Borrower or any of its officers, directors or agents with respect to the Loan or the transactions contemplated by this Agreement. Borrower and Holdings, jointly and severally, agree to indemnify Agent and each Lender and each of their respective Affiliates and hold Agent and each Lender and each of their respective Affiliates harmless from and against any and all claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel, but limited, in the case of legal fees and expenses, to the reasonable and documented fees, disbursements and expenses of one regulatory counsel and one other firm of outside counsel to Agent and each Lender and each of their respective Affiliates taken as a whole and, solely in the case of an actual or potential conflict of interest, one additional firm of outside counsel to each group of similarly situated Persons)), which may be imposed on, incurred by or asserted against Agent, any Lender or any of their respective Affiliates with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to broker’s, finder’s or placement fees or similar commissions, whether or not payable by the Borrower or Holdings or their respective Affiliates, alleged to have been incurred in connection with such transactions, other than any broker’s or finder’s fees payable to Persons engaged by Agent and/or Lenders or their respective Affiliates without the knowledge of the Borrower or Holdings. Agent and each Lender, jointly and severally, agree to indemnify Borrower and Holdings and each of their respective Affiliates and hold Borrower and Holdings and each of their respective Affiliates harmless from and against any and all claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel, but limited, in the case of legal fees and expenses, to the reasonable and documented fees, disbursements and expenses of one firm of outside counsel to Borrower and Holdings and each of their respective Affiliates taken as a whole and, solely in the case of an actual or potential conflict of interest, one additional firm of outside counsel to each group of similarly situated Persons) which may be imposed on, incurred by or asserted against Borrower, Holdings or any of their respective Affiliates with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to broker’s, finder’s or placement fees or similar commissions, whether or not payable by the Agent, any Lender or their
respective Affiliates, alleged to have been incurred in connection with such transactions, other than any broker’s or finder’s fees payable to Persons engaged by Borrower or Holdings or their respective Affiliates without the knowledge of the Agent or Lenders.
1.23Anti-Terrorism; OFAC
(a)(i) Neither Borrower, Holdings nor any Guarantor nor any Person controlling or controlled by Borrower, Holdings or any Guarantor, nor any Person for whom Borrower, Holdings or any Guarantor is acting as agent or nominee in connection with this transaction (“Transaction Persons”) (1) is a Person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (2) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such Person in any manner violative of Section 2 of such executive order, or (3) is a Person on the list of Specially Designated Nationals and Blocked Persons or is in violation of the limitations or prohibitions under any other OFAC regulation or executive order.
(b)No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
(c)Borrower acknowledges by executing this Agreement that Agent has notified Borrower and each Guarantor that, pursuant to the requirements of the Patriot Act, Agent is required to obtain, verify and record such information as may be necessary to identify Borrower and each Guarantor (including, without limitation) the name and address of Borrower and each Guarantor) in accordance with the Patriot Act.
1.24Survival
Borrower hereby makes the representations and warranties contained herein with the knowledge and intention that Agent and Lenders are relying and will rely thereon. All such representations and warranties will survive the execution and delivery of this Agreement, the Closing and the making of any and all Advances.
VI.AFFIRMATIVE COVENANTS
Borrower, Holdings and Parent Entity covenant and agrees that, until the indefeasible payment in full in cash, of all the Obligations (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made) and termination of this Agreement:
1.1Financial Statements, Reports and Other Information
(a)Financial Reports. Borrower shall furnish to Agent (i) as soon as available and in any event within thirty (30) calendar days after the end of each calendar month of Parent Entity, unaudited monthly financial statements of Parent Entity and its Subsidiaries on a consolidated basis consisting of a balance sheet and statements of income and cash flows as of the end of the immediately preceding calendar month, (ii) as soon as available and in any event within one hundred fifty (150) calendar days after the end of each fiscal year of Parent Entity, audited annual financial statements of Parent Entity on a consolidated and consolidating basis, including the notes thereto, consisting of a balance sheet at the end of such completed fiscal year
and the related statements of income, retained earnings, cash flows and owners’ equity for such completed fiscal year, which financial statements shall be prepared and certified without qualification by Deloitte & Touche LLP or such other independent certified public accounting firm mutually agreeable to Agent and Borrower and accompanied by related management letters, if available and (iii) no later than thirty (30) days after the beginning of Parent Entity’s and Borrower’s fiscal years commencing with fiscal year ended December 31, 2019, a month by month projected operating budget and cash flow of Parent Entity and its Subsidiaries for such fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter). All such financial statements shall be prepared in accordance with GAAP consistently applied with prior periods (subject, as to interim statements, to lack of footnotes and year-end adjustments). With the quarterly financial statements of Parent Entity, Borrower shall also deliver a compliance certificate of a Responsible Officer of Borrower in the form satisfactory to Agent stating that (A) such person has reviewed the relevant terms of the Loan Documents and the condition of Borrower, (B) no Default or Event of Default has occurred or is continuing, or, if any of the foregoing has occurred or is continuing, specifying the nature and status and period of existence thereof and the steps taken or proposed to be taken with respect thereto and (C) no Material Adverse Effect has occurred since the last delivery of such monthly financial statements.
(b)Servicing Reports and Information; Borrowing Base Certificates.
(i)As soon as available, and in any event not later than the fifteenth (15th) of each calendar month or if such day is not a Business Day than on the immediately preceding Business Day (or, upon the request of Agent, at any time following the occurrence and continuance of an Event of Default), Borrower shall cause Servicer to deliver to Agent and Backup Servicer, a Monthly Servicing Report, in computer file form reasonably accessible and usable by Agent and Backup Servicer showing, as of the end of the immediately preceding calendar month, with respect to all Leases, the information contained in the form of Monthly Servicing Report attached hereto as Exhibit C (which Monthly Servicing Report shall include Servicer’s calculation of the Current Lease Balance with respect to each Pledged Lease) and such other matters as Agent may from time to time reasonably request, all prepared by Servicer and certified as to being true, correct and complete in all material respects by the Servicer. Together with the Monthly Servicing Report delivered to Agent as set forth above, Borrower shall deliver to Agent, in a form and substance acceptable to Agent, a monthly roll rate report and first payment default report (each in form and substance and with details and reporting information acceptable to Agent), on the entire portfolio of Leases owned by Borrower.
(ii)As soon as available, and in any event not later than each Payment Date (or, upon the request of Agent, at any time following the occurrence and continuance of an Event of Default), Borrower shall cause Servicer to deliver to Backup Servicer, in computer “data tape” form, all of the loan-level data generated by the Servicer with respect to the Leases, (including, but not limited to, data related to collections, defaults, Servicer’s calculation of the Current Lease Balance with respect to each Pledged Lease, and such other matters as Agent or Backup Servicer may from time to time reasonably request), all prepared by Servicer and certified as to being true, correct and complete in all material respects by the Servicer.
(iii)As soon as available, and in any event not later than each Payment Date (or, upon the request of Agent, at any time following the occurrence and continuance of an Event of Default), Borrower shall deliver a Borrowing Base Certificate to Agent, without regard to whether any Revolving Advances have been requested in the calendar week in which such Payment Date (or request) occurs.
(iv)As soon as available, and in any event not later than the last Business Day of each month (or, upon the request of Agent, at any time following the occurrence
and continuance of an Event of Default) until the Positive Net Income Trigger Date, Borrower shall deliver to Agent copies off all bank statements with respect to the Interest Reserve Account.
(v)The Borrower shall promptly furnish or cause to be furnished to the Agent any other financial information regarding Borrower and/or the Pledged Leases reasonably requested by the Agent.
(c)Notices. Borrower shall promptly, and in any event within five (5) Business Days after the end of each calendar month notify Agent in writing of (i) any notice Borrower, Holdings or any of their respective Subsidiaries received of any material litigation, claims, offsets, protests or disputes asserted by any Account Lessee with respect to the Pledged Leases, (ii) any pending or threatened legal action, litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative or regulatory proceeding brought or initiated or threatened in writing by or against Borrower or otherwise affecting or involving or relating to Borrower or any of its property or assets in an amount in excess of $500,000, (iii) any Default or Event of Default, which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto, (iv) any other development, event, fact, circumstance or condition that could reasonably be expected to be, have or result in a Material Adverse Effect, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (v) any matter(s) known to Borrower and in existence at any one time materially adversely affecting the value, enforceability or collectability of any material portion of the Collateral, (vi) receipt of any material notice, inquiry, investigation, legal action or proceeding or request from any Governmental Authority, (vii) receipt of any notice or document by Borrower regarding any lease of real property of Borrower (and such notice shall include a copy of the notice or document), (viii) any lease of real property entered into by Borrower after the Closing Date, (ix) the filing, recording or assessment of any federal, state, local or foreign tax lien against the Collateral or Borrower which becomes known to Borrower, (x) any action taken or, to Borrower’s knowledge, threatened to be taken by any Governmental Authority (or any notice of any of the foregoing) with respect to Borrower which could reasonably be expected to be, have or result in a Material Adverse Effect or with respect to any Collateral, (xi) any change in the corporate name of Borrower, and/or (xii) the loss, termination or expiration of any material contract to which Borrower is a party or by which its properties or assets are subject or bound.
1.2Payment of Obligations
Borrower shall make full and timely indefeasible payment in cash of the principal of and interest on the Loan and all other Obligations when due and payable (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made), provided, however, that to the extent the Agent has indicated in any Allocation Notice that amounts on deposit in the Collateral Account are to be applied as of any applicable Payment Date to the amounts due and owing pursuant to Section 2.4, and such application is actually made on such Payment Date, or in the event Agent, in breach of this Agreement, fails to make such application, Borrower shall be deemed to have made all such payments as of the Payment Date.
1.3Conduct of Business and Maintenance of Existence and Assets
Borrower shall (a) maintain all of its tangible Collateral used or useful in its business in good repair, working order and condition (normal wear and tear excepted and except as may be disposed of in the ordinary course of business and in accordance with the terms of the Loan Documents), (e) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and good standing in its jurisdiction of formation and each other jurisdiction in which the ownership or lease of property or the nature of its business makes such
Permits or qualification necessary and in which failure to maintain such Permits or qualification could reasonably be expected to be, have or result in a Material Adverse Effect; (f) remain in good standing and maintain operations in all jurisdictions in which currently located, except where the failure to remain in good standing or maintain operations could not reasonably be expected to be, have or result in a Material Adverse Effect, and (g) maintain, comply with and keep in full force and effect its existence and all Intellectual Property and Permits necessary to conduct its business, except in each case where the failure to maintain, comply with or keep in full force and effect could not reasonably be expected to be, have or result in a Material Adverse Effect.
1.4Compliance with Legal and Other Obligations
Borrower shall (a) comply with all Applicable Law except where any failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (b) pay all taxes, assessments, fees, governmental charges, claims for labor, supplies, rent and all other obligations or liabilities of any kind when due and payable, except liabilities being contested in good faith and against which adequate reserves have been established in accordance with GAAP consistently applied, (c) perform in accordance with its terms each contract, agreement or other arrangement to which it is a party or by which it or any of the Collateral is bound except where any failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect,, and (d) properly file all reports required to be filed by Borrower with any Governmental Authority, except under clauses (a), (b), (c), and/or (d) where the failure to comply, pay, file or perform would not reasonably be expected to be, have or result in a Material Adverse Effect.
1.5Insurance
Borrower shall keep all of its insurable properties and assets adequately insured in all material respects against losses, damages and hazards as are customarily insured against by businesses of similar size engaging in similar activities or lines of business or owning similar assets or properties and at least the minimum amount required by this Agreement, Applicable Law and any agreement to which any such Person is a party or pursuant to which such Person provides any services; all such insurance policies and coverage levels shall (a) be satisfactory in form and substance to Agent in its Permitted Discretion (it being understood that the insurance policies of the Borrower provided to Agent shall be deemed satisfactory to the Agent until the Agent provides notice to the Borrower to the contrary), (b) name Agent, for the benefit of itself and the other Lenders, as a loss payee or additional insured thereunder, as applicable, and (c) expressly provide that such insurance policies and coverage levels cannot be altered, amended or modified in any manner which is adverse to Agent and/or Lenders, or canceled or terminated without thirty (30) calendar days prior written notice to Agent, and that they inure to the benefit of Agent and Lenders, notwithstanding any action or omission or negligence of or by Borrower, or any insured thereunder.
1.6True Books
Borrower shall (or, at all times that Servicer is an Affiliate of Borrower, shall cause Servicer to, on its behalf) (a) keep true, complete and accurate (in accordance with GAAP, except for the omission of footnotes and year-end adjustments in interim financial statements) books of record and account in accordance with commercially reasonable business practices in which true and correct entries are made of all of its dealings and transactions in all material respects; and (b) set up and maintain on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business.
1.7Inspection; Periodic Audits; Quarterly Review
Borrower shall permit, and shall cause the Servicer to permit, the representatives of Agent and each Lender, at, in the case of Agent only, the expense of Borrower (which expenses must be reasonably incurred), from time to time during normal business hours upon reasonable notice, to (a) visit and inspect Servicer’s offices, Borrower’s offices or properties or any other place where Collateral is located to inspect the Collateral and/or to examine and/or audit all of Borrower’s and Servicer’s books of account, records, reports and other papers (provided, however, that at all times, Borrower shall be responsible for the costs and expenses of all such visits) (b) make copies and extracts therefrom, and (c) discuss Borrower’s business, operations, prospects, properties, assets, liabilities, condition and/or Pledged Leases with its officers and independent public accountants (and by this provision such officers and accountants are authorized to discuss the foregoing); provided, however, so long as an Event of Default has occurred and is continuing, no such notice shall be required; provided, further that, so long as no Event of Default has occurred and is continuing not more than four (4) such visits shall take place annually. Additionally, Borrower shall cause Servicer to permit Agent to have online access to Servicer’s internal electronic reporting system, including without limitation tracking of collections on the Pledged Leases and agings of the same, and summaries for each of the Pledged Leases. Borrower shall cause Servicer’s officers to meet with Agent at least once per quarter, if requested by Agent (which meeting may take place telephonically if requested by Agent), to review the Servicer’s operations, prospects, properties, assets, liabilities, condition and/or Pledged Leases.
1.8Further Assurances; Post Closing
At Borrower’s cost and expense, Borrower shall (a) within five (5) Business Days (or such longer period in the case of actions involving third parties as determined by Agent in its Permitted Discretion) after Agent’s written demand, take such further actions, obtain such consents and approvals and shall duly execute and deliver such further agreements, assignments, instructions or documents as Agent may request in its Permitted Discretion in order to ensure the validity and effectiveness of this Agreement and the Loan Documents and the consummation of the transactions contemplated thereby, whether before, at or after the performance and/or consummation of the transactions contemplated hereby or the occurrence and during the continuation of a Default or Event of Default, (b) without limiting and notwithstanding any other provision of any Loan Document, execute and deliver, or cause to be executed and delivered, such agreements and documents, and take or cause to be taken such actions, and otherwise perform, observe and comply with such obligations, as are set forth on Schedule 6.8, and (c) upon the exercise by Agent, any Lender or any of its Affiliates of any power, right, privilege or remedy pursuant to any Loan Document or under Applicable Law or at equity following the occurrence and during the continuance of an Event of Default which requires any consent, approval, registration, qualification or authorization of such Person (including, without limitation, any Governmental Authority), execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that may be so required for such consent, approval, registration, qualification or authorization.
1.9Payment of Indebtedness
Except as otherwise prescribed in the Loan Documents, Borrower shall pay, discharge or otherwise satisfy when due and payable (subject to applicable grace periods and, in the case of trade payables, to ordinary course of payment practices) all of its obligations and liabilities to the extent that the failure to pay, discharge or otherwise satisfy such obligations or liability could become a Lien on the Collateral, except when the amount or validity thereof is being contested in good faith by appropriate proceedings and such reserves shall have been made in accordance with GAAP consistently applied.
1.10Other Liens
If Liens with respect to Borrower or its assets (other than Permitted Liens) exist, Borrower immediately shall take all actions, and execute and deliver all documents and instruments necessary to promptly release and terminate such Liens. Immediately upon discovery of any Lien other than a Permitted Lien, Borrower shall notify Agent.
1.11Use of Proceeds
Borrower shall use the proceeds from each Revolving Advance under the Loan only for (a) the purposes set forth in the recitals to this Agreement, (b) to make a distribution to Holdings to repay existing indebtedness of Holdings to Victory Park Capital Management, LLC (exclusive of the VPC Bridge Notes) on the Closing Date, (c) for the purposes set forth in Section 2.4(b) or as otherwise expressly authorized herein or in the other Loan Documents, and (d) to pay fees, costs and expenses incurred in connection with the transactions contemplated hereby and approved by Agent in its sole discretion on the Closing Date.
1.12Collateral Documents; Security Interest in Collateral
On demand of Agent, Borrower shall (or, at all times that Servicer is an Affiliate of Borrower, shall cause Servicer to) make available to Agent copies of any and all documents, instruments, materials and other items that relate to, secure, evidence, give rise to or generate or otherwise involve Collateral, including, without limitation, the Leases to the extent Borrower or Servicer has access to such documents, instruments, materials and other items. Borrower shall (or, at all times that Servicer is an Affiliate of Borrower, shall cause Servicer to) (i) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise requested by Agent, in its Permitted Discretion, to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect Borrower’s interest in the Collateral and the pledge of the Collateral to Agent’s perfected first priority (other than with respect to property or assets covered by Permitted Liens) Lien on the Collateral (and Borrower irrevocably grants Agent the right, at Agent’s option, to file any or all of the foregoing), (ii) maintain, or cause to be maintained, at all times, the pledge of the Collateral to Agent and Agent’s perfected first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien on the Collateral, and (iii) defend the Collateral and Agent’s first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Agent, and pay all costs and expenses (including, without limitation, in-house documentation and diligence fees and expenses and reasonable attorneys’ fees and expenses) in connection with such defense, which may, at Agent’s discretion, be added to the Obligations. Borrower acknowledges and agrees that Agent is authorized, pursuant to the power of attorney granted to Agent by Borrower pursuant to Section 2.10 of this Agreement, to perform any or all of the obligations or duties of Borrower pursuant to this Section 6.12 following the occurrence and during the continuance of an Event of Default.
1.13Servicing Agreement; Backup Servicer
(a)Borrower shall enter into a Backup Servicing Agreement as of the Closing Date. From and after the Closing Date, Borrower and Servicer shall be required to provide the Monthly Servicing Report in computer “data tape” form to Backup Servicer and Agent in a manner reasonably acceptable to Agent as described in Section 6.1(b) hereof. Borrower shall cause Servicer to promptly provide Agent with true and complete copies of all written notices concerning defaults, amendments, waivers notice information or other matters that are material
to a Pledged Lease sent or received by any Servicer under any Servicing Agreement. Borrower shall cause Servicer to service all Pledged Leases in accordance with, in all material respects, the terms of each Servicing Agreement Borrower shall comply, in all material respects, with the provisions, terms and conditions set forth in such Servicing Agreement and Borrower shall not terminate any Servicing Agreement without Agent’s prior written consent at its sole discretion.
(b)Borrower agrees not to, and will cause Servicer not to, interfere with Backup Servicer’s performance of its duties under any Backup Servicing Agreement or to take any action that would be inconsistent in any way with the terms of such Backup Servicing Agreement. Borrower covenants and agrees to, and will cause Servicer to, provide any and all information and data requested by Agent (in its Permitted Discretion) to be provided promptly to Backup Servicer in the manner and form so requested by Agent. Upon the occurrence and during the continuance of any Event of Default, Agent shall have the right to immediately substitute Backup Servicer, Agent or an Affiliate of Agent or another third party servicer acceptable to Agent for Servicer in all of Servicer’s roles and functions as contemplated by the Loan Documents and the Servicing Agreements. In connection with any substitution of Backup Servicer, Agent, Affiliate of Agent or another third party servicer for Servicer, Borrower shall (and, at all times that Servicer is an Affiliate of Borrower, shall cause Servicer to) cooperate with Agent and Backup Servicer in connection with such substitution and to take such further actions, obtain such consents and approvals, to deliver such documents and to duly execute and deliver such further agreements, assignments, instructions or documents as each of Agent or Backup Servicer may request in its Permitted Discretion in order to effectuate such substitution, in each case, at no cost or expense to Agent or any Lender.
1.14Special Purpose Entity
Borrower has not, and shall not:
(a)engage in any business or activity other than the acquisition, ownership, operation and maintenance of the Leases and the other Collateral, and activities incidental thereto, provided, that for the avoidance of doubt, Borrower hereby agrees that it shall not originate Leases;
(b)acquire or own any material assets other than the Leases and the other Collateral (including the goods (including, but not limited to, the Inventory) purchased from Holdings), and such incidental personal property as may be necessary for the operation of the Leases and the other Collateral;
(c)merge into or consolidate with any Person or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case Agent’s consent and, in the case of the dissolution or liquidation of the Borrower, without the consent of the independent manager;
(d)fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, and qualifications to do business, or without the prior written consent of Agent, amend, modify, terminate or fail to comply in any material respect with the provisions of its partnership agreement, certificate of limited partnership, bylaws, articles of incorporation, operating agreement, articles of organization, or other similar organizational documents, as the case may be;
(e)own any Subsidiary or make any investment in, any Person without the consent of Agent;
(f)commingle its assets with the assets of any of its members, general or limited partners, shareholders, Affiliates, principals or of any other Person other than payments received directly by the Servicer in respect of Pledged Leases that are transferred to the Collateral Account in accordance with this Agreement;
(g)incur any indebtedness for borrowed money, secured or unsecured, direct or contingent (including guaranteeing any indebtedness for borrowed money) except as permitted in Section 7.1 hereof;
(h)become insolvent or fail to pay its debts and liabilities from its assets as the same shall become due;
(i)fail to maintain its records, books of accounts and bank accounts separate and apart from those of the members, partners, shareholders, principals and Affiliates of Holdings and Servicer or any other Person;
(j)other than any Loan Documents or the Purchase and Sale Agreement and or as otherwise required by the Loan Documents, without the consent of the Agent, enter into any contract or agreement with any member, general or limited partner, shareholder, principal or Affiliate of Borrower, or Holdings, or any member, general or limited partner, shareholder, principal or Affiliate of any of the foregoing, except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any member, general or limited partner, shareholder, principal or Affiliate of Borrower or Holdings, or any member, general or limited partner, shareholder or Affiliate of any of the foregoing;
(k)seek the dissolution or winding up in whole, or in part, of Borrower;
(l)fail to correct any known misunderstandings regarding the separate identity of Borrower, as applicable (provided that the foregoing shall not preclude the Servicer from performing its duties in its own name with respect to the Pledged Leases without disclosing the name of the Borrower);
(m)hold itself out to be responsible for the debts of another Person;
(n)other than owning the Leases and other Collateral (including the Inventory) purchased from Holdings pursuant to the Purchase and Sale Agreement, respectively and any extensions, waivers, amendments or other modifications of such Leases otherwise permitted hereunder, make or extend any financial accommodations or leases to any third party, including any member, general or limited partner, shareholder, principal or Affiliate of Borrower, Servicer or Holdings, or any member, general or limited partner, shareholder, principal or Affiliate of any of the foregoing;
(o)fail either to hold itself out to the public as a legal entity separate and distinct from any other Person or to conduct its business solely in its own name in order not (i) to mislead others as to the identity with which such other party is transacting business (provided that the foregoing shall not preclude the Servicer from performing its duties in its own name with respect to the Pledged Leases without disclosing the name of the Borrower), or (ii) to suggest that Borrower is responsible for the debts of any third party (including any member, general or limited partner, shareholder, principal or Affiliate of Borrower, Servicer or Holdings, or any member, general or limited partner, shareholder, principal or Affiliate of any of the foregoing);
(p)fail to maintain adequate capital for the normal obligations reasonably foreseeable in businesses of its size and character and in light of its contemplated business operations;
(q)except for invoicing for collections and servicing of Leases, share any common logo with or hold itself out as or be considered as a department or division of (i) any general or limited partner, shareholder, principal, member or Affiliate of Borrower, (ii) any Affiliate of a general or limited partner, shareholder, principal or member of Borrower, or (iii) any other Person (provided that the foregoing shall not preclude the Servicer from performing its duties in its own name with respect to the Pledged Leases without disclosing the name of the Borrower);
(r)without the unanimous written consent of its directors, managers or managing members, or general or limited partners, as the case may be, and the consent of any independent directors or independent managers required herein, file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors; or
(s)fail at any time to have at least one (1) of its managers be an independent manager who is not and has not been for at least five (5) years a director, manager, officer, employee, trade creditor, supplier or shareholder (or spouse, parent, sibling or child of the foregoing) of (or a Person who directly or indirectly controls) (i) the Borrower, (ii) Holdings or (iii) any Affiliate of the Borrower, Holdings or any general or limited partner, shareholder, principal or member of the Borrower or Holdings.
(t)Borrower shall further comply with, any further customary requirements for a single purpose entity arising out of a change in law or industry practice as Agent may require from time to time in its sole discretion by notice to Borrower.
1.15Collections
Borrower and Servicer each agree and covenant that it shall:
(a)Instruct or cause all Account Lessees to be instructed to either:
(i)send all Scheduled Payments directly to the Collateral Account; or
(ii)in the alternative, make Scheduled Payments by way of pre-authorized debits from a deposit account of such Account Lessee pursuant to a PAC or from a credit card of such Account Lessee pursuant to a Credit Card Account from which Scheduled Payments shall be electronically transferred to the Collateral Account.
(b)In the case of funds transfers pursuant to a PAC or Credit Card Account, take, or cause each of the Servicer, the Collateral Account Bank and/or the Agent to take, all necessary and appropriate action to ensure that each such pre-authorized debit or credit card payments is credited directly to the Collateral Account;
(c)If the Borrower or Servicer shall receive any collections or other proceeds of the Collateral, hold such collections or proceeds in trust for the benefit of the Agent and deposit such collections into the Collateral Account within two (2) Business Days after such amounts so received and held by Borrower or Servicer equals or exceeds $25,000; and
(d)Prevent the deposit into the Collateral Account of any funds other than collections from Leases or other funds to be deposited into the Collateral Account under this Agreement or the other Loan Documents (provided that, this covenant shall not be breached to the extent that such other funds are inadvertently or mistakenly deposited into the Collateral Account if Borrower or Servicer promptly requests that such funds be segregated and removed from the Collateral Account in accordance with Section 2.12(b)).
(e)Notwithstanding anything to the contrary in this Section 6.15, Borrower hereby authorizes Agent, at any time after the occurrence of an Event of Default, to send directions to each Account Lessee to make payments directly to the Collateral Account.
1.16Right of First Refusal
In addition to the rights granted to Agent and the Lenders pursuant to Section 2.13 hereof, Borrower, Holdings and Parent Entity hereby agree that, if at any time prior to the date that all of the Obligations (other than indemnity obligations of Borrower that are not then due and payable or with respect to which no claim has been made) have been indefeasibly paid in full in cash and the Revolving Loan Commitments terminated, Borrower, Holdings or any Subsidiary of Borrower, Holdings or Parent Entity shall have obtained a bona fide third-party offer (the “Third-Party Offer”) (for the avoidance of doubt, a bonafide, fully negotiated and executed term sheet delivered by the applicable lender to Borrower, Holdings or any Subsidiary of Borrower, Holdings or Parent Entity, as applicable, together with a commitment letter, if any, shall qualify as a “Third-Party Offer” hereunder) for (a) senior debt financing or refinancing of the Loan or the financing, refinancing or acquisition of any Leases to be originated, acquired or otherwise held by Holdings, Borrower, Parent Entity or any Subsidiary of Borrower, Holdings or Parent Entity that is formed for the purpose of originating Leases or (b) with respect to Borrower, Holdings, Parent Entity or any Subsidiary of Borrower, Holdings or Parent Entity, for senior or junior debt financing of any type and with respect to any type of collateral or any business unit (other than refinancing of the Ivy Management Indebtedness by Ivy Mezzanine, LLC), Borrower, Holdings or Parent Entity shall, in writing within five (5) Business Days of receipt of such offer, promptly inform Agent (such writing to Agent is referred to herein as the “First Refusal Offer”) of such Third-Party Offer and the terms and conditions of such Third-Party Offer (and, if such Third-Party Offer is in writing, shall attach a copy of such Third-Party Offer to such First Refusal Offer) and, in such First Refusal Offer, shall offer to Agent a right of first refusal in respect of such financing or refinancing. Agent’s right of first refusal shall grant Agent the right to, within fifteen (15) days after the receipt of such First Refusal Offer, deliver a writing to Borrower, Holdings and Parent Entity (the “Acceptance”) stating that Agent and Lenders agree to extend such financing on Material Terms which shall be the same or more favorable (taken as a whole) to the applicable borrower than the Material Terms of financing under such Third-Party Offer (as such Material Terms were communicated to Agent by Borrower, Holdings or Parent Entity or such Affiliate), it being agreed and understood that, with respect to any such Third-Party Offer, the (i) aggregate principal amount, (ii) pricing (including, without limitation, interest rate, closing, commitment, structuring, arrangement or similar fees and original issue discount) and payment and prepayment terms and conditions, (iii) term and/or duration, (iv) financial covenants, borrowing base or availability, (v) events of default, (vi) material conditions to closing and borrowing, (vii) operational covenants, including as to debt, liens, investments, prepayments and repayments of other debt, use of proceeds, dividends and distributions, reporting, access to cash, and (viii) collateral and transaction structure (with respect to any financing, such material terms are referred to as “Material Terms”). Upon receipt of the Acceptance by Borrower, Holdings or Parent Entity, Agent and one or more of the Lenders or their respective Affiliates, on the one hand, and Borrower, Holdings, Parent Entity or the applicable Subsidiary, on the other hand, shall, in good faith negotiate an agreement for such financing on the terms set forth in such Acceptance (subject to the satisfaction of appropriate conditions in respect of due diligence, documentation and other customary and commercial
conditions precedent set forth in (or incorporated by reference) in the Acceptance). If Agent shall have declined to exercise its right under such First Refusal Offer, or shall have failed to timely respond within fifteen (15) Business Days to such First Refusal Offer or shall have offered a counterproposal to Borrower, Holdings or Parent Entity in respect of such First Refusal Offer, Borrower, Holdings, Parent Entity or such applicable Subsidiary shall be free to close such Third-Party Offer within one hundred twenty (120) days of the date of such First Refusal Offer on terms substantially similar to the terms thereof set forth in such Third-Party Offer (as communicated to Agent). If Borrower, Holdings, Parent Entity or such applicable Subsidiary shall have failed to so close such financing within said one hundred twenty (120) days or if the material terms of such financing are modified from the description of such terms in the Third-Party Offer, then a new right of first refusal for the benefit of Agent with respect to such financing shall immediately arise. Borrower, Holdings and Parent Entity agree to inform any Person making a Third-Party Offer of Agent’s and Lender’s rights under this Section 6.16 in respect thereof.
Borrower and Holdings covenant and agree not to form, or consent to or otherwise acquiesce in the formation of, any Affiliate, or otherwise use any Subsidiary existing on the Closing Date, to originate, acquire or finance any Leases in circumvention of the intent of the covenants, agreements and obligations set forth in this Section 6.16.
1.17Interest Reserve Account. Until the Positive Net Income Trigger Date, Holdings shall maintain the existence of the Interest Reserve Account and at all times keep on deposit the amounts required by the definition thereof.
1.18Board of Directors; Observer Rights.
Effective as of the Closing Date, Agent (or its designee) shall have the right to designate two (2) representatives (each, a “Designee”) to: (a) receive prior written notice of all meetings (both regular and special) of Parent Entity’s or Holdings’ board of directors and each committee thereof (such notice to be delivered or mailed as specified in Section 12.5 at the same time as notice is given to the members of such board and/or committee); (b) be entitled to attend (or, at the option of such representatives, monitor by telephone) all such meetings at the Designee’s sole cost and expense; (c) receive all notices, information and reports which are furnished or made available to the members of such board (solely in their capacity as a “board member”) and/or committee at the same time and in the same manner as the same is furnished or made available to such members; (d) be entitled to participate in all discussions conducted at such meetings; and (e) receive (to the extent and when so provided to the members of any such board) copies of the minutes of all such meetings. If any action is proposed to be taken after the Closing Date by such board and/or committee by written consent in lieu of a meeting, Parent Entity or Holdings, as applicable, will provide a copy of such consent to such Designees, which shall be delivered or mailed as specified in Section 12.5 at the same time as notice is given to the members of such board and/or committee. Parent Entity or Holdings, as applicable, will furnish or cause to be furnished such Designees with a copy of each such written consent promptly after it has become effective. Such Designees shall not constitute a member of such board and/or committee and shall not be entitled to vote on any matters presented at meetings of such board and/or committee or to consent to any matter as to which the consent of any such board and/or committee shall have been requested. The parties hereto agree that the Designees shall have no fiduciary duties or any other duties or responsibilities to Borrower, Parent Entity, Holdings or any of their respective Affiliates.
1.19Financial Covenants.
(a)Tangible Net Worth of Parent Entity. As of the end of each fiscal month, the Tangible Net Worth of Parent Entity and its Subsidiaries, on a consolidated basis, shall be
greater than or equal to the sum of (i) $(18,500,000) plus (ii) the greater of (A) zero dollars and (B) fifty percent (50%) of all aggregate Parent Consolidated Net Income since April 30, 2019 (as determined in accordance with GAAP).
(b)As of any date of determination, Parent Entity agrees that it shall not permit Liquidity to be less than $500,000 if the outstanding principal amount of the Loan is less than $25,000,000 and to be less than $1,000,000 if the outstanding principal amount of the Loan is greater than or equal to $25,000,000.
1.20Preemptive Rights. Except as otherwise expressly contemplated by this Agreement, Parent Entity and Holdings shall not issue any Equity Interests unless such issuance is in compliance with the following procedures:
(a)Prior to the date of a proposed issuance of any Equity Interests, Parent Entity or Holdings shall deliver notice of such proposed issuance (an “Issuance Notice”) to Agent. The Issuance Notice shall specify (i) the number of Equity Interests and class of Equity Interests which Parent Entity or Holdings proposes to issue, the consideration to be received therefor and the date on which such consideration for such Equity Interests shall be paid (which date shall be no less than thirty (30) days from the date of delivery of the Issuance Notice); (ii) all of the material terms and conditions, including the terms and conditions of payment, upon which Parent Entity or Holdings proposes to issue such Equity Interests; (iii) the proportionate number of such Equity Interests that Agent shall have the option to purchase under this Section 6.20, which proportionate number shall be no less than ten percent (10%) of the number of Equity Interests which Parent Entity or Holdings proposes to issue (such proportionate number for Agent, its “Pro-Rata-Share”); and (iv) where the proposed purchasers of such Equity Interests are known, the identities of such proposed purchasers.
(b)Upon delivery of an Issuance Notice, Agent shall have the right (exercisable by delivery to Parent Entity or Holdings, as applicable, of written notice within the thirty (30) day period following the date of delivery of the Issuance Notice), to purchase its Pro-Rata-Share of the offering at the price and on the terms and conditions contained therein. The foregoing preemptive rights shall be deemed waived by Agent if it does not exercise its preemptive right and pay for the Equity Interests within the period of time prescribed by the Issuance Notice in accordance with this Section 6.20.
(c)Notwithstanding anything to the contrary contained in this Section 6.20, if the consideration to be received by Parent Entity or Holdings, as applicable, with respect to the issuance of Equity Interests specified in the Issuance Notice is other than cash to be paid upon the issuance of the Equity Interests (that is, if the consideration would constitute so-called “in-kind” property, such as membership interests or other Equity Interests), or if security is to be provided to secure the payment of any deferred portion of the purchase price, then Agent may purchase such Equity Interests by making a cash payment at the time of the closing specified in the offer, in the amount of the reasonably equivalent value of the “in-kind” property specified in the Issuance Notice and/or may provide reasonably equivalent security to that provided in the Issuance Notice.
VII.NEGATIVE COVENANTS
Borrower, Holdings and Parent Entity covenant and agree that, until the indefeasible payment in full in cash, of all the Obligations under the Loan Documents (other than indemnity obligations under the Loan Documents that are not then due and payable or with respect to which no claim has been made) and termination of this Agreement:
1.1Indebtedness
Borrower shall not create, incur, assume or suffer to exist any Indebtedness of Borrower, except (a) Indebtedness under the Loan Documents and (b) Indebtedness incurred pursuant to the Purchase and Sale Agreement (such Indebtedness described in clauses (a) and (b), the “Permitted Indebtedness”). Borrower shall not make prepayments on any existing or future Indebtedness to any Person other than to Agent and Lenders. Neither Parent Entity nor Holdings shall not create, incur, assume or suffer to exist any Ivy Management Indebtedness unless such Ivy Management Indebtedness is subject to a Subordination Agreement in form and substance satisfactory to Agent in its sole discretion; provided that in no event shall Holdings or Parent Entity make any payments with respect to the VPC Bridge Notes from any source other than the Interest Reserve Account until the Positive Net Income Trigger Date.
1.2Liens
Borrower shall not create, incur, assume or suffer to exist any Lien upon, in or against, or pledge of, any of the Collateral, whether now owned or hereafter acquired, except the following (collectively, “Permitted Liens”): (a) Liens under the Loan Documents or otherwise arising in favor of Agent, for the benefit of itself and the other Lenders and (b) any right of set-off granted in favor of any financial institution in respect of Deposit Accounts opened and maintained in the ordinary course of business or pursuant to the requirements of this Agreement; provided, that with respect to any such Deposit Account, Agent has a perfected Lien thereon and control thereof, in form, scope and substance satisfactory to Agent in its Permitted Discretion.
1.3Investments; Investment Property; New Facilities or Collateral; Subsidiaries
Borrower shall not, directly or indirectly, (a) merge with, purchase, own, hold, invest in or otherwise acquire any obligations or Equity Interests or securities of, or any other interest in, all or substantially all of the assets of, any Person or any joint venture, (b) purchase, own, hold, invest in or otherwise acquire any Investment Property (except (i) those set forth on Schedule 5.17C as of the Closing Date, (ii) Deposit Accounts with financial institutions in the ordinary course of business or as required by this Agreement; provided, that with respect to any such Deposit Accounts, Agent has a perfected Lien thereon and control thereof, in form, scope and substance satisfactory to Agent in its Permitted Discretion and (iii) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business) or (c) make or permit to exist any loan, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person. Borrower shall not purchase, lease, own, operate, hold, invest in or otherwise acquire any property or asset or any Collateral that is located outside of the continental United States. Borrower shall not have any Subsidiaries.
1.4Dividends; Redemptions; Equity
Notwithstanding any provision of any Loan Document, Borrower shall not (a) declare, pay or make any dividend or distribution on any Equity Interests or other securities or ownership interests, (b) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any Equity Interests or other securities or interests or of any options to purchase or acquire any of the foregoing, (c) otherwise make any payments, dividends or distributions to any member, manager, managing member, stockholder, director or other equity owner in such Person’s capacity as such, (d) make any payment of any management, service or related or similar fee to any Affiliate or holder of Equity Interests of Borrower or (e) issue, sell or create any Equity Interests; provided, however, so long as no Event of Default shall have occurred and be continuing or would result therefrom, Borrower shall be permitted to make distributions or payments, as applicable, to Holdings (i) in amounts necessary to pay the purchase price to
Holdings for the purchase of Leases and other Collateral under the Purchase and Sale Agreement and (ii) of amounts distributed to Borrower pursuant to Sections 2.4(a)(x) hereof.
1.5Transactions with Affiliates
Borrower shall not enter into or consummate any transaction of any kind with any of its Affiliates other than (i) the transactions contemplated hereby and by the other Loan Documents and (ii) to the extent not otherwise prohibited under this Agreement, other transactions upon fair and reasonable terms materially no less favorable to Borrower than would be obtained in a comparable arms-length transaction with a Person not an Affiliate.
1.6Charter Documents; Fiscal Year; Dissolution; Use of Proceeds; Insurance Policies; Disposition of Collateral; Trade Names
Borrower shall not (a) amend, modify, restate or change its certificate of formation, limited liability company agreement or similar charter or governance documents in a manner that would be adverse to Agent or Lenders, (b) change its state of formation or change its name without thirty (30) calendar days prior written notice to Agent, (c) change its fiscal year, (d) amend, alter, suspend, terminate or make provisional in any material way, any Permit, the suspension, amendment, alteration or termination of which would reasonably be expected to be, have or result in a Material Adverse Effect without the prior written consent of Agent, (e) wind up, liquidate or dissolve (voluntarily or involuntarily), effectuate any Division or commence or suffer any proceedings seeking or that would result in any of the foregoing, (f) use any proceeds of any Loan for “purchasing” or “carrying” “margin stock” as defined in Regulations T, U or X of the Board of Governors of the Federal Reserve System for any use not contemplated or permitted by this Agreement, (g) amend, modify, restate or change any insurance policy in a manner adverse to Agent or Lenders in any material respect, (h) engage, directly or indirectly, in any business other than as set forth herein, (i) establish new or additional trade names without providing not less than thirty (30) days advance written notice to Agent or (j) certificate, or cause to have certificated, any equity ownership interest in Borrower that is not evidenced by a certificate as of the Closing Date that is Collateral subject to this Agreement, without Agent’s prior written consent.
1.7Transfer of Collateral; Amendment of Pledged Leases
(a)Borrower shall not sell, lease, transfer, pledge, encumber, assign or otherwise dispose of any Collateral, except as otherwise provided in Section 2.11.
(b)Except for the purpose of granting payment discounts to Account Lessees in the ordinary course of business consistent in all material respects with the Underwriting Guidelines and Servicing Policy or in connection with the payment in full of such Pledged Lease, Borrower shall not extend, amend, waive or otherwise modify the terms of any Pledged Lease or permit the rescission or cancellation of any Pledged Lease, whether for any reason relating to a negative change in the related Account Lessee’s creditworthiness or inability to make any payment under the Pledged Lease or otherwise, except in accordance with the Underwriting Guidelines and the Servicing Policy.
(c)Except in connection with the payment in full of such Pledged Lease or settlements of a Defaulted Lease in accordance with the Servicing Policy, Borrower shall not terminate or reject any Pledged Lease prior to the end of the term of such Lease, whether such rejection or early termination is made pursuant to an Applicable Law, unless prior to such termination or rejection, such Pledged Lease and any related Collateral have been released from the Lien created by this Agreement.
1.8Contingent Obligations and Risks
Except as otherwise expressly permitted by this Agreement, Borrower shall not enter into any Contingent Obligations or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person (other than indemnities to officers and directors of such Person to the extent permitted by Applicable Law); provided, however, that nothing contained in this Section 7.8 shall prohibit Borrower from endorsing checks in the ordinary course of its business.
1.9Truth of Statements
Borrower shall not furnish to Agent any certificate or other document prepared by or on behalf of Borrower with respect to which the representations and warranties set forth in Section 5.13 would not be true if made at the time such certificate or other document were so furnished to Agent.
1.10Modifications of Agreements
Borrower shall not make, or agree to make, any modification, amendment or waiver of any of the terms or provisions of the Purchase and Sale Agreement or any Servicing Agreement , without the prior written consent of Agent. Borrower shall not make, or agree to make, any Material Modification with respect to any Lease, without the prior written consent of Agent.
1.11Anti-Terrorism; OFAC
Borrower shall not, nor shall Borrower permit Holdings or any of its Subsidiaries to, (a) be or become a Person whose property or interests in property are blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism (66 Fed. Reg. 49079 (2001)), (b) engage in any dealings or transactions prohibited by Section 2 of such executive order, or otherwise be associated with any such Person in any manner violative of Section 2 of such executive order, or (c) otherwise become a Person on the list of Specially Designated Nationals and Blocked Persons in violation of the limitations or prohibitions under any other OFAC regulation or executive order.
1.12Deposit Accounts and Payment Instructions
(a)Borrower shall not open a Deposit Account (other than those listed on Schedule 5.17C as of the Closing Date) without the prior written consent of Agent.
(b)Borrower shall not make any change in the instructions to any Servicer with respect to the deposits of collections regarding Leases to the Collateral Account in accordance with this Agreement and the applicable Servicing Agreement.
(c)Borrower shall not, and shall cause Servicer to not, make any change in the instructions to any Account Lessee on any Lease with respect to any instructions to such Account Lessees regarding payment to be made to the Collateral Account or any Servicer Physical Payment Address.
1.13Servicing Agreement
Borrower shall not:
(a)amend, modify or terminate (or permit or cause Servicer to amend, modify or terminate) any Servicing Agreement without the prior written consent of Agent (which consent may be provided in Agent’s Permitted Discretion), provided, that with respect to termination of any Servicing Agreement or material amendments thereto, Agent’s consent may be granted in Agent’s sole discretion;
(b)except in connection with (i) the replacement of the Servicer by the Backup Servicer or third party servicer acceptable to Agent after the occurrence and during the continuance of an Event of Default and/or (ii) the delegation by the Servicer of certain duties to any of the Persons set forth on Schedule 7.13(b) the delegation by the Servicer to third-party collection agencies the enforcement of Defaulted Leases or the delegation of certain duties to such other Persons, in each case, consistent with the Servicing Policy, if any, as Agent may approve from time to time (which approval may be provided in Agent’s Permitted Discretion), transfer or delegate (or allow Servicer to transfer or delegate) any of its duties or functions under any Servicing Agreement to any Person, or otherwise engage any such Person to perform any such duties or functions for or on behalf of the Servicer or Borrower, provided, that any delegation of duties under any Servicing Agreement by Servicer pursuant to clause (ii) of this Section 7.13(b) shall (x) be terminable without the payment of any fee or penalty upon not more than thirty (30) calendar days prior notice and (y) not relieve Servicer of any of its rights, duties or obligations under the applicable Servicing Agreement and Servicer agrees that it shall remain liable to Agent and the Lenders for any breach in the performance of the same, whether such breach is by the Servicer or its delegate; or
(c)except in connection with the replacement of the Servicer by the Backup Servicer, Agent, an Affiliate of Agent or a third party servicer acceptable to Agent after an Event of Default, transfer or delegate (or allow the Servicer to transfer or delegate) the duties and functions of the Servicer under any Servicing Agreement to any other Persons.
1.14ERISA.
Borrower shall not sponsor, maintain or contribute to any “employee benefit plan” that is covered by Title IV of ERISA or Section 412 of the Code.
VIII.EVENTS OF DEFAULT
The occurrence of any one or more of the following shall constitute an “Event of Default”:
(a)Borrower shall fail to pay any amount on the Obligations or provided for in any Loan Document when due (in all cases, whether on any payment date, at maturity, by reason of acceleration, by notice of intention to prepay, by required prepayment or otherwise) and such failure shall continue or not be cured within a period of two (2) Business Days;
(b)any representation, statement or warranty made by Borrower in any Loan Document or in any other certificate, document, report or opinion delivered in conjunction with any Loan Document to which it is a party, shall not be true and correct in all material respects (except to the extent already qualified by materiality, in which case it shall be true and correct in all respects) except those made as of a specific date;
(c)Borrower, any Guarantor or any other party hereto, other than Agent or any Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in this Agreement and such violation, breach or failure (only if reasonably susceptible to being cured) shall not be cured within a period of thirty (30) days after such violation, breach or default or such other applicable period
set forth in this Agreement (other than any violation, breach or default in the covenants set forth in Section 6.17 or Article VII of this Agreement or in Article VIII(a) above or the misappropriation of any funds to be delivered to the Collateral Account pursuant to Section 2.3 and applied pursuant to Section 2.4 of this Agreement, for which there shall be no cure period or Section 6.20;
(d)Borrower, any Guarantor or any other party thereto, other than Agent, Backup Servicer or any Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in, or any event of default occurs under, any Loan Document other than this Agreement and such violation, breach, default, event of default or failure shall not be cured within the applicable period set forth in the applicable Loan Document and such violation, breach or failure (only if reasonably capable of being cured) shall not be cured within a period of thirty (30) days after such;
(e)(i) any of the Loan Documents ceases to be in full force and effect (other than in accordance with its terms), or (ii) any Lien created under any Loan Document ceases to constitute a valid first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien on the Collateral in accordance with the terms thereof, except with respect to Collateral that is released from the Lien of Agent as permitted under the Loan Documents or the Security Documents;
(f)one or more judgments or decrees is rendered against any of Borrower or any Guarantor in an amount in excess of $1,000,000 individually or $1,000,000 in the aggregate (excluding judgments to the extent covered by insurance of such Person), which is/are not satisfied, stayed, vacated or discharged of record within sixty (60) calendar days of being rendered;
(g)(i) any default or breach occurs, which is not cured within any applicable grace period or waived in writing to the satisfaction of Agent, in the payment of any amount with respect to any Indebtedness (other than the Obligations) of any of Borrower, Parent Entity or Holdings in excess of $1,000,000 individually or $1,000,000 in the aggregate, including, but not limited to, the Subordinated Indebtedness or (ii) any Indebtedness of Borrower, Parent Entity or Holdings in excess of $1,000,000 individually or $1,000,000 in the aggregate is declared to be due and payable and that has been accelerated by the holder of such Indebtedness or is required to be prepaid (other than by a regularly scheduled payment or a payment due on the voluntary termination of a capital lease) prior to the stated maturity thereof;
(h)any of Borrower or any Guarantor shall (i) be unable to pay its debts generally as they become due, (ii) file a petition under any insolvency statute, (iii) make a general assignment for the benefit of its creditors, (iv) commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property or shall otherwise be dissolved or liquidated, or (v) file a petition seeking reorganization or liquidation or similar relief under any Debtor Relief Law or any other Applicable Law or statute;
(i)(i) a court of competent jurisdiction shall (A) enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of any of Borrower or any Guarantor or the whole or any substantial part of any of Borrower’s or such Guarantor’s properties, which shall continue unstayed and in effect for a period of sixty (60) calendar days, (B) shall approve a petition filed against any of Borrower or any Guarantor seeking reorganization, liquidation or similar relief under the any Debtor Relief Law or any other Applicable Law or statute, which is not dismissed within sixty (60) calendar days or, (C) under the provisions of any Debtor Relief Law or other Applicable Law or statute, assume custody or control of any of Borrower or any Guarantor or of the whole or any substantial part of
Borrower’s or any Guarantor’s properties, which is not irrevocably relinquished within sixty (60) calendar days, or (ii) there is commenced against any of Borrower or any Guarantor any proceeding or petition seeking reorganization, liquidation or similar relief under any Debtor Relief Law or any other Applicable Law or statute, which (A) is not unconditionally dismissed within sixty (60) calendar days after the date of commencement, or (B) is with respect to which any of Borrower or any Guarantor takes any action to indicate its approval of or consent;
(j)(i) any Change of Control occurs, (ii) any Material Adverse Effect occurs or (iii) Borrower or any Guarantor ceases any material portion of its business operations as conducted at the Closing Date, in the case of each of clause (i) and (iii), without the prior written consent of Agent;
(k)Servicer shall fail at any time to use Advensus as a sub-servicer with respect to at least twenty-five percent (25%) of the Pledged Leases defined by the percentage of inbound calls;
(l)Reserved;
(m)the occurrence and continuance of one or more Default Trigger Events;
(n)the occurrence of a First Payment Default Trigger Event:
(o)the occurrence of one or more Level Two Regulatory Trigger Events;
(p)the occurrence of a Specified Regulatory Change;
(q)the occurrence of a Servicer Default;
(r)the occurrence of a Key Man Trigger Event; or
(s)any formal enforcement order or criminal complaint relating to financial crimes or major felonies is brought by a Governmental Authority against Borrower, which has not been dismissed or satisfied or of which the Borrower has not been found not guilty within sixty (60) days of the filing of such order or complaint, provided, however, that no Event of Default under this clause (s) shall be deemed to be continuing if at any time the Borrower is found not guilty under such order or complaint.
In the case of any such Event of Default, notwithstanding any other provision of any Loan Document, (I) Agent may (and, at the request of Requisite Lenders (x) with respect to any Event of Default occurring under Article VIII(m), may and (y) with respect to any other Event of Default described in this Article VIII, shall), by notice to Borrower (i) terminate the commitment to make Advances hereunder, whereupon the same shall immediately terminate, (ii) substitute immediately Backup Servicer or any other third party servicer acceptable to Agent, in its sole discretion, for Servicer in all of Servicer’s roles and functions as contemplated by the Loan Documents and the Servicing Agreements and any fees, costs and expenses of, for or payable to Backup Servicer or other third party servicer acceptable to Agent, in its sole discretion, shall be at Borrower’s sole cost and expense, (iii) with respect to the Collateral, (A) terminate any Servicing Agreement and service the Collateral, including the right to institute collection, foreclosure and other enforcement actions against the Collateral; (B) enter into modification agreements and make extension agreements with respect to payments and other performances; (C) release Account Lessees and other Persons liable for performance; (D) settle and compromise disputes with respect to payments and performances claimed due, all without notice to Borrower or Guarantors, and all in Agent’s sole discretion and without relieving Borrower or Guarantors from performance of the obligations hereunder; (E) receive, collect, open and read all
mail of Borrower, Servicer or Guarantors for the purpose of obtaining all items pertaining to the Collateral and any collateral described in any Loan Document; (F) collect all Scheduled Payments (both voluntary and mandatory), and other amounts of any and every description payable by or on behalf of any Account Lessee pursuant to any Pledged Lease, the related Portfolio Documents, or any other related documents or instruments directly from such Account Lessee; and (G) apply all amounts in or subsequently deposited in the Collateral Account to the payment of the unpaid Obligations or otherwise as Agent in its sole discretion shall determine; and (iv) declare all or any of the Loan and/or Notes, all interest thereon and all other Obligations to be due and payable immediately (except in the case of an Event of Default under Section 8(h) or (i) in which event all of the foregoing shall automatically and without further act by Agent or Lenders be due and payable and Agent’s or Lenders’ obligations hereunder shall terminate, in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower and (II) effective immediately upon receipt of notice from Agent (unless specifically prohibited and provided for in Article VII, in which case effective immediately upon an Event of Default without any action of Agent or any Lender), no action permitted to be taken under Article VII hereof may be taken.
IX.RIGHTS AND REMEDIES AFTER DEFAULT
1.1Rights and Remedies
(a)In addition to the acceleration provisions set forth in Article VIII above, upon the occurrence and during the continuation of an Event of Default, Agent shall have the right to (and at the request of Requisite Lenders, shall) exercise any and all rights, options and remedies provided for in any Loan Document, under the UCC or at law or in equity, including, without limitation, the right to (i) apply any property of Borrower held by Agent to reduce the Obligations, (ii) foreclose the Liens created under the Loan Documents, (iii) realize upon, take possession of and/or sell any Collateral, with or without judicial process, (iv) exercise all rights and powers with respect to the Collateral as Borrower might exercise, (v) collect and send notices regarding the Collateral, with or without judicial process, (vi) by its own means or with judicial assistance, enter any premises at which Collateral are located, or render any of the foregoing unusable or dispose of the Collateral on such premises without any liability for rent, storage, utilities, or other sums, and Borrower shall not resist or interfere with such action, (vii) at Borrower’s expense, require that all or any part of the Collateral be assembled and made available to Agent at any place designated by Agent in its sole discretion, (viii) reduce or otherwise change the Maximum Loan Amount and/or any component of the Maximum Loan Amount and/or (ix) relinquish or abandon any Collateral or securities pledged or any Lien thereon. Notwithstanding any provision of any Loan Document, Agent, in its sole discretion, shall have the right, at any time that Borrower fails to do so, after an Event of Default, without prior notice, to: (A) obtain insurance covering any of the Collateral to the extent required hereunder; (B) pay for the performance of any of the Obligations; (C) discharge taxes, levies and/or Liens on any of the Collateral that are in violation of any Loan Document; and (D) pay for the maintenance, repair and/or preservation of the Collateral. Such expenses and advances shall be deemed Advances hereunder and shall be added to the Obligations until reimbursed to Agent, for its own account and for the benefit of the other Lenders, and shall be secured by the Collateral, and such payments by Agent, for its own account and for the benefit of the other Lenders, shall not be construed as a waiver by Agent or Lenders of any Event of Default or any other rights or remedies of Agent or Lenders.
(b)Borrower and Holdings each agree that notice received at least ten (10) calendar days before the time of any intended public sale, or the time after which any private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by Applicable Law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold
immediately by Lender without prior notice to Borrower or Holdings. At any sale or disposition of Collateral or securities pledged, Agent may (to the extent permitted by Applicable Law) purchase all or any part thereof free from any right of redemption by Borrower which right is hereby waived and released. Borrower and Holdings each covenant and agree not to interfere with or impose any obstacle to Agent’s exercise of its rights and remedies with respect to the Collateral. In dealing with or disposing of the Collateral or any part thereof, Agent shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any Collateral with judicial process.
1.2Application of Proceeds
Notwithstanding any other provision of this Agreement (including, without limitation, Section 2.4 hereof), in addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, all lease payments, dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder upon the occurrence and continuation of an Event of Default shall be applied in accordance with the provisions of Section 2.4 hereof; provided, that Borrower shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made).
1.3Rights to Appoint Receiver
Without limiting and in addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, upon the occurrence and continuation of an Event of Default, Agent shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Agent and/or any Lender to enforce its rights and remedies in order to manage, protect and preserve the Collateral and continue the operation of the business of Borrower and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated.
1.4Attorney-in-Fact
Borrower hereby irrevocably appoints Agent as its attorney-in-fact for the limited purpose of taking any action permitted under the Loan Documents that Agent deems necessary or desirable (in Agent’s sole discretion) upon the occurrence and continuation of an Event of Default to protect, foreclose, enforce and realize upon Agent’s Lien in the Collateral, including the execution and delivery of any and all documents or instruments related to the Collateral in Borrower’s name, and said appointment shall create in Agent a power coupled with an interest.
1.5Rights and Remedies not Exclusive
Agent shall have the right in its sole discretion to determine which rights, Liens and/or remedies Agent and Lenders may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way waive, compromise, modify or affect any of Agent’s or Lenders’ rights, Liens or remedies under any Loan Document, Applicable Law or equity. The enumeration of any rights and remedies in any Loan Document is not intended to be exhaustive, and all rights and remedies of Agent and Lenders described in any Loan Document are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent and Lenders otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy.
X.WAIVERS AND JUDICIAL PROCEEDINGS
1.1Waivers
Except as expressly provided for herein, Borrower hereby waives set off, counterclaim, demand, presentment, protest, all defenses with respect to any and all instruments and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under any Loan Document. Borrower hereby waives any and all defenses and counterclaims it may have or could interpose in any action or procedure brought by Agent to obtain an order of court recognizing the assignment of, or Lien of Agent in and to, any Collateral.
1.2Delay; No Waiver of Defaults
No course of action or dealing, renewal, release or extension of any provision of any Loan Document, or single or partial exercise of any such provision, or delay, failure or omission on Agent’s part in enforcing any such provision shall affect the liability of Borrower or operate as a waiver of such provision or preclude any other or further exercise of such provision. No waiver by any party to any Loan Document of any one or more defaults by any other party in the performance of any of the provisions of any Loan Document shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision of any Loan Document, by completing the Closing under this Agreement and/or by making Advances, neither the Agent nor any Lender waives any breach of any representation or warranty of under any Loan Document, and all of Agent’s or any Lender’s claims and rights resulting from any such breach or misrepresentation are specifically reserved.
1.3Jury Waiver
(A) EACH PARTY HEREBY (i) EXPRESSLY, KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND (ii) AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.
(B) IN THE EVENT ANY SUCH CLAIM OR CAUSE OF ACTION IS BROUGHT OR FILED IN ANY UNITED STATES FEDERAL COURT SITTING IN THE STATE OF CALIFORNIA OR IN ANY STATE COURT OF THE STATE OF CALIFORNIA, AND THE WAIVER OF JURY TRIAL SET FORTH IN SECTION 10.3(A) IS DETERMINED OR HELD TO BE INEFFECTIVE OR UNENFORCEABLE, THE PARTIES AGREE THAT ALL CLAIMS AND CAUSES OF ACTION SHALL BE RESOLVED BY REFERENCE TO A PRIVATE JUDGE SITTING WITHOUT A JURY, PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638, BEFORE A MUTUALLY ACCEPTABLE REFEREE OR, IF THE PARTIES CANNOT AGREE, A REFEREE SELECTED BY THE PRESIDING JUDGE OF THE SANTA CLARA COUNTY, CALIFORNIA. SUCH PROCEEDING SHALL BE CONDUCTED IN SANTA CLARA COUNTY, CALIFORNIA, WITH CALIFORNIA RULES OF EVIDENCE AND DISCOVERY APPLICABLE TO SUCH PROCEEDING. IN
THE EVENT CLAIMS OR CAUSES OF ACTION ARE TO BE RESOLVED BY JUDICIAL REFERENCE, ANY PARTY MAY SEEK FROM ANY COURT HAVING JURISDICTION THEREOVER ANY PREJUDGMENT ORDER, WRIT OR OTHER RELIEF AND HAVE SUCH PREJUDGMENT ORDER, WRIT OR OTHER RELIEF ENFORCED TO THE FULLEST EXTENT PERMITTED BY LAW NOTWITHSTANDING THAT ALL CLAIMS AND CAUSES OF ACTION ARE OTHERWISE SUBJECT TO RESOLUTION BY JUDICIAL REFERENCE.
1.4Amendment and Waivers
(a)No waiver of any provision of this Agreement or consent to any departure by Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of an Advance shall not be construed as a waiver of any Default or Event of Default, regardless of whether Agent or any Lender may have had notice or knowledge of such Default or Event of Default at the time.
(b)Neither this Agreement nor any provision hereof may be waived, amended or modified (except pursuant to an agreement or agreements in writing entered into by Borrower and the Agent), except for an amendment to increase the Maximum Loan Amount in accordance with Section 2.14 hereof, such amendment to require the consent of Agent and such Lenders so increasing their Revolving Loan Commitment, or by Borrower and Agent with the consent of the Requisite Lenders, without taking into account the Loans held by Non-Funding Lenders; provided that no such agreement shall:
(i)increase the Revolving Loan Commitment of any Lender without the written consent of such Lender;
(ii)reduce the principal amount of any Loan or reduce the rate of interest thereon (other than a waiver of post-default interest), or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby;
(iii)postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Revolving Loan Commitment, without the written consent of each Lender directly affected thereby,
(iv)change any of the provisions of this Section or the definition of “Requisite Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
(v)release any Guarantor from its obligations under a Guaranty without the written consent of each Lender; or
(vi)except as otherwise specifically provided in this Agreement, release all or substantially all of the Collateral, without the written consent of each Lender;
provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of Agent hereunder without the prior written consent of Agent.
(c)Notwithstanding the foregoing, this Agreement and any other Loan Document may be amended (or amended and restated) with the written consent of the Requisite Lenders, Agent and Borrower (x) to add one or more credit facilities to this Agreement and to permit extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Loan and the accrued interest and fees in respect thereof and (y) to include appropriately the Lenders holding such credit facilities in any determination of the Requisite Lenders and Lenders.
(d)If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender directly affected thereby,” the consent of the necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “Non-Consenting Lender”), then Agent or Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided, that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to Agent shall agree, as of such date, to purchase for cash the principal balance of the Loans due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (a) of Section 12.2, and (ii) Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by Borrower hereunder to and including the date of termination, including without limitation any indemnity payments due to such Non-Consenting Lender hereunder for which the amount is known.
(e)Notwithstanding anything to the contrary herein Agent may, with the consent of Borrower only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency.
XI.EFFECTIVE DATE AND TERMINATION
1.1Effectiveness and Termination
Subject to Agent’s right to accelerate the Loan and terminate the Revolving Loan Commitments and cease making and funding Advances upon the occurrence and during the continuation of any Event of Default, this Agreement shall continue in full force and effect until the earlier of the Maturity Date and the date on which the Revolving Loan Commitments are terminated pursuant to Section 2.5(b). All of the Obligations shall be immediately due and payable upon the earlier of (i) the Maturity Date, (ii) the date on which Agent accelerates the Loan following the occurrence and during the continuance of an Event of Default or (iii) the Prepayment Date stated in the notice of prepayment delivered by Borrower pursuant to Section 2.5(b), as applicable (the “Termination Date”). Notwithstanding any other provision of any Loan Document, no termination of this Agreement shall affect Agent’s or any Lender’s rights or any of the Obligations under the Loan Documents existing as of the effective date of such termination, and the provisions of the Loan Documents shall continue to be fully operative until the Obligations under the Loan Documents (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or with respect to which no claim has been made) have been indefeasibly paid in cash in full. The Liens granted to Agent, under the Security Documents and the financing statements filed pursuant thereto and the rights and powers of Agent shall continue in full force and effect until all of the Obligations (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or with respect to which no claim has been made) have been fully performed and indefeasibly paid in full in cash.
1.2Survival
Unless expressly provided herein, all obligations, covenants, agreements, representations, warranties, waivers and indemnities made by Borrower in any Loan Document shall survive the execution and delivery of the Loan Documents, the Closing, the making and funding of the Loan and any termination of this Agreement until all Obligations under the Loan Documents (other than indemnity obligations under the Loan Documents that are not then due and payable or with respect to which no claim has been made) are indefeasibly paid in full in cash. The obligations and provisions of Sections 3.1, 3.2, 3.3, 3.4, 3.5, 10.1, 10.3, 11.1, 11.2, 12.1, 12.3, 12.4, 12.7, 12.9, 12.10, 12.11, 12.13 and 13.8 shall survive termination of the Loan Documents and any payment, in full or in part, of the Obligations.
XII.MISCELLANEOUS
1.1Governing Law; Jurisdiction; Service of Process; Venue
(A) THE LOAN DOCUMENTS, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF A DIFFERENT JURISDICTION.
(B) BY EXECUTION AND DELIVERY OF EACH LOAN DOCUMENT TO WHICH IT IS A PARTY, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(C) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN PARAGRAPH (A) OF THIS SECTION 12.1. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(D) EACH OF THE PARTIES HERETO WAIVES PERSONAL SERVICE OF PROCESS AND AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS
IN THE MANNER PROVIDED FOR NOTICES IN SECTION 12.5. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
1.2Successors and Assigns; Assignments and Participations
(a)Subject to Sections 12.2(f) and (g), a Lender may at any time assign all or a portion of its rights and delegate all or a portion of its obligations under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loan) to one or more Persons other than the Borrower or any Affiliate of the Borrower (subject to the following proviso, each, a “Transferee”), provided, that unless an Event of Default has occurred and is continuing (in which event no such restriction shall apply), no natural person, Non-Funding Lender or Affiliate of a Non-Funding Lender, direct competitor of Borrower or Holdings or any Person who is directly engaged in consumer lease financing to big box retail, or is controlled by a Person which is a direct competitor of Borrower or who is directly engaged in consumer lease financing to big box retail, shall constitute a Transferee hereunder and Borrower shall have a right to consent to any Transferee that is not an Approved Fund of a Lender (each such Person that is precluded from being a Transferee pursuant to this proviso, an “Ineligible Transferee”). Notwithstanding anything to the contrary in this Agreement, other than restrictions set forth in the definition of “Transferee”, there shall be no limitation or restriction on any Lender’s ability to assign, pledge or otherwise transfer any Note or other Obligation. The Transferee and such Lender shall execute and deliver for acceptance and recording in the Register, a Lender Addition Agreement, which shall be in form and substance reasonably acceptable to Agent in its Permitted Discretion (“Lender Addition Agreement”). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Lender Addition Agreement, (i) the Transferee thereunder shall be a party hereto and, to the extent provided in such Lender Addition Agreement, have the same rights, benefits and obligations as it would if it were a Lender hereunder, (ii) the assigning Lender shall be relieved of its obligations hereunder with respect to its Advances or assigned portion thereof, as the case may be, to the extent that such obligations shall have been expressly assumed by the Transferee pursuant to such Lender Addition Agreement (and, in the case of a Lender Addition Agreement covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto but, with respect to matters occurring before such assignment, shall nevertheless continue to be entitled to the benefits of Sections 12.4 and 12.7). Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to the Transferee and that the Transferee shall be considered to be a “Lender” hereunder. Borrower may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of its Obligations, or any portion thereof, including Borrower’s rights, title, interests, remedies, powers, and duties hereunder or thereunder.
(b)Each Lender may at any time sell participations in all or any part of its rights and obligations under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loan) to one or more Persons acceptable to Agent that is not a non direct competitor of Borrower or Holdings or any Person who is directly engaged in consumer lease financing to big box retail, or is controlled by a Person which is a direct competitor of Borrower or who is directly engaged in consumer lease financing to big box retail (each, a “Participant” and each Person that is precluded from being a Participant pursuant to this sentence, an “Ineligible Participant”). In the event of any such sale by a Lender of a participation to a Participant, (i) such Lender’s obligations under this Agreement to the other parties to this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible for the performance thereof, (iii) such Lender shall remain the holder of any such Loan (and any Note evidencing such Loan) for all purposes under this Agreement and the other Loan Documents, (iv) Borrower and Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the
other Loan Documents, and (v) all amounts payable pursuant to Section 6.2 by Borrower hereunder shall be determined as if such Lender had not sold such participation. Any agreement pursuant to which any Lender shall sell any such participation shall provide that such Lender shall retain the sole right and responsibility to exercise such Lender’s rights and enforce Borrower’s obligations hereunder, including the right to consent to any amendment, supplement, modification or waiver of any provision of this Agreement or any of the other Loan Documents; provided, that such participation agreement may provide that such Lender will not agree, without the consent of the Participant, to any amendment, supplement, modification or waiver of: (A) any reduction in the principal amount, interest rate or fees payable with respect to any Loan in which such holder participates; (B) any extension of the termination date of this Agreement or the date fixed for any payment of principal, interest or fees payable with respect to any Loan in which such holder participates; and (C) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement or the Loan Documents). Borrower hereby acknowledges and agrees that the Participant under each participation shall, solely for the purposes of Sections 12.4 and 12.7 of this Agreement be considered to be a “Lender” hereunder. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except (x) to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations and (y) that each Lender must notify the Agent of the date and the amount of such participation. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Agent (in its capacity as Agent) shall have no responsibility for maintaining a Participant Register.
(c)Agent shall maintain at its address referred to in Section 12.5 a copy of each Lender Addition Agreement delivered to it and a written or electronic register (the “Register”) for the recordation of the names and addresses of the Lenders and the Advances made by, and the principal amount of the Loan owing to, and the Notes evidencing such Loan owned by, each Lender from time to time. Notwithstanding anything in this Agreement to the contrary, Borrower and the Agent shall treat each Person whose name is recorded in the Register as the owner of the Loan, the Notes and the Advances recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
(d)Notwithstanding anything in this Agreement to the contrary, no assignment under Section 12.2(a) of any rights or obligations under or in respect of the Loan or the Notes evidencing such Loan shall be effective unless and until Agent shall have recorded the assignment pursuant to Section 12.2(c). Upon its receipt of a Lender Addition Agreement executed by an assigning Lender and a Transferee, Agent shall (i) promptly accept such Lender Addition Agreement and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give prompt notice of such acceptance and recordation to the Lender and Borrower. On or prior to such effective date, the assigning Lender shall surrender any outstanding Notes held by it, all or a portion of which are being assigned, and Borrower, at its own expense, shall, upon the request of Agent by the assigning Lender or the Transferee, as applicable, execute and deliver to Agent, within five (5) Business Days of any request, new Notes to reflect the interest held by the assigning Lender and its Transferee.
(e)Except as otherwise provided in this Section 12.2 Agent shall not, as between Borrower and Agent, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loan or other Obligations owed to Agent and Lenders. Agent may furnish any information concerning Borrower in the possession of Agent from time to time to assignees and participants (including prospective assignees and participants), subject to confidentiality requirements hereunder.
(f)Notwithstanding any other provision set forth in this Agreement, Agent and each Lender may at any time create a security interest in all or any portion of its rights under this Agreement, including, without limitation, the Loan owing to it and the Notes held by it and (solely with respect to the Agent) the other Loan Documents and Collateral.
(g)Borrower agrees to use commercially reasonable efforts to assist Agent and each Lender in assigning or selling participations in all or any part of any Loan made by any Lender to another Person identified by such Lender.
(h)Notwithstanding anything in the Loan Documents to the contrary, (i) Agent and its Affiliates shall not be required to execute and deliver a Lender Addition Agreement in connection with any transfer, assignment or participation transaction involving its Affiliates or lenders, in each case, who, unless an Event of Default has occurred and is continuing, are not Ineligible Transferees, (ii) no lender to or funding or financing source of Agent or its Affiliates shall be considered a Transferee, (iii) there shall be no limitation or restriction on Agent’s ability to assign (except to any Ineligible Transferee at such time as no Event of Default has occurred and is continuing), participate or otherwise transfer any Loan Document to any such Affiliate or lender or funding or financing source, (iv) there shall be no limitation or restriction on such Affiliates’ or lenders’ or financing or funding sources’ ability to assign, participate or otherwise transfer any Loan Document, Loan, Note or Obligation (or any of its rights thereunder or interest therein) and (v) no notice shall be required to be delivered to Borrower in connection with any assignment, participation or other transfer described in this Section 12.2(g); provided, however, Agent shall continue to be liable as a “Lender” under the Loan Documents unless such Affiliate or lender or funding or financing source executes a Lender Addition Agreement and thereby becomes a “Lender.”
(i)The Loan Documents shall inure to the benefit of Agent, Lenders, Transferee, Participant (to the extent expressly provided herein only) and all future holders of the Notes, the Obligations and/or any of the Collateral, and each of their respective successors and permitted assigns. Each Loan Document shall be binding upon the Persons other than Agent that are parties thereto and their respective successors and assigns, and no such Person may assign, delegate or transfer any Loan Document or any of its rights or obligations thereunder without the prior written consent of Agent. No rights are intended to be created under any Loan Document for the benefit of any third party donee, creditor or incidental beneficiary of Borrower. Nothing contained in any Loan Document shall be construed as a delegation to Agent of any other Person’s duty of performance. BORROWER ACKNOWLEDGES AND AGREES THAT AGENT AT ANY TIME AND FROM TIME TO TIME MAY (I) DIVIDE AND REISSUE (WITHOUT SUBSTANTIVE CHANGES OTHER THAN THOSE RESULTING FROM SUCH DIVISION) THE NOTES, AND/OR (II) SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY LOAN DOCUMENT, NOTE, THE OBLIGATIONS AND/OR THE COLLATERAL TO OTHER PERSONS, IN EACH CASE ON THE TERMS AND CONDITIONS PROVIDED HEREIN. Each Transferee and Participant shall have all of the rights, obligations and benefits with respect to the Obligations, Notes, Collateral and/or Loan Documents held by it as fully as if the original holder thereof; provided, that, notwithstanding anything to the contrary in any Loan Document, Borrower shall not be obligated to pay under
this Agreement to any Transferee or Participant any sum in excess of the sum which it would have been obligated to pay to Agent had such participation not been effected. Agent may disclose to any Transferee or Participant all information, reports, financial statements, certificates and documents obtained under any provision of any Loan Document; provided, that Transferees and Participants shall be subject to the confidentiality provisions contained herein that are applicable to Agent.
(j)Any Lender may assign or pledge all or any portion of the Loans or Notes held by it to any Federal Reserve Bank or the United States Treasury as collateral security to secure obligations of such Lender, including without limitation, any assignment or pledge pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided, that any payment in respect of such assigned Loans or Notes made by Borrower to or for the account of the assigning or pledging Lender in accordance with the terms of this Agreement shall satisfy Borrower’s obligations hereunder in respect to such assigned Loans or Notes to the extent of such payment. No such assignment shall release the assigning Lender from its obligations hereunder.
1.3Application of Payments
To the extent that any payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Agent. Any payments with respect to the Obligations received shall be credited and applied in accordance with Section 2.4.
1.4Indemnity
Borrower shall indemnify Agent, each Lender, each Transferee, each Participant, their respective Affiliates, managers, members, officers, employees, agents, representatives, successors, assigns, accountants and attorneys (collectively, the “Indemnified Persons”) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel, but limited, in the case of legal fees and expenses, to the reasonable and documented fees, disbursements and expenses of one regulatory counsel to such Indemnified Person and one other firm of outside counsel to such Indemnified Person taken as a whole and, solely in the case of an actual or potential conflict of interest, one additional firm of outside counsel to each group of similarly situated Indemnified Person) which are incurred or actually paid by any Indemnified Person with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to any aspect of, or any transaction contemplated by, or any matter related to, any act of or omission by Borrower or any of its Affiliates, officers, directors and agents relating to the Loan, this Agreement or any other Loan Document, except to the extent resulting or arising from the applicable Indemnified Person’s own gross negligence or willful misconduct. Agent agrees to give Borrower reasonable notice of any event of which Agent becomes aware for which indemnification may be required under this Section 12.4 (provided, that the failure of Agent to give such notice shall not affect the obligation of Borrower or any other Person pursuant to this Section 12.4 unless materially prejudiced thereby) and Agent may elect (but is not obligated) to direct the defense thereof; provided, that the selection of counsel shall be subject to Borrower’s consent, which consent shall not be unreasonably withheld or delayed, and Borrower shall be entitled to participate in the defense of any matter for which indemnification may be required
under this Section 12.4 and to employ counsel at its own expense to assist in the handling of such matter. Any Indemnified Person may, in its reasonable discretion, take such actions as it deems necessary and appropriate to investigate, defend or settle any event or take other remedial or corrective actions with respect thereto as may be necessary for the protection of such Indemnified Person or the Collateral, subject to Borrower’s prior approval of any settlement, which shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, if any insurer agrees to undertake the defense of an event (an “Insured Event”), Agent agrees not to exercise its right to select counsel to defend the event if that would cause Borrower’s insurer to deny coverage; provided, however, that Lender reserves the right to retain counsel to represent any Indemnified Person with respect to an Insured Event at its sole cost and expense. To the extent that Agent obtains recovery from a third party other than an Indemnified Person of any of the amounts that Borrower has paid to Lender pursuant to the indemnity set forth in this Section 12.4, then Agent shall promptly pay to Borrower the amount of such recovery. Without limiting any of the foregoing, (a) Borrower indemnifies the Indemnified Persons for all claims for brokerage fees or commissions (other than claims of a broker with whom such Indemnified Person has directly contracted in writing) and (b) Agent indemnifies the Borrower for all claims for brokerage fees or commissions (other than the claims of a broker with whom Borrower or any of its Affiliates has directly contracted in writing), in each case, which may be made in connection with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any Loan Document or any agreement, document or transaction contemplated thereby.
1.5Notice
Any notice or request under any Loan Document shall be given to the applicable party to this Agreement at such party’s address set forth beneath its signature on the signature page to this Agreement, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 12.5. Any notice or request hereunder shall be given only by, and shall be deemed to have been received upon (each, a “Receipt”): (i) registered or certified mail, return receipt requested, on the date on which such received as indicated in such return receipt, (ii) delivery by a nationally recognized overnight courier, one (1) Business Day after deposit with such courier, or (iii) facsimile or electronic transmission, in each case upon telephone or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable.
1.6Severability; Captions; Counterparts; Facsimile Signatures
If any provision of any Loan Document is adjudicated to be invalid under Applicable Laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of the Loan Documents which shall be given effect so far as possible. The captions in the Loan Documents are intended for convenience and reference only and shall not affect the meaning or interpretation of the Loan Documents. The Loan Documents may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission, which facsimile signatures shall be considered original executed counterparts. Each party to this Agreement agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party.
1.7Expenses
Borrower shall pay, whether or not the Closing occurs, all out-of-pocket fees, costs and expenses incurred or actually paid by Agent, any Lender, and/or its Affiliates, including, without limitation, documentation and diligence fees and expenses prior to and following the Closing, all search, audit, appraisal, recording, professional and filing fees and expenses and all other charges
and expenses (including, without limitation, UCC and judgment and tax lien searches and UCC filings and fees for post-Closing UCC and judgment and tax lien searches and wire transfer fees and audit expenses), and reasonable external attorneys’ fees and expenses (including, without limitation, reasonable fees and disbursements of counsel, but limited, in the case of legal fees and expenses, to the reasonable and documented fees, disbursements and expenses of one regulatory counsel to such Indemnified Person and one other firm of outside counsel to such Indemnified Person taken as a whole and, solely in the case of an actual or potential conflict of interest, one additional firm of outside counsel to each group of similarly situated Indemnified Person) , (i) in any effort to enforce, protect or collect payment of any Obligation or to enforce any Loan Document or any related agreement, document or instrument, (ii) in connection with entering into, negotiating, preparing, reviewing and executing the Loan Documents and/or any related agreements, documents or instruments, (iii) arising in any way out of administration of the Obligations or the taking or refraining from taking by Agent of any action requested by Borrower, (iv) in connection with instituting, maintaining, preserving, enforcing and/or foreclosing on Agent’s Liens in any of the Collateral or securities pledged under the Loan Documents, whether through judicial proceedings or otherwise, (v) in defending or prosecuting any actions, claims or proceedings arising out of or relating to Agent’s or any Lender’s transactions with Borrower, (vi) in seeking, obtaining or receiving any advice with respect to its rights and obligations under any Loan Document and any related agreement, document or instrument, (vii) arising out of or relating to any Default or Event of Default or occurring thereafter or as a result thereof, (viii) in connection with all actions, visits, audits and inspections undertaken by Agent or its Affiliates pursuant to the Loan Documents, and/or (ix) in connection with any modification, restatement, supplement, amendment, waiver or extension of any Loan Document and/or any related agreement, document or instrument. All of the foregoing shall be charged to Borrower’s account and shall be part of the Obligations. Without limiting the forgoing, Borrower shall pay all Taxes (other than Taxes based upon or measured by Agent’s income or revenues or any personal property tax), if any, in connection with the issuance of any Note and the filing and/or recording of any documents and/or financing statements.
1.8Entire Agreement
This Agreement and the other Loan Documents to which Borrower is a party constitute the entire agreement between Borrower, Agent and Lenders with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings (including but not limited to the term sheet dated on or about January 29, 2019), if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Borrower, Agent and Requisite Lenders, as appropriate. Except as set forth in and subject to Section 10.4, no provision of any Loan Document may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Borrower, Agent and Requisite Lenders, provided, that no consent or agreement by Borrower shall be required to amend, modify, change, restate, waive, supplement, discharge, cancel or terminate any provision of Article XIII, so long as no additional duties are required to be assumed by Borrower and there is no adverse effect on Borrower or its rights or duties under this Agreement or any other Loan Document. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. The schedules attached hereto may be amended or supplemented by Borrower upon delivery to Agent of such amendments or supplements and, except as expressly provided otherwise in this Agreement, the written approval thereof by Agent.
1.9Approvals and Duties
Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Agent with respect to any matter that is subject of any Loan Document may be granted or withheld by Agent, as applicable, in its sole and absolute discretion. Agent shall have no responsibility for or obligation or duty with respect to any of the Collateral or any matter or proceeding arising out of or relating thereto, including, without limitation, any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights pertaining thereto.
1.10Publicity
(a)Borrower agrees, and agrees to cause each of its Affiliates, (i) not to transmit or disclose provision of any Loan Document to any Person (other than to the advisors, managers, directors, officers and employees of the Borrower, Holdings and Parent Entity on a need-to-know basis) without Agent’s prior written consent, (ii) to inform all Persons of the confidential nature of the Loan Documents and to direct them not to disclose the same to any other Person and to require each such Person (other than to the advisors, managers, directors, officers and employees of the Borrower, Holdings and Parent Entity) of them to be bound by these provisions. Borrower agrees to submit to Agent and Agent reserves the right to review and approve all materials that Borrower or any of its Affiliates prepares to Persons other than Borrower, Holdings and Parent Entity and their Affiliates and their respective advisors, managers, directors, officers and employees) that contain Agent’s or any Lender’s name or describe or refer to any Loan Document, any of the terms thereof or any of the transactions contemplated thereby; provided, that Borrower and its Affiliates shall have the right to disclose the Loan Documents to:
(i)Agent, Lenders and their respective Affiliates;
(ii)such Person’s investors and prospective investors, rating agencies and their respective directors, officers, trustees, partners, members, managers, employees, agents, advisors, representatives, attorneys, equity owners, professional consultants, portfolio management services and rating agencies (in each case, provided that such Person agrees to be bound by this Section 12.10);
(iii)any Governmental Authority to which the Borrower, Holdings or Parent Entity is subject at the request or pursuant to any requirement of such Governmental Authority, or in connection with an examination of Borrower, Holdings or Parent Entity by any such Governmental Authority; and
(iv)any Person (A) to the extent required by applicable law, (B) in response to any subpoena or other legal process or informal investigative demand, (C) in connection with any litigation, or (D) in connection with the actual or potential exercise or enforcement of any right or remedy under any Loan Document.
(b)The obligations of Borrower, Holdings or Parent Entity and their respective Affiliates under this Section 12.10 shall supersede and replace any other confidentiality obligations to the Agent and Lenders with respect to the Loan Documents agreed to by Borrower, Holdings or Parent Entity or any of their respective Affiliates.
(c) Borrower shall not, and shall not permit any of its Affiliates to, use Agent’s or any Lender’s name (or the name of any of Agent’s or any Lender’s Affiliates) in connection with any of its business operations, including without limitation, advertising, marketing or press releases or such other similar purposes, without Agent’s prior written consent.
Nothing contained in any Loan Document is intended to permit or authorize Borrower or any of its Affiliates to contract on behalf of Agent or any Lender.
(d)Borrower hereby agrees that Agent or any Affiliate of Agent may (i) disclose a general description of transactions arising under the Loan Documents for advertising, marketing or other similar purposes and (ii) use Borrower’s or any Borrower Party’s name, logo or other indicia germane to such party in connection with such advertising, marketing or other similar purposes.
(e)Lenders and Agent shall exercise commercially reasonable efforts to maintain in confidence, in accordance with its customary procedures for handling confidential information, all written non-public information of a Borrower Party that any Borrower Party furnishes on a confidential basis (“Confidential Information”), other than any such Confidential Information that becomes generally available to the public or becomes available to Lender or Agent from a source other than Borrower, Holdings, Parent Entity or any of their respective Affiliates (collectively, the “Borrower Parties”)that is not known to such recipient to be subject to confidentiality obligations; provided, that each Lender and Agent and their respective Affiliates shall have the right to disclose Confidential Information, in each case, provided that such Person agrees to be bound by this Section 12.10, to:
(i)Borrower or its Affiliates;
(ii)such Person’s Affiliates;
(iii)such Person’s or such Person’s Affiliates’ lenders, funding or financing sources;
(iv)such Person’s or such Person’s Affiliates’ directors, officers, trustees, partners, members, managers, employees, agents, advisors, representatives, attorneys, equity owners, professional consultants, portfolio management services and rating agencies;
(v)any Person to whom Agent or a Lender offers or proposes to offer to sell, assign or transfer the Loan or any part thereof or any interest or participation therein (other than an Ineligible Transferee) ;
(vi)any Person that provides statistical analysis and/or information services to a Lender or Agent or any of their respective Affiliates;
(vii)any Governmental Authority to which any Lender or Agent is subject at the request or pursuant to any requirement of such Governmental Authority, or in connection with an examination of any Lender or Agent by any such Governmental Authority; and
(viii)any Person (A) to the extent required by applicable law, (B) in response to any subpoena or other legal process or informal investigative demand, (C) in connection with any litigation, or (D) in connection with the actual or potential exercise or enforcement of any right or remedy under any Loan Document.
(f)The obligations of Lenders and Agent and their respective Affiliates under this Section 12.10 shall supersede and replace any other confidentiality obligations agreed to by any Lender or Agent or any of their respective Affiliates.
(g)Notwithstanding anything herein to the contrary, each party to this Agreement may disclose without limitation the tax treatment and tax structure of the transactions contemplated by this Agreement.
(h)Any disclosure by Agent or Lenders of any of a Borrower Parties’ Confidential Information pursuant to applicable federal, state or local law, regulation or a valid order issued by a court or governmental agency of competent jurisdiction (a “Legal Order”) shall be subject to the terms of this paragraph. Prior to making any such disclosure, Agent or Lenders shall make commercially reasonable efforts to provide the Borrower Parties with prompt written notice of such compelled disclosure so that the Borrower Parties may seek a protective order or other remedy and reasonable assistance in opposing such disclosure or seeking a protective order or other limitations on disclosure. If, after providing such notice and assistance as required herein, Agent or Lenders remain subject to a Legal Order to disclose any Confidential Information, Agent or such Lender shall disclose, and, if applicable, shall require its representatives or other persons to whom such Legal Order is directed to disclose, no more than that portion of the Confidential Information which, on the advice of Agent’s or such Lender’s legal counsel, such Legal Order specifically compels and shall use commercially reasonable efforts to obtain assurances from the applicable court or agency that such Confidential Information will be afforded confidential treatment.
1.11Release of Collateral
So long as no Default or Event of Default has occurred and is continuing, upon request of Borrower, Agent shall release any Lien granted to or held by Agent upon any Collateral being sold or disposed of in compliance with the provisions of the Loan Documents, as determined by Agent in its sole discretion. Subject to Section 12.3, promptly following indefeasible payment in full in cash of all Obligations (other than indemnity obligations under the Loan Documents that are not then due and payable or with respect to which no claim has been made) and the termination of this Agreement, the Liens created hereby shall terminate and Agent shall execute and deliver such documents, at Borrower’s expense, as are necessary to release Agent’s Liens in the Collateral and shall return or cause the return of or consent to the return of the Collateral to Borrower; provided, however, that the parties agree that, notwithstanding any such termination or release or the execution, delivery or filing of any such documents or the return of any Collateral, if and to the extent that any such payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Agent. Agent shall not be deemed to have made any representation or warranty with respect to any Collateral so delivered except that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts. Section 12.9 shall not be applicable to any actions required to be taken by the Agent under this Section.
1.12Treatment of Fees
The parties hereto agree that all fees due and payable by the Borrower under this Agreement, including, without limitation, pursuant to Article III hereof, shall be deemed to be and shall be treated as interest in respect of the outstanding principal amount of the Loan; provided, however, that nothing in this Section 12.12 shall in any way modify or reduce the obligations of the Borrower under Sections 2.2 or 3.2 of this Agreement.
1.13Release; Cooperation
(a)Borrower hereby acknowledges and agrees that as of the date hereof it has no defense, counterclaim, offset, cross-complaint, claim or demand of any kind or nature whatsoever that can be asserted to reduce or eliminate all or any part of its liability to repay the obligations or to seek affirmative relief or damages of any kind or nature from Agent or any Lender. To the extent permitted by applicable law, Borrower hereby voluntarily and knowingly releases and forever discharges Agent and each Lender and each of their respective predecessors, agents, employees, affiliates, attorneys, successors and assigns (collectively, the “Released Parties”) from all Claims whatsoever, whether known or unknown, anticipated or unanticipated, suspected or unsuspected, fixed, contingent or conditional, or at law or in equity, in any case to the extent originating on or before the date this Agreement is executed that Borrower may now or hereafter have against the Released Parties, if any, irrespective of whether any such claims arise out of contract, tort, violation of law or regulations, or otherwise, and that arise from any of the Loans, the exercise of any rights and remedies under this Agreement or any of the other Loan Documents, and/or the negotiation for and execution of this Agreement, including, without limitation, any contracting for, charging, taking, reserving, collecting or receiving interest in excess of the highest lawful rate applicable. Borrower acknowledges that the foregoing release is a material inducement to each Lender’s decision to extend to Borrower the financial accommodations hereunder and has been relied upon by such Lender in agreeing to make the Loan. Borrower hereby further specifically waives any rights that it may have under Section 1542 of the California Civil Code (to the extent applicable), which provides as follows: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR,” and further waives any similar rights under applicable laws.
(b)In any litigation, arbitration or other dispute resolution proceeding relating to any Loan Document, Borrower waives any and all defenses, objections and counterclaims it may have or could interpose with respect to (i) any of its directors, officers, employees or agents being deemed to be employees or managing agents of Borrower for purposes of all applicable law or court rules regarding the production of witnesses by notice for testimony (whether in a deposition, at trial or otherwise), (ii) Agent’s or any other Lender’s counsel examining any such individuals as if under cross-examination and using any discovery deposition of any of them as if it were an evidence deposition, and (iii) using all commercially reasonable efforts to produce in any such dispute resolution proceeding, at the time and in the manner requested by Agent or such other Lender, all Persons, documents (whether in tangible, electronic or other form) and other things under its control and relating to the dispute.
XIII.AGENT PROVISIONS; SETTLEMENT
1.1Agent
(a)Appointment. Each Lender hereby designates and appoints Midtown Madison Management LLC as the administrative agent, payment agent and collateral agent under this Agreement and the other Loan Documents, and each Lender hereby irrevocably authorizes Midtown Madison Management LLC, as Agent for such Lender, to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent agrees to act as such on the conditions contained in this Article XIII. The provisions of this Article XIII are solely for the benefit of Agent and Lenders, and Borrower shall have no rights as third-party beneficiaries of any of the provisions of this
Article XIII other than the second sentence of Section 13.1(h)(iii). Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents, employees or sub-agents.
(b)Nature of Duties. In performing its functions and duties under this Agreement, Agent is acting solely on behalf of Lenders, and its duties are administrative in nature, and does not assume and shall not be deemed to have assumed, any obligation toward or relationship of agency or trust with or for Lenders, other than as expressly set forth herein and in the other Loan Documents, or Borrower. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Each Lender shall make its own independent investigation of the financial condition and affairs of Borrower in connection with the extension of credit hereunder and shall make its own appraisal of the creditworthiness of Borrower. Except for information, notices, reports and other documents expressly required to be furnished to Lenders by Agent hereunder or given to Agent for the account of or with copies for Lenders, Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of any Lenders to the taking or refraining from taking any action hereunder, then Agent shall send prior written notice thereof to each Lender. Agent shall promptly notify each Lender in writing any time that the applicable percentage of Lenders have instructed Agent to act or refrain from acting pursuant hereto.
(c)Rights, Exculpation, Etc. Neither Agent nor any of its officers, directors, managers, members, equity owners, employees, attorneys or agents shall be liable to any Lender for any action lawfully taken or omitted by them hereunder or under any of the other Loan Documents, or in connection herewith or therewith; provided that the foregoing shall not prevent Agent from being be liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction on a final and nonappealable basis. Notwithstanding the foregoing, Agent shall be obligated on the terms set forth herein for performance of its express duties and obligations hereunder. Agent shall not be liable for any apportionment or distribution of payments made by it in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made shall be to recover from the other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree promptly to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing with loans for its own account. Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties made by Borrower herein or for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of Borrower. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions, or conditions of this Agreement or any of the Loan Documents or the financial condition of Borrower, or the existence or possible existence of any Default or Event of Default. Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from taking any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the applicable percentage of Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any
of the other Loan Documents in accordance with the instructions of the applicable percentage of Lenders and, notwithstanding the instructions of Lenders, Agent shall have no obligation to take any action if it, in good faith, believes that such action exposes Agent or any of its officers, directors, managers, members, equity owners, employees, attorneys or agents to any personal liability unless Agent receives an indemnification satisfactory to it from Lenders with respect to such action.
(d)Reliance. Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, telex, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel, independent accountants and other experts selected by Agent in its sole discretion.
(e)Indemnification. Each Lender, severally and not (i) jointly or (ii) jointly and severally, agrees to reimburse and indemnify and hold harmless Agent and its officers, directors, managers, members, equity owners, employees, attorneys and agents (to the extent not reimbursed by Borrower), ratably according to their respective Pro Rata Share in effect on the date on which indemnification is sought under this subsection of the total outstanding Obligations under the Loan Documents (or, if indemnification is sought after the date upon which the Loans shall have been paid in full, ratably in accordance with their Pro Rata Share immediately prior to such date of the total outstanding Obligations), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent or any of its officers, directors, managers, members, equity owners, employees, attorneys or agents in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by Agent under this Agreement or any of the other Loan Documents; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements to the extent resulting from Agent’s gross negligence or willful misconduct as determined by a court of competent jurisdiction on a final and non-appealable basis. The obligations of Lenders under this Article XIII shall survive the payment in full of the Obligations and the termination of this Agreement.
(f)Agent in its Individual Capacity. With respect to the Loans made by it, if any, Midtown Madison Management LLC and its successors as the Agent shall have, and may exercise, the same rights and powers under the Loan Documents, and is subject to the same obligations and liabilities, as and to the extent set forth in the Loan Documents, as any other Lender. The terms “Lenders” or “Requisite Lenders” or any similar terms shall include Agent in its individual capacity as a Lender. Agent and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of lending, banking, trust, financial advisory or other business with, Borrower or any Subsidiary or Affiliate of Borrower as if it were not acting as Agent pursuant hereto.
(g)Successor Agent.
(i)Resignation. Agent may resign from the performance of all or part of its functions and duties hereunder at any time by giving at least thirty (30) calendar days’ prior written notice to Borrower and Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clause (ii) below or as otherwise provided below.
(ii)Appointment of Successor. Upon any such notice of resignation pursuant to clause (g)(i) of this Section 13.1, Requisite Lenders shall appoint a successor Agent which is not an Ineligible Transferee. If a successor Agent shall not have been so appointed within said thirty (30) calendar day period referenced in clause (g)(i) above, the retiring Agent, upon notice to Borrower, may, on behalf of Lenders, appoint a successor Agent which is not an Ineligible Transferee, who shall serve as Agent until such time as Requisite Lenders appoint a successor Agent as provided above. If no successor Agent has been appointed pursuant to the foregoing within said thirty (30) calendar day period, the resignation shall become effective and Requisite Lenders thereafter shall perform all the duties of Agent hereunder, until such time, if any, as Requisite Lenders appoint a successor Agent as provided above.
(iii)Successor Agent. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent which is not an Ineligible Transferee, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and, upon the earlier of such acceptance or the effective date of the retiring Agent’s resignation, the retiring Agent shall be discharged from its duties and obligations under the Loan Documents, provided that any indemnity rights or other rights in favor of such retiring Agent shall continue after and survive such resignation and succession. After any retiring Agent’s resignation as Agent under the Loan Documents, the provisions of this Article XIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents.
(h)Collateral Matters.
(i)Collateral. Each Lender agrees that any action taken by Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater number of Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents relating to the Collateral, and the exercise by Agent or the Requisite Lenders (or, where so required, such greater number of Lenders) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of Lenders and Agent. Without limiting the generality of the foregoing, Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection herewith and with the Loan Documents in connection with the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by the Borrower or any Guarantor; (iii) act as collateral agent for Lenders for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Loan Documents relating to the Collateral; and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Loan Document, exercise all right and remedies given to such Agent and Lenders with respect to the Collateral under the Loan Documents relating thereto, Applicable Law or otherwise.
(ii)Release of Collateral. Lenders hereby irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent, for the benefit the of Lenders, upon any Collateral covered by the Loan Documents (A) upon termination of this Agreement and the indefeasible payment in full in cash of all Obligations under the Loan Documents (other than contingent indemnification Obligations to the extent no claim giving rise thereto has been asserted); (B) constituting
Collateral being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with the provisions of the Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry); or (C) constituting Collateral leased to Borrower under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by Borrower to be, renewed or extended.
(iii)Confirmation of Authority; Execution of Releases. Without in any manner limiting Agent’s authority to act without any specific or further authorization or consent by Lenders (as set forth in Section 13.1(h)(i) and (ii)), each Lender agrees to confirm in writing, upon request by Borrower, the authority to release any property covered by this Agreement or the Loan Documents conferred upon Agent under Section 13.1(h)(ii). So long as no Event of Default exists, upon receipt by Agent of confirmation from the requisite percentage of Lenders of its authority to release any particular item or types of Collateral covered by this Agreement or the other Loan Documents, and upon at least five (5) Business Days’ prior written request by Borrower, Agent shall (and hereby is irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to Agent, for the benefit itself and the Lenders, herein or pursuant hereto upon such Collateral; provided, however, that (A) Agent shall not be required to execute any such document on terms which, in Agent’s opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty (other than that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts), and (B) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of Borrower or any Subsidiary of Borrower in respect of) all interests retained by Borrower or any Subsidiary of Borrower, including, without limitation, the proceeds of any sale, all of which shall continue to constitute part of the Collateral covered by this Agreement or the Loan Documents.
(iv)Absence of Duty. Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the Collateral covered by this Agreement or the other Loan Documents exists or is owned by Borrower or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent, on behalf of the Lenders, herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected, enforced or maintained or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Section 13.1(h) or in any of the Loan Documents; it being understood and agreed that in respect of the Collateral covered by this Agreement or the other Loan Documents, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its discretion, given Agent’s own interest in Collateral covered by this Agreement or the Loan Documents as one of Lenders and Agent shall have no duty or liability whatsoever to any of the other Lenders; provided, that Agent shall exercise the same care which it would in dealing with loans for its own account.
(i)Agency for Perfection. Each Lender hereby appoints Agent as agent for the purpose of perfecting Lenders’ security interest in Collateral which, in accordance with Article 9 of the UCC in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall hold such Collateral for purposes of perfecting a security interest therein for the benefit of the Lenders, notify Agent thereof and, promptly upon Agent’s request therefor, deliver such Collateral to Agent or otherwise act in respect thereof in accordance with Agent’s instructions.
(j)Exercise of Remedies. Except as set forth in Section 13.4, each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any other Loan Document or to realize upon any Collateral security for the Loans or other Obligations; it being understood and agreed that such rights and remedies may be exercised only by Agent in accordance with the terms of the Loan Documents.
1.2Lender Consent
(a)In the event Agent requests the consent of a Lender and does not receive a written denial thereof within five (5) Business Days after such Lender's receipt of such request, then such Lender will be deemed to have given such consent so long as such request contained a notice stating that such failure to respond within five (5) Business Days would be deemed to be a consent by such Lender.
(b)In the event Agent requests the consent of a Lender in a situation where such Lender's consent would be required and such consent is denied, then Agent may, at its option, require such Lender to assign its interest in the Loans to Agent for a price equal to the then outstanding principal amount thereof due such Lender plus accrued and unpaid interest and fees due such Lender, which principal, interest and fees will be paid to the Lender when collected from Borrower. In the event that Agent elects to require any Lender to assign its interest to Agent pursuant to this Section 13.2 Agent will so notify such Lender in writing within forty-five (45) days following such Lender's denial, and such Lender will assign its interest to Agent no later than five (5) calendar days following receipt of such notice.
1.3Set-off and Sharing of Payments
In addition to any rights and remedies now or hereafter granted under Applicable Law and not by way of limitation of any such rights, upon the occurrence and during the continuation of any Event of Default, each Lender is hereby authorized by Borrower at any time or from time to time, to the fullest extent permitted by law, with the prior written consent of Agent and without notice to Borrower or any other Person other than Agent (such notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances (general or special, time or demand, provisional or final) held by such Lender at any of its offices for the account of Borrower (regardless of whether such balances are then due to Borrower ), and (b) other Collateral at any time held or owing by such Lender to or for the credit or for the account of Borrower, against and on account of any of the Obligations which are not paid when due; provided, that no Lender or any such holder shall exercise any such right without prior written notice to Agent. Any Lender that has exercised its right to set-off or otherwise has received any payment on account of the Obligations shall, to the extent the amount of any such set off or payment exceeds its Pro Rata Share of payments obtained by all of the Lenders on account of such Obligations, purchase for cash (and the other Lenders or holders of the Loans shall sell) participations in each such other Lender’s or holder’s Pro Rata Share of Obligations as would be necessary to cause such Lender to share such excess with each other Lenders or holders in accordance with their respective Pro Rata Shares; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such purchasing Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery. Borrower agrees, to the fullest extent permitted by law, that (y) any Lender or holder may exercise its right to set-off with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such excess to other Lenders and holders, and (z) any Lender so purchasing a participation in the Loans made or other Obligations held by other Lenders may exercise all rights of set-off, bankers’ lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans and other Obligations in the amount of such participation.
1.4Disbursement of Funds
(a)Agent may, on behalf of Lenders, disburse funds to Borrower for the Revolving Advance requested or any other Advance. Each Lender shall reimburse Agent on demand for its Pro Rata Share of all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender shall remit to Agent its Pro Rata Share of any Advance before Agent disburses such Advance to or on account of Borrower. If Agent so elects to require that funds be made available prior to disbursement to Borrower, Agent shall advise each Lender by telephone, telex or telecopy of the amount of such Lender’s Pro Rata Share of such Advance no later than one (1) Business Day prior to the funding date applicable thereto, and each such Lender shall pay Agent such Lender’s Pro Rata Share of such requested Loan, in same day funds, by wire transfer to Agent’s account not later than 2:00 p.m. (New York City time). If Agent shall have disbursed funds to Borrower on behalf of any Lender and such Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent’s demand, Agent shall promptly notify Borrower, and Borrower shall immediately repay such amount to Agent. Any repayment by Borrower required pursuant to this Section 13.4 shall be without premium or penalty. Nothing in this Section 13.4 or elsewhere in this Agreement or the other Loan Documents, including, without limitation, the provisions of Section 13.5, shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder.
(b)As a matter of administrative convenience, as requested from time to time by a Lender, Agent may, either directly, or through one or more of its Affiliates, on behalf of one or more Lenders, disburse funds to Borrower for an Advance that is otherwise required to be funded pursuant to Section 2.1(a) by such Lender by advancing the amount thereof on behalf of such Lender (on terms to be agreed upon between Agent and such Lender (each such advance, an “Agent Advance”)). With respect to each Agent Advance, Agent or its Affiliate(s) shall have, subject to the agreed upon terms related to such Agent Advance, the right to set off against the amounts of any payments or distributions to be made to such Lender hereunder, the entire amount of such Agent Advance, together with any agreed upon interest or fees thereon, until such Agent Advance is paid in full. For the avoidance of doubt, nothing in this Section 13.4, or elsewhere in this Agreement or the other Loan Documents, including, without limitation, the provisions of this Section 13.4, shall be deemed to require Agent or its Affiliates to advance funds on behalf of any Lender, whether in the form of an Agent Advance, or otherwise, or to relieve any Lender from such Lender’s obligation to fulfill its commitments hereunder, or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder.
1.5Settlements; Payments; and Information
(a)Advances; Payments; Interest and Fee Payments.
(i)The amount of the outstanding Loan may fluctuate from day to day through Agent’s disbursement of funds to or on account of, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and each Lender, notwithstanding terms to the contrary set forth in Section 13.4, Advances and repayments thereof may be settled according to the procedures described in Sections 13.5(a)(ii) and 13.5(a)(iii). Notwithstanding these procedures, each Lender’s obligation to fund its Pro Rata Share of any Advances made by Agent to or on account of Borrower will commence on the date such Advances are made by Agent. Nothing contained in this Agreement shall obligate a Lender to make an Advance at any time any Default or Event of Default exists. All such payments will be made by such Lender without set-off, counterclaim or deduction of any kind.
(ii)Once each week, or more frequently (including daily), if Agent so elects (each such day being a “Settlement Date”), Agent will advise each Lender by 1:00 p.m. (New York City time) on a Business Day by telephone, telex or telecopy of the amount of each such Lender’s Pro Rata Share of the outstanding Advances. In the event payments are necessary to adjust the amount of such Lender’s share of the Advances to such Lender’s Pro Rata Share of the Advances, the party from which such payment is due will pay the other party, in same day funds, by wire transfer to the other’s account not later than 2:00 p.m. (New York City time) on the Business Day following the Settlement Date.
(iii)On the fifteenth (15th) calendar day of each month (or, if such day shall not be a Business Day, on the next Business Day following such day) (the “Interest Settlement Date”), Agent will advise each Lender by telephone or facsimile of the amount of interest and fees charged to and collected from Borrower from and including the prior Interest Settlement Date (but excluding such current Interest Settlement Date) in respect of the Loans. Provided that such Lender has made all payments required to be made by it under this Agreement and provided that Lender has not received its Pro Rata Share of interest and fees directly from Borrower, Agent will pay to such Lender, by wire transfer to such Lender’s account (as specified by such Lender on Schedule A of this Agreement as amended by such Lender from time to time after the date hereof pursuant to the notice provisions contained herein or in the applicable Lender Addition Agreement) not later than 2:00 p.m. (New York City time) on the next Business Day following the Interest Settlement Date, such Lender’s share of such interest and fees.”
(b)Availability of Lenders’ Pro Rata Share.
(i)Unless Agent has been notified by a Lender prior to any proposed funding date of such Lender’s intention not to fund its Pro Rata Share of an Advance, Agent may assume that such Lender will make such amount available to Agent on the proposed funding date or the Business Day following the next Settlement Date, as applicable; provided, however, nothing contained in this Agreement shall obligate a Lender to make an Advance at any time any Default or Event of Default exists. If such amount is not, in fact, made available to Agent by such Lender when due, Agent will be entitled to recover such amount on demand from such Lender without set-off, counterclaim or deduction of any kind.
(ii)Nothing contained in this Section 13.5(b) will be deemed to relieve a Lender of its obligation to fulfill its commitments or to prejudice any rights Agent or Borrower may have against such Lender as a result of any default by such Lender under this Agreement.
(c)Return of Payments.
(i)If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind.
(ii)If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any Debtor Relief Law or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such
amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without set-off, counterclaim or deduction of any kind.
1.6Dissemination of Information
Upon request by a Lender, Agent will distribute promptly to such Lender, unless previously provided by Borrower to such Lender, copies of all notices, schedules, reports, projections, financial statements, agreements and other material and information, including, without limitation, financial and reporting information received from Borrower or generated by a third party (and excluding only internal information generated by Midtown Madison Management LLC for its own use as a Lender or as Agent and any attorney-client privileged communications or work product), as provided for in this Agreement and the other Loan Documents as received by Agent. Agent shall not be liable to any of the Lenders for any failure to comply with its obligations under this Section 13.6, except to the extent that such failure is attributed to Agent’s gross negligence or willful misconduct and results in demonstrable damages to such Lender as determined, in each case, by a court of competent jurisdiction on a final and non-appealable basis.
1.7Non-Funding Lender
(a)The failure of any Lender to make any Advance (the “Non-Funding Lender”) on the date specified therefor shall not relieve any other Lender (each such other Lender, an “Other Lender”) of its obligations to make such Advance, but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make an Advance or make any other payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a “Lender” for any voting or consent rights under or with respect to any Loan Document. In the event that any Lender (other than a Non-Funding Lender) shall fund such Non-Funding Lender’s Pro Rata Share of such Advance, in accordance with such Lender’s Pro Rata Share (any such funding Lender, a “Funding Lender”), then such Non-Funding Lender agrees immediately to pay to each Funding Lender the amount so funded by such Funding Lender, with interest thereon, for each day from and including the date such amount was funded by such Funding Lender to, but excluding, the date of payment to each such Funding Lender, at the rate per annum equal to the LIBOR Rate plus three percent (3.0%). If, at a later date, such Non-Funding Lender pays the amount of its failed Pro Rata Share of the applicable Advance to the Funding Lenders, together with interest as provided above, then such amount attributable to principal shall constitute such Non-Funding Lender’s funding of its Pro Rata Share of the applicable Advance. The failure of any Lender to fund its Pro Rata Share of any Advance shall not relieve any other Lender of its obligation to fund its Pro Rata Share of such Advance.
(b)Non-Funding Lender Commitment Assignment. An Other Lender who is not then an Affiliate of an Non-Funding Lender shall have the right, but not the obligation, to acquire and assume its Pro Rata Share of an Non-Funding Lender’s then remaining Revolving Loan Commitment. Immediately upon receiving written notice from such Other Lender that it desires to acquire its Pro Rata Share of such Non-Funding Lender’s then remaining Revolving Loan Commitment, the Non-Funding Lender shall assign, in accordance with this Agreement, all or part, as the case may be, of its Revolving Loan Commitment and other rights and obligations under this Agreement and all other Loan Documents to such Other Lender.
If no Other Lender elects to acquire and assume its Pro Rata Share of such Non-Funding Lender’s then remaining Revolving Loan Commitment as set forth in the immediately preceding paragraph within thirty (30) calendar days of such Non-Funding Lender becoming an Non-
Funding Lender, then the Borrower may, by notice (a “Replacement Notice”) in writing to the Agent and the Non-Funding Lender, (i) request such Non-Funding Lender to cooperate with the Borrower in obtaining a Replacement Lender for such Non-Funding Lender (each a “Replacement Lender”); or (ii) propose a Replacement Lender. If a Replacement Lender shall be accepted by the Agent who, at the time of determination, is neither an Non-Funding Lender nor an Affiliate of an Non-Funding Lender or an Ineligible Transferee, then such Non-Funding Lender shall assign its then remaining Revolving Loan Commitment and other rights and obligations related to unfunded Revolving Loan Commitments under this Agreement and all other Loan Documents to such Replacement Lender.
In either case, following the consummation of the assignment and assumption of the Non-Funding Lender’s remaining Revolving Loan Commitment pursuant to one of the two immediately preceding paragraphs in this Section 13.7, any remaining Revolving Loan Commitment of such Non-Funding Lender shall not terminate, but shall be reduced proportionately to reflect any such assignments and assumptions, and such Non-Funding Lender shall continue to be a “Lender” hereunder with its Revolving Loan Commitment and Pro Rata Share eliminated to reflect such assignments and assumptions. Upon the effective date of such assignment(s) and assumption(s) such Replacement Lender shall, if not already a Lender, become a “Lender” for all purposes under this Agreement and the other Loan Documents. The assignment and assumption contemplated by this paragraph shall modify the ownership of obligations related to unfunded Revolving Loan Commitments only and shall not modify the Non-Funding Lender’s rights and obligations, including, without limitation, all indemnity obligations hereunder, with respect to Advances previously funded.
1.8Taxes
(a)Subject to Section 13.8(g), any and all payments by or on account of any obligations of Borrower to each Lender or Agent under this Agreement or any other Loan Document shall be made free and clear of, and without deduction or withholding for, any and all Taxes, excluding, in the case of each Lender and Agent, (i) such Taxes (including income taxes or franchise taxes) as are imposed on or measured by the net income (however denominated), overall receipts or total capital of such Lender or Agent, respectively, by the jurisdiction in which such Lender or Agent, as the case may be, is organized or maintains a Lending Office or any political subdivision thereof, (ii) such Taxes that are branch profits Taxes imposed by the United States of America, (iii) such Taxes as are imposed by reason of Agent’s or such Lender’s place of organization or lending office or other present or former connection between Agent or such Lender and the jurisdiction imposing such Tax (other than such connections arising from Agent or such Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document) (such connections described in this clause (iii), other than those connections set forth in the parenthetical, being referred to herein as “Unrelated Connections”) and (iv) such Taxes expressly described in clauses (i)-(iv) of Section 13.8(g) hereof (all such excluded Taxes described in the foregoing clauses (i)-(iv) above being referred to as “Excluded Taxes” and such Taxes, levies, imposts, deductions, charges, withholdings and liabilities described above in this Section 13.8(a) other than Excluded Taxes being referred to as “Indemnified Taxes” for the purposes of this Agreement).
(b)In addition, Borrower shall pay to the relevant Governmental Authority any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document, except any such Taxes that are imposed as a result of Unrelated Connections and with respect to an assignment(hereinafter referred to as “Other Taxes”).
(c)Borrower shall indemnify and hold harmless each Lender and Agent for the full amount of any and all Indemnified Taxes or Other Taxes (including any Indemnified Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 13.8) paid or payable by such Lender or Agent and any liability (other than any penalties, interest, additions, and expenses that accrue both after the 120th day after the receipt by Agent or such Lender of written notice of the assertion of such Indemnified Taxes or Other Taxes and before the date that Agent or such Lender provides Borrower with a certificate relating thereto pursuant to Section 13.8(l)) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. Payments under this indemnification shall be made within 10 days from the date any Lender or Agent makes written demand therefor.
(d)If Borrower shall be required by Applicable Law to deduct or withhold any Indemnified Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or Agent, then:
(i)the sum payable shall be increased to the extent necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 13.8), such Lender or Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made;
(ii)Borrower shall make such deductions; and
(iii)Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with Applicable Law.
(e)Borrower shall furnish to Agent (and the applicable Lender) a receipt evidencing payment by Borrower of Indemnified Taxes or Other Taxes to a Governmental Authority promptly, but in any event within ten (10) Business Days, after obtaining such receipt, or other evidence of payment satisfactory to Agent (and the applicable Lender) within ten (10) Business Days after the date of any payment by Borrower of Indemnified Taxes or Other Taxes to a Governmental Authority.
(f)Each Lender that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States (or any jurisdiction thereof), or any estate or trust that is subject to United States federal income taxation regardless of the source of its income or is otherwise a “foreign person” within the meaning of Treasury Regulation Section 1.1441-1(c) (a “Non-U.S. Lender”) shall deliver to Borrower and Agent (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2, solely to the assigning Lender and Agent and not to Borrower) two (2) copies of each applicable U.S. Internal Revenue Service Form W-8BEN, Form W-8BEN-E, Form W-8IMY or Form W-8ECI, or any subsequent versions thereof or successors thereto or other forms prescribed by Applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from United States federal withholding Tax on all payments by Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement. In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. In addition to properly completing and duly executing Forms W-8BEN, W-8BEN-E or W-8IMY (or any subsequent versions thereof or successor thereto), if such Non-U.S. Lender is claiming an exemption from withholding of United States Federal income tax under Section 871(h) or 881(c) of the Code, such Lender hereby represents and warrants that (A) it is not a “bank” within the meaning of Section 881(c) of the Code, (B) it is not subject to regulatory or
other legal requirements as a bank in any jurisdiction, (C) it has not been treated as a bank for purposes of any Tax, securities law or other filing or submission made to any governmental securities law or other legal requirements, (D) it is not a “10 percent shareholder” within the meaning of Section 871(h)(3)(B) of the Code of Borrower, (E) it is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code and (F) none of the interest arising from this Agreement constitutes contingent interest within the meaning of Section 871(h)(4) or Section 881(c)(4) of the Code and such Non-U.S. Lender agrees that it shall provide Agent, and Agent shall provide to Borrower (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2, solely to the assigning Lender and Agent and not to Borrower), with prompt notice at any time after becoming a Lender hereunder that it can no longer make the foregoing representations and warranties. If a payment made to a Non-U.S. Lender under any Loan Document would be subject to United States federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA, such Lender shall deliver to the Borrower and Agent at the time or times prescribed by Applicable Law and at such time or times reasonably requested by the Borrower or the Agent such documentation prescribed by Applicable Law and such additional documentation reasonably requested by the Borrower or the Agent as may be necessary for the Borrower and the Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. (Solely for purposes of the foregoing sentence, FACTA shall include all amendments to FACTA after the date of this Agreement.) Each Non-U.S. Lender shall promptly notify Borrower (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2, solely to the assigning Lender and Agent and not to Borrower) at any time it determines that it is no longer in a position to provide any previously delivered form or certificate (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this section, a Non-U.S. Lender shall not be required to deliver any form pursuant to this subsection (other than Form W-8BEN, Form W-8BEN-E, Form W-8IMY or Form W-8ECI, or any subsequent versions thereof or successors thereto, as applicable) if, in the Lender’s reasonable judgment, such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender. Each Lender who makes an assignment pursuant to Section 12.2 shall indemnify and agree to hold Agent, Borrower and the other Lenders harmless from and against any United States federal withholding Tax, interest and penalties that would not have been imposed but for (i) the failure of the Affiliate that received such assignment under Section 12.2 to comply with this Section 13.8(f) or (ii) the failure of such Lender to withhold and pay such tax at the proper rate in the event such Affiliate does not comply with this Section 13.8(f) (or complies with Section 13.8(f) but delivers forms indicating it is entitled to a reduced rate of such tax). Any Lender that is a U.S. Lender shall deliver to Borrower and Agent (i) a properly prepared and duly executed U.S. Internal Revenue Service Form W-9, or any subsequent versions thereof or successors thereto, certifying that such Lender is entitled to receive any and all payments under this Agreement and each other Loan Document free and clear from withholding of United States federal income taxes and (ii) upon Borrower’s reasonable request, such other reasonable documentation as will enable Borrower and/or Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Each Person that shall become a Participant pursuant to Section 12.2 shall, on or before the date of the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this Section 13.8(f) and Section 13.8(h), and shall make the representations and warranties set forth in clauses (A) – (F) above, provided that the obligations of such Participant, pursuant to this Section 13.8(f) and Section 13.8(h), shall be determined as if such Participant were a Lender except that such Participant shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased.
(g)Borrower will not be required to pay any additional amounts in respect of United States federal withholding or income Tax pursuant to Section 13.8(d) to any Lender or Agent or to indemnify any Lender or Agent pursuant to Section 13.8(c) to the extent that (i) the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to comply with its obligations under Section 13.8(f) for any reason; (ii) with respect to a Lender, the obligation to withhold amounts with respect to the United States federal withholding Tax existed on the date such Lender became a party to this Agreement or, with respect to payments to a lending office newly designated by a Lender (a “New Lending Office”), the date such Lender designated such New Lending Office with respect to the applicable Loan; provided that this clause (ii) shall not apply to the extent the additional amounts any Lender (or Transferee) through a New Lending Office, would be entitled to receive (without regard to this clause (ii)) do not exceed the additional amounts that the Person making the transfer, or Lender (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such transfer or designation; (iii) such Lender is claiming an exemption from withholding of United States Federal income Tax under Sections 871(h) or 881(c) of the Code but is unable at any time to make the representations and warranties set forth in clauses (A) – (F) of Section 13.8(f) or (iv) any withholding Taxes imposed under FATCA.
(h)Each Non-U.S. Lender agrees to provide Borrower and the Agent, upon the reasonable request of Borrower, such other forms or documents as may be reasonably required under Applicable Law in order to establish an exemption from or eligibility for a reduction in the rate or imposition of Taxes or Other Taxes. If, at any time, Borrower requests any Lender to deliver any such additional forms or other documentation, then Borrower shall, on demand of such Lender through Agent, reimburse such Lender for any out-of-pocket costs and expenses (including reasonable attorneys’ fees and expenses) reasonably incurred by such Lender in the preparation or delivery of such forms or other documentation.
(i)If Borrower is required to pay additional amounts to or for the account of any Lender or Agent pursuant to this Section 13.8, then such Lender or Agent shall use its reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested by Borrower or to designate a Lending Office from a different jurisdiction (if such a Lending Office exists) so as to eliminate or reduce any such additional payments by Borrower which may accrue in the future if such filing or changes in the reasonable judgment of such Lender or Agent, would not require such Lender to disclose information such Lender deems confidential and is not otherwise disadvantageous to such Lender or Agent.
(j)If Agent or a Lender, in its reasonable judgment, receives a refund of any Taxes or Other Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has paid additional amounts pursuant to this Section 13.8, it shall promptly pay to Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrower under this Section 13.8 with respect to the Taxes or Other Taxes giving rise to such refund) and any interest paid by the relevant Governmental Authority with respect to such refund, provided, that Borrower, upon the request of Agent or such Lender, shall repay the amount paid over to Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Agent or such Lender in the event Agent or such Lender is required to repay the applicable refund to such Governmental Authority.
(k)Notwithstanding anything herein to the contrary, if Agent is required by law to deduct or withhold any Taxes or Other Taxes or any other Taxes from or in respect of any sum payable to any Lender by Borrower or Agent, the Agent shall not be required to make any gross-up payment to or in respect of such Lender, except to the extent that a corresponding gross-up payment is actually received by Agent from Borrower.
(l)Any Lender claiming reimbursement or compensation pursuant to this Section 13.8 shall deliver to Borrower (with a copy to Agent) a certificate setting forth in reasonable detail the amount payable to such Lender hereunder and such certificate shall be conclusive and binding on Borrower in the absence of manifest error.
The agreements and obligations of Borrower in this Section 13.8 shall survive the payment of all other Obligations.
1.9Patriot Act
Each Lender that is subject to the requirements of the Patriot Act and Agent (for itself and not on behalf of any Lender) hereby notifies Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Agent and each Lender to identify Borrower in accordance with the Patriot Act. Borrower shall, promptly following a request by Agent or any Lender, provide all documentation and other information that Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” an anti-money laundering rules and regulations, including the Patriot Act.
[REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, each of the parties has duly executed this Loan and Security Agreement as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
COGNICAL, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
PARENT ENTITY:
COGNICAL HOLDINGS, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
[Signature Page to Loan and Security Agreement]
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ Raymond S. Chan
Name: Raymond S. Chan
Title: Authorized Signatory
Address:
780 Third Avenue, 27th Floor
New York, NY 10017
Attention: David Aidi
Telephone: 212-201-1912
Facsimile: 917-464-7350
Email: aidi@atalayacap.com
With a copy to:
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Matthew Fontane
Phone: 214-964-9454
Email: matthew.fontane@hklaw.com
[Signature Page to Loan and Security Agreement]
LENDER:
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
[Signature Page to Loan and Security Agreement]
Schedule A
Wiring Instructions
Wiring instructions for each Lender as of the Closing Date are on file with Agent.
[Signature Page to Loan and Security Agreement]
Schedule B
Revolving Commitments
| | | | | |
| Lender | Revolving Commitment |
| Atalaya Special Opportunities Fund VII LP | $50,000,000 |
| Total Revolving Commitments: | $50,000,000 |
[Signature Page to Loan and Security Agreement]
Schedule 6.8
Post-Closing Obligations
In accordance with and in furtherance of the provisions of Section 6.8 of the Agreement, the following actions, items and deliverables will be completed, taken and/or delivered to Agent’s satisfaction in its sole discretion on or before the date specified below. The failure to take, comply with or provide any of the actions or items referred to herein on or before such date shall constitute and be deemed an Event of Default under the Agreement. Nothing in this Schedule 6.8 shall limit the effect of any provision of the Agreement or Borrower’s obligations thereunder. Capitalized terms not otherwise defined in this Schedule 6.8 shall have the same meaning as in the Agreement.
| | | | | |
| Cause Holdings, Agent and Advensus to enter into a multi-party servicing agreement acceptable to Agent in its sole discretion. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents to be amended to provide that the total of payments does not include other changes for Portfolio Documents entered into in the states of Alaska, Arizona, Delaware, Florida, Hawaii, Iowa, Idaho, Kansas, Kentucky, Oregon, South Carolina, South Dakota, Tennessee, Utah, Virginia and Washington and in the District of Columbia. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents to be amended to eliminate return shipping an restocking fees in the states of Connecticut, Georgia and Iowa. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of California to conform box disclosure to California statutory requirement. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Colorado to be amended to (i) require taxes to be paid on each payment, not only on the initial payment, (ii) revise the required state notice to read “for the leased property” instead of “for the lease property” and (iii) revise the disclosure section to set it apart in the agreement in a standalone provision that does not contain any information not directly related to the disclosures. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Connecticut to be amended to (i) disclosures to track the statutory requirement exactly and (ii) add the following language at beginning of the “Maintenance, Repairs and Warranty” section: “While we are responsible for maintaining or servicing the property”. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Indiana to be amended to (i) revise paragraph 8 to accurately reflect lessee’s reinstatement rights (120 days) under Indiana law and (ii) break out taxes separately in the itemized payment table. | Ninety (90) days. |
[Signature Page to Loan and Security Agreement]
| | | | | |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Iowa to be amended to (i) conform the agreement with the Model Form, including to (a) add explanation that this term means the “total dollar amount of lease payments you will have to make to acquire ownership” and (b) break out taxes separately in the itemized payment table and (ii) revise paragraph 10 to state “We may terminate this Agreement if the prospect of payment, performance, or return of the property is materially impaired due to your failure to keep nay of the obligations in this Agreement.”. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Ohio to be amended to expressly add a statement that the lessee is not required to purchase insurance for the property that is the subject of the lease from the lessor or from any insurer owned or controlled by the lessor. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Pennsylvania to be amended to include a statement that the lessee is not required to purchase insurance of liability damage waiver for the property that is the subject of the rental agreement from the lessor or any vendor owned or controlled by the lessor. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of South Carolina to be amended to include a statement that at any time after the first periodic payment is made, the lessee may acquire ownership of the property by tendering 55% of the difference between the total of scheduled payments and the total amount paid on the account. | Ninety (90) days. |
As recommended by Hudson Cook, cause the Portfolio Documents in the state of Vermont to be amended to add (i) a statement that the consumer is not required to purchase any damage waiver or insurance and (ii) the additional required cost disclosures in no less than 10- point, bold-face type on the front of the agreement above the line for the consumer’s signature:
Total initial payment for rent-to own merchandise (A)$ ____ Amount & total of regular payments: $ _ /week [mo.] x __ weeks [mos.] (B) $ ____ Other charges to acquire ownership (itemize): _____________ $ ____ _____________ $ ____ Total of “other Charges” (C) $ ____ TOTAL OF PAYMENTS TO ACQUIRE OWNERSHIP (total of A, B & C) (D) $ ____ CASH PRICE (E) $ ____ COST OF RENT-TO-OWN SERVICE (D minus E) $ ____ EFFECTIVE ANNUAL PERCENTAGE RATE (applies only if you acquire ownership by making all rental payments) ____ % | Ninety (90) days. |
[Signature Page to Loan and Security Agreement]
| | | | | |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of West Virginia to be amended to provide the required disclosures on the same page and the same side of the page that the consumer signs, grouped together and in the type that is bolder and larger than the surround type and 90% of the remainder of the printing on the contract. | Ninety (90) days. |
| Cause Servicer to develop, in consultation with Agent, a Form of Monthly Servicing Report to be attached hereto as Exhibit C. | Thirty (30) days. |
| Deliver or cause to be delivered insurance endorsements, in form and substance satisfactory to Agent, naming Agent as an additional insured and lender loss payee with respect to the insurance policies that comply with the terms of the Agreement. | Thirty (30) days. |
[Signature Page to Loan and Security Agreement]
Exhibit H-1
| | | | | |
| Advance Rate Trigger First Payment Default Ratio (T+30) | Default Trigger First Payment Default Ratio (T+30) |
| 9.50% | 12.50% |
[Signature Page to Loan and Security Agreement]
| | | | | |
| Advance Rate Trigger First Payment Default Ratio (Trailing 3 Months T+30) | Default Trigger First Payment Default Ratio (Trailing 3 Months T+30) |
| 8.50% | 11.50% |
Exhibit H-2
[Signature Page to Loan and Security Agreement]
Exhibit H-3
| | | | | | | | |
| Month | Advance Rate Trigger Cumulative Cash Collection Percentage Ratio | Default Trigger Cumulative Cash Collection Percentage Ratio |
1. | 21.47% | 20.66% |
1. | 38.54% | 35.51% |
1. | 57.15% | 53.36% |
1. | 67.27% | 62.18% |
1. | 76.95% | 74.53% |
1. | 85.78% | 82.64% |
1. | 95.03% | 90.19% |
1. | 102.39% | 96.92% |
1. | 109.74% | 102.73% |
1. | 115.25% | 107.76% |
1. | 120.98% | 111.15% |
1. | 122.50% | 112.53% |
| Each Month Thereafter | 122.50% | 112.53% |
[Signature Page to Loan and Security Agreement]
Exhibit H-4
| | | | | | | | |
| Period | Advance Rate Trigger Charge-off Percentage Ratio | Charge-off Trigger Percentage Ratio |
1. | N/A | N/A |
1. | N/A | N/A |
1. | 9.50% | 11.50% |
1. | 18.62% | 20.62% |
1. | 22.20% | 24.20% |
1. | 25.63% | 27.76% |
1. | 28.35% | 31.09% |
1. | 30.78% | 34.08% |
1. | 32.82% | 36.58% |
1. | 34.83% | 39.04% |
1. | 36.80% | 41.45% |
1. | 38.73% | 43.83% |
| Each Month Thereafter | 39.70% | 46.16% |
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 14th day of June, 2019, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) COGNICAL, INC., a Delaware corporation (“Holdings”), (c) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”), (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019 ( the “Loan Agreement”); and
B.Agent, Borrower and each Lender have agreed to execute this Amendment for purposes of accomplishing the matters set forth herein, all on the terms and subject to the conditions set forth herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Section 1.1 of the Loan Agreement is hereby amended by amending and restating the definition of “Collateral Account” in its entirety to read as follows:
““Collateral Account” shall mean, individually and collectively, (a) that certain deposit account at Collateral Account Bank held in the name of Borrower, with account number 1001851631 or (b) following the occurrence and during the continuance of an Event of Default, such other deposit account as designated from time to time by Agent in a written notice to Borrower and Servicer.”
1.1Section 6.14(l) of the Loan Agreement is hereby amended by amending and restating the section in its entirety to read as follows:
“(l) fail to correct any known misunderstandings regarding the separate identity of Borrower, as applicable (provided that the foregoing shall not preclude the Servicer from performing its duties in its own name with respect to the Pledged Leases without disclosing the name of the Borrower and, for the avoidance of doubt, any identification of Borrower as “Cognical” or “Zibby” on any direct debit account statement of an Account Lessee shall not be deemed to be a violation of this Section 6.14(l) and Borrower may register a d/b/a solely for such purpose));
1.2Section 6.14(o) of the Loan Agreement is hereby amended by amending and restating the section in its entirety to read as follows:
“(o) fail either to hold itself out to the public as a legal entity separate and distinct from any other Person or to conduct its business solely in its own name (for the avoidance of doubt, any identification of Borrower as “Cognical” or “Zibby” on any direct debit account statement of an Account Lessee shall not be deemed to be a violation of this Section 6.14(o) and Borrower may register a d/b/a solely for such purpose) in order not (i) to mislead others as to the identity with which such other party is transacting business (provided that the foregoing shall not preclude the Servicer from performing its duties in its own name with respect to the Pledged Leases without disclosing the name of the Borrower), or (ii) to suggest that Borrower is responsible for the debts of any third party (including any member, general or limited partner, shareholder, principal or Affiliate of Borrower, Servicer or Holdings, or any member, general or limited partner, shareholder, principal or Affiliate of any of the foregoing);”
2.3Schedule 5.17C of the Loan Agreement is hereby amended by amending and restating the schedule in its entirety to read as follows:
“Deposit Accounts and Investment Property
| | | | | |
| Bank Name | Account |
Pacific Western Bank | *1001851631: Katapult SPV 1 LLC – COLLECTIONS ACCOUNT |
Pacific Western Bank | *1001851649: Katapult SPV 1 LLC – OPERATING ACCOUNT |
”
2.4Schedule A of the Loan Agreement is hereby amended by amending and restating the schedule in its entirety to read as follows:
“Wiring Instructions
Wiring instructions for each Lender as of the Closing Date are on file with Agent.”
3.Limited Consent; No Waiver and Amendments.
3.1Upon satisfaction of the terms and conditions in Section 5 hereof, Agent hereby consents to the amendments to Article 9 of that certain Limited Liability Company Agreement of the Borrower, dated as of March 15, 2019, between Holdings, as the sole member, and Ricardo Beausoleil, as Independent Manager as set forth on Exhibit A hereto (the “Approved Amendments”) whether documented in the form of an amendment or through a restatement of such Limited Liability Company Agreement and, solely with respect to the Approved Amendments, hereby waives compliance by any Borrower or any Guarantor with any provisions of the Loan Agreement and the Loan Documents that would otherwise prohibit the Approved Amendments.
3.2Except as specifically set forth herein (including Section 3.1 above), this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any
obligation of Borrower or Holdings or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.3This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower and Holdings, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;
4.2Each of Borrower and Holdings has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their respective obligations under the Loan Agreement have been duly authorized;
4.4The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower or Holdings, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower and Holdings and is the binding obligation of each of Borrower and Holdings, enforceable against each of Borrower and Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower and Holdings;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof (including the costs of any counsel to the Agent or the Lenders); and
5.4No Trigger Event, Event of Default, default or Default which, based on the passage of time, will become an Event of Default, shall have occurred as of the date hereof.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages.
8.Release. BORROWER AND HOLDINGS, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower and Holdings: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise; (d) waives any other right, whether legal or equitable, which Borrower or Holdings may possess in and to the Collateral; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower and Holdings acknowledges and agrees that the waivers set forth in this Section 12 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
COGNICAL, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ Raymond S. Chan
Name: Raymond S. Chan
Title: Authorized Signatory
Exhibit A
Approved Amendments
Attached.
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 8th day of November, 2019, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) COGNICAL, INC., a Delaware corporation (“Holdings”), (c) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”), (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, by and among Borrower, Holdings, Agent and Lenders (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”); and
B.Agent, Borrower and each Lender have agreed to execute this Amendment for purposes of accomplishing the matters set forth herein, all on the terms and subject to the conditions set forth herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Section 1.1 of the Loan Agreement is hereby amended by amending and restating Subsection (xxxviii) of the definition of “Eligible Leases” in its entirety to read as follows:
“(xxxviii) such Lease is not a Lease that would cause Eligible Leases pledged as Collateral originated through (i) the Wayfair Inc. retail partnership to, commencing March 31, 2020, exceed sixty-five percent (65%) or (ii) any other single retail partnership of Borrower, Holdings or Parent Entity to exceed, unless otherwise approved by the Agent in writing, twenty-five percent (25%) (in each case, as determined on the basis of the aggregate Current Lease Balances of the Eligible Leases pledged as Collateral);”
3.No Waiver and Amendments.
3.1Except as specifically set forth herein, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which
rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or Holdings or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower and Holdings, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;
4.2Each of Borrower and Holdings has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their respective obligations under the Loan Agreement have been duly authorized;
4.4The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower or Holdings, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower and Holdings and is the binding obligation of each of Borrower and Holdings, enforceable against each of Borrower and Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower and Holdings;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof (including the costs of any counsel to the Agent or the Lenders); and
5.4No Trigger Event, Event of Default, default or Default which, based on the passage of time, will become an Event of Default, shall have occurred as of the date hereof.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages.
8.Release. BORROWER AND HOLDINGS, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower and Holdings: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise; (d) waives any other right, whether legal or equitable, which Borrower or Holdings may possess in and to the Collateral; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower and Holdings acknowledges and agrees that the waivers set forth in this Section 12 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
COGNICAL, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ Joshua Ufberg
Name: Joshua Ufberg
Title: Authorized Signatory
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Third Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 20th day of November, 2019, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) COGNICAL, INC., a Delaware corporation (“Holdings”), (c) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”), (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, as further amended by that certain Second Amendment to Loan and Security Agreement, dated as of November 8, 2019 by and among Borrower, Holdings, Agent and Lenders (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”).
B.Agent, Borrower and each Lender have agreed to execute this Amendment for purposes of accomplishing the matters set forth herein, all on the terms and subject to the conditions set forth herein.
C.On or about November 16, 2019, Borrower delivered to Agent a Monthly Servicing Report indicating that there had been an Advance Rate Trigger Event with respect to the January 2019 Vintage Pool as of October 31, 2019 and advised the Agent that such Vintage Pool failed to comply with the Cumulative Cash Collection Percentage Ratio requirements under the Loan Agreement (the “Specified Advance Rate Trigger Event”).
D.As a result of the Specified Advance Rate Trigger Event, the Advance Rate was lowered from 85% to 80%, which in turn caused the aggregate outstanding principal balance of the Loan to exceed the Borrowing Base, and the existence of such excess resulted in a violation of the first sentence of Section 2.6(c) and required a prepayment of the Loan to eliminate the excess pursuant to the second sentence of Section 2.6(c) (collectively, the “Borrowing Base Deficiency Event”).
E.The Agent has agreed on the terms and conditions set forth herein to (i) amend the definition of Advance Rate Trigger Event and the Default Trigger Event to exclude January 2019 Vintage Pool, with retroactive effect to October 31, 2019, thereby eliminating the occurrence of the Borrowing Base Deficiency Event, (ii) treat the Specified Advance Rate Trigger Event as having not occurred for purposes of the second sentence of the definition of Advance Rate (including the proviso thereto), and (iii) waive any Default or Event of Default that may have arisen from the Borrowing Base Deficiency Event.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Upon the satisfaction of the conditions set forth in Section 5, Section 1.1 of the Loan Agreement is hereby amended, with retroactive effect to October 1, 2019, by amending and restating the introductory paragraph of the definition of “Advance Rate Trigger Event” in its entirety to read as follows:
““Advance Rate Trigger Event” shall mean the occurrence of any of the following events with respect to the portfolio of Pledged Leases securing the Loan, in each case, to be tested as of the last day of each calendar month but without giving effect to any Vintage Pool created prior to the February 2019 Vintage Pool:”
1.1Upon the satisfaction of the conditions set forth in Section 5, Section 1.1 of the Loan Agreement is hereby amended, with retroactive effect to October 1, 2019, by amending and restating the introductory paragraph of the definition of “Default Trigger Event” in its entirety to read as follows:
““Default Trigger Event” shall mean the occurrence of any of the following events with respect to the portfolio of Pledged Leases securing the Loan, in each case, to be tested as of the last day of each calendar month but without giving effect to any Vintage Pool created prior to the February 2019 Vintage Pool:”
3.Limited Waiver and Amendments.
3.1Upon the satisfaction of the conditions set forth in Section 5 hereof after giving effect to the amendments set forth in Section 2, the Agent and the Lenders hereby (i) agrees that the Specified Advance Rate Trigger Event shall be deemed to have not occurred for purposes of the second sentence of the definition of Advance Rate (including the proviso thereto) of the Loan Agreement and (ii) waives any Default or Event of Default that may have arisen from the occurrence of the Borrowing Base Deficiency Event. Except as expressly set forth in Section 2 and in the preceding sentence, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or Holdings or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower and Holdings, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) except with respect to the Existing Event of Default, no Event of Default has occurred and is continuing;
4.2Each of Borrower and Holdings has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their respective obligations under the Loan Agreement have been duly authorized;
4.4The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower or Holdings, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower and Holdings and is the binding obligation of each of Borrower and Holdings, enforceable against each of Borrower and Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower and Holdings;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof (including the costs of any counsel to the Agent or the Lenders); and
5.4Except with respect to the Existing Event of Default, no Trigger Event, Event of Default, default or Default which, based on the passage of time, will become an Event of Default, shall have occurred as of the date hereof.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties
about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages.
8.Release. BORROWER AND HOLDINGS, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL
PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower and Holdings: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise; (d) waives any other right, whether legal or equitable, which Borrower or Holdings may possess in and to the Collateral; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower and Holdings acknowledges and agrees that the waivers set forth in this Section 12 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
COGNICAL, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ Matthew N. Rothfleisch___________
Name: Matthew N. Rothfleisch
Title: Authorized Signatory
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 16th day of December, 2019, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) COGNICAL, INC., a Delaware corporation (“Holdings”), (c) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”), (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, as amended by that certain Second Amendment to Loan and Security Agreement, dated as of November 8, 2019 by and among Borrower, Holdings, Agent and Lenders, and as further amended by that certain Third Amendment to Loan and Security Agreement, dated as of November 20, 2019 by and among Borrower, Holdings, Agent and Lenders (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”).
B.Agent, Borrower and each Lender have agreed to execute this Amendment for purposes of accomplishing the matters set forth herein, all on the terms and subject to the conditions set forth herein.
C.On or about December 16, 2019, Borrower intends to deliver to Agent financial reports indicating that Borrower would fail to meet the requisite minimum Tangible Net Worth requirement under the Loan Agreement for the date of October 31, 2019 (such failure, the “Specified Event”) absent the amendments set forth in this Amendment.
D.The Agent has agreed on the terms and conditions set forth herein to (i) amend the definition of Tangible Net Worth, with retroactive effect to October 31, 2019 and (ii) treat the Specified Event as having not occurred.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Upon the satisfaction of the conditions set forth in Section 5, Section 1.1 of the Loan Agreement is hereby amended, with retroactive effect to October 31, 2019, by amending and restating the definition of “Tangible Net Worth” in its entirety to read as follows:
“Tangible Net Worth” shall mean, for any Person, without duplication, an amount equal to, such Person’s (a) total assets, minus (b) capitalized information technology expenses, capitalized transaction expense and other capitalized expenses, minus (c) prepaid expenses, minus (d) other intangible assets, minus (e)
total liabilities plus (f) the outstanding principal balance of the VPC Bridge Notes so long as the maturity date of each VPC Bridge Note is at least six (6) months from the date of such Tangible Net Worth calculation.”
3.Limited Effect of Amendment.
3.1Upon the satisfaction of the conditions set forth in Section 5 hereof after giving effect to the amendments set forth in Section 2, the Agent and the Lenders hereby agree that the Specified Event and any Default or Event of Default that may have arisen therefrom shall be deemed to have not occurred. Except to the extent expressly set forth herein, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or Holdings or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower and Holdings, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) , no Event of Default has occurred and is continuing;
4.2Each of Borrower and Holdings has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their respective obligations under the Loan Agreement have been duly authorized;
4.4The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any
governmental or public body or authority, or subdivision thereof, binding on either Borrower or Holdings, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower and Holdings and is the binding obligation of each of Borrower and Holdings, enforceable against each of Borrower and Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower and Holdings;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof (including the costs of any counsel to the Agent or the Lenders); and
5.4After giving effect to this Amendment, no Trigger Event, Event of Default or Default which, based on the passage of time, will become an Event of Default, shall have occurred as of the date hereof.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages.
8.Release. BORROWER AND HOLDINGS, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND
COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower and Holdings: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise; (d) waives any other right, whether legal or equitable, which Borrower or Holdings may possess in and to the Collateral; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower and Holdings acknowledges and agrees that the waivers set forth in this Section 12 and
elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
COGNICAL, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ Joshua Ufberg
Name: Joshua Ufberg
Title: Authorized Signatory
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fifth Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 3rd day of April, 2020 and effective as of March 31, 2020, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) KATAPULT GROUP, INC., a Delaware corporation (“Holdings”), (c) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”), (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, as amended by that certain Second Amendment to Loan and Security Agreement, dated as of November 8, 2019, as amended by that certain Third Amendment to Loan and Security Agreement, dated as of November 20, 2019 and as further amended by that certain Fourth Amendment to Loan and Security Agreement, dated as of December 16, 2019 (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”).
B.Agent, Borrower and each Lender have agreed to execute this Amendment for purposes of accomplishing the matters set forth herein, all on the terms and subject to the conditions set forth herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Upon the satisfaction of the conditions set forth in Section 5, (i) the introductory paragraph of the Loan Agreement is hereby amended by replacing the words “COGNICAL, INC., a Delaware corporation (“Holdings”)” with the words “KATAPULT GROUP, INC., a Delaware corporation (“Holdings”)” and (ii) the cover page of the Loan Agreement is hereby amended by replacing the words “COGNICAL, INC.” with the words “KATAPULT GROUP, INC.”
2.2Upon the satisfaction of the conditions set forth in Section 5, Section 1.1 of the Loan Agreement is hereby amended by adding or amending and restating the following definitions and placing them in appropriate alphabetical order:
“Lockout Period Additional Interest” shall mean additional interest payable to Agent upon any prepayment of the Loan contemplated by Section 2.5(b) or Section 2.6(a) occurring prior to the Lockout Period Termination Date, in an amount equal to the sum of (i) five percent (5.0%) of the then applicable Maximum
Loan Amount plus (ii) an amount equal to the amount of interest that would have accrued on the sum of the principal balance of the Loan plus projected further utilization of the Loan hereunder (as determined by Agent in its Permitted Discretion), from such date of prepayment to May 14, 2021, at a per annum rate equal to the Calculated Rate.
“Maturity Date” shall mean the earlier to occur of (a) May 14, 2023, and (b) at the Agent’s option any date that is within the six (6) month period preceding the earliest maturity date of any existing or future Significant Debt Facility of Parent Entity, Holdings and/or any of their Subsidiaries so long as the Agent has identified such “Maturity Date” and given Borrower not less than one hundred twenty (120) calendar days prior written notice in advance of its designation under this clause (b).
“Parent Entity” shall mean Katapult Holdings, Inc., a Delaware corporation (formerly known as Cognical Holdings, Inc.).
“Prepayment Additional Interest” shall mean additional interest payable to Agent upon any Prepayment Date in an amount equal to (i) if such Prepayment Date occurs after the Lockout Period Termination Date but on or prior to the thirty-six (36) month anniversary of the Closing Date, five percent (5.0%) of the then applicable Maximum Loan Amount, or (ii) if such Prepayment Date occurs after the thirty-six month anniversary of the Closing Date but on or prior to the forty-two month anniversary of the Closing Date, three percent (3.0%) of the of the then applicable Maximum Loan Amount; provided, that if such prepayment is made pursuant to a refinancing of the Loan by Agent or any of its Affiliates, the Prepayment Additional Interest for such prepayment shall be fifty percent (50%) of the amounts provided above.
“Prepayment Date” the date specified in any notice of prepayment delivered to the Agent in accordance with Section 2.5(b) hereof.
2.3Upon the satisfaction of the conditions set forth in Section 5, Section 1.1 of the Loan Agreement is hereby amended by deleting clause (xxxviii) of the definition of “Eligible Leases” in its entirety and replacing it with the following:
(xxxviii) such Lease is not a Lease that would cause Eligible Leases pledged as Collateral originated through (i) the Wayfair Inc. retail partnership to, commencing December 31, 2020, exceed sixty-five percent (65%) or (ii) any other single retail partnership of Borrower, Holdings or Parent Entity to exceed, unless otherwise approved by the Agent in writing, twenty-five percent (25%) (in each case, as determined on the basis of the aggregate Current Lease Balances of the Eligible Leases pledged as Collateral);
2.4Upon the satisfaction of the conditions set forth in Section 5, Section 2.5(b) of the Loan Agreement is hereby amended and restated in its entirety as follows:
(b) Voluntary Prepayment. Borrower may voluntarily prepay, in whole, but not in part, the principal balance of the Loan at any time after (but not before) May 14, 2021 (“Lockout Period Termination Date”), so long as Borrower shall have identified the Prepayment Date and given Agent not less than thirty (30) calendar days prior written notice in advance of such proposed Prepayment Date. Notwithstanding anything herein to the contrary, Borrower shall be liable for the Prepayment Additional Interest with respect to any voluntary prepayment of the Loan pursuant to this Section 2.5(b), which Prepayment Additional Interest shall be paid concurrently with such prepayment. For the avoidance of doubt, in connection with any prepayment of the principal balance of the Loan made on or prior to the Lockout Period Termination Date, Borrower shall be liable for the Lockout Period Additional Interest with respect to any such prepayment of the Loan. Upon the payment by the Borrower in cash in full of the Obligations (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made) pursuant to this Section 2.5(b), the Revolving Loan Commitments shall terminate.
2.5Upon the satisfaction of the conditions set forth in Section 5, Section 2.6(a) of the Loan Agreement is hereby amended and restated in its entirety as follows:
(a) If a Change of Control occurs that has not been consented to in writing by Agent prior to the consummation thereof, on or prior to the first Business Day following the date of such Change of Control, Borrower shall prepay the Loan and all other Obligations (other than, indemnity obligations that are not then due and payable or with respect to which no claim has been made) in full in cash together with accrued interest thereon to the date of such prepayment and all other amounts owing to Agent and Lenders under the Loan Documents and the Prepayment Additional Interest that would be payable on such date, provided, that if such Change of Control occurs during the first twelve months following the Closing Date as a result of a Change of Control occurring pursuant to clause (iii) of the definition thereof, the Borrower shall prepay the Loan and all other Obligations (other than, indemnity obligations that are not then due and payable or with respect to which no claim has been made) in full in cash together with accrued interest thereon to the date of such prepayment and all other amounts owing to Agent and Lenders under the Loan Documents and the Lockout Period Additional Interest that would be payable on such date; provided, further, that any such prepayment shall be in compliance with Section 6.16 hereof.
3.Limited Effect of Amendment.
3.1Except to the extent expressly set forth herein, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or Holdings or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower and Holdings, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) , no Event of Default has occurred and is continuing;
4.2Each of Borrower and Holdings has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their respective obligations under the Loan Agreement have been duly authorized;
4.4The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower or Holdings, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower and Holdings and is the binding obligation of each of Borrower and Holdings, enforceable against each of Borrower and Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower and Holdings;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof (including the costs of any counsel to the Agent or the Lenders); and
5.4After giving effect to this Amendment, no Trigger Event, Event of Default or Default which, based on the passage of time, will become an Event of Default, shall have occurred as of the date hereof.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages.
8.Release. BORROWER AND HOLDINGS, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING
DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower and Holdings: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise; (d) waives any other right, whether legal or equitable, which Borrower or Holdings may possess in and to the Collateral; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower and Holdings acknowledges and agrees that the waivers set forth in this Section 12 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
KATAPULT GROUP, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Sixth Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 29th day of April, 2020, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) KATAPULT GROUP, INC., a Delaware corporation (“Holdings”), (c) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”) and (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, as amended by that certain Second Amendment to Loan and Security Agreement, dated as of November 8, 2019, as amended by that certain Third Amendment to Loan and Security Agreement, dated as of November 20, 2019, as amended by that certain Fourth Amendment to Loan and Security Agreement, dated as of December 16, 2019 and as further amended by that certain Fifth Amendment to Loan and Security Agreement, dated as of April 3, 2020 (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”).
B.Agent, Borrower and each Lender have agreed to execute this Amendment for purposes of effectuating a $10,000,000 increase to the Maximum Loan Amount under the Loan Agreement on the terms and conditions set forth in Section 2.13(a) of the Loan Agreement and as otherwise set forth herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Upon the satisfaction of the conditions set forth in Section 5, the cover page of the Loan Agreement is hereby amended by replacing the reference to “$50,000,000” with “$60,000,000”.
2.2Upon the satisfaction of the conditions set forth in Section 5, Section 1.1 of the Loan Agreement is hereby amended by adding or amending and restating the following definitions and placing them in appropriate alphabetical order:
“Revolving Loan Commitment” shall mean the commitment of a Lender to make or otherwise fund Revolving Loan Advances and “Revolving Loan Commitments” shall mean such commitments of all Lenders to fund Revolving Loan Advances in the aggregate. The amount of each Lender’s Revolving Loan Commitment, if any, is set forth on Schedule B attached hereto, subject to any adjustment or reduction pursuant to
the terms and conditions hereof. The aggregate amount of the Revolving Loan Commitments as of the Sixth Amendment Effective Date is $60,000,000.00, provided, that, upon the election of the Agent and any Lenders that elect to increase their Revolving Loan Commitment, pursuant to Section 2.13, the Revolving Loan Commitments may be increased incrementally up to, but shall never exceed, $150,000,000.
“Sixth Amendment Effective Date” shall mean April ___, 2020.
2.3Upon the satisfaction of the conditions set forth in Section 5, Schedule B to the Loan Agreement is hereby amended and restated in its entirety as provided on Schedule B attached hereto.
3.Limited Effect of Amendment.
3.1Except to the extent expressly set forth herein, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or Holdings or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower and Holdings, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing;
4.2Each of Borrower and Holdings has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their respective obligations under the Loan Agreement have been duly authorized;
4.4The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower or Holdings, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower and Holdings and is the binding obligation of each of Borrower and Holdings, enforceable against each of Borrower and Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower and Holdings;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof;
5.4Following timely delivery of a Request for Revolving Advance in an amount equal to or exceeding $100,000, the Lenders shall have funded such Revolving Loan Advance, and, in connection with such Revolving Loan Advance, Borrower agrees that the funded amount of such initial Revolving Loan Advance shall be reduced by the Increase OID of $100,000 associated with the $10,000,000 increase in the Revolving Loan Commitment pursuant to this Amendment; and
5.5After giving effect to this Amendment, no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages.
8.Release. BORROWER AND HOLDINGS, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY
RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower and Holdings: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise; (d) waives any other right, whether legal or equitable, which Borrower or Holdings may possess in and to the Collateral; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower and Holdings acknowledges and agrees that the waivers set forth in this Section 12 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
9.1Lender Addition Agreement. Each undersigned “Lender” (i) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Agreement and the other Loan Documents as are delegated to the Agent, by the terms thereof, together with such powers as are reasonably incidental thereto; and (ii) acknowledges and agrees that upon the Sixth Amendment Effective Date, such undersigned Person (if not currently a Lender party to the Loan Agreement) shall, automatically and without any further action, become a “Lender” under, and for all purposes of, the Loan Agreement and the other Loan Documents, and shall be subject to and bound by the terms thereof, and shall perform all the obligations of and shall have all rights of a Lender thereunder.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
KATAPULT GROUP, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
LENDERS:
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND IV LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA SPECIAL OPPORTUNITIES FUND (CAYMAN) VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
Schedule B
See attached.
Schedule B
Revolving Commitments
| | | | | |
| Lender | Revolving Commitment |
| Atalaya Special Opportunities Fund VII LP | $32,680,000.00 |
| Atalaya Special Opportunities Fund (Cayman) VII LP | $17,320,000.00 |
| Atalaya Asset Income Fund IV LP | $10,000,000.00 |
| Total Revolving Commitments: | $60,000,000.00 |
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Seventh Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 6th day of May, 2020, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) KATAPULT GROUP, INC., a Delaware corporation (“Holdings”), (c) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”) and (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, as amended by that certain Second Amendment to Loan and Security Agreement, dated as of November 8, 2019, as amended by that certain Third Amendment to Loan and Security Agreement, dated as of November 20, 2019, as amended by that certain Fourth Amendment to Loan and Security Agreement, dated as of December 16, 2019, as amended by that certain Fifth Amendment to Loan and Security Agreement, dated as of April 3, 2020, and as further amended by that certain Sixth Amendment to Loan and Security Agreement, dated as of April 29, 2020 (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”).
B.Agent, Borrower and each Lender have agreed to execute this Amendment for purposes of effectuating a $15,000,000 increase to the Maximum Loan Amount under the Loan Agreement on the terms and conditions set forth in Section 2.13(a) of the Loan Agreement and as otherwise set forth herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Upon the satisfaction of the conditions set forth in Section 5, the cover page of the Loan Agreement is hereby amended by replacing the reference to “$60,000,000” with “$75,000,000”.
2.2Upon the satisfaction of the conditions set forth in Section 5, Section 1.1 of the Loan Agreement is hereby amended by adding or amending and restating the following definitions and placing them in appropriate alphabetical order:
“Revolving Loan Commitment” shall mean the commitment of a Lender to make or otherwise fund Revolving Loan Advances and “Revolving Loan Commitments” shall mean such commitments of all Lenders to fund Revolving Loan Advances in the aggregate. The amount of each Lender’s
Revolving Loan Commitment, if any, is set forth on Schedule B attached hereto, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Loan Commitments as of the Seventh Amendment Effective Date is $75,000,000.00, provided, that, upon the election of the Agent and any Lenders that elect to increase their Revolving Loan Commitment, pursuant to Section 2.13, the Revolving Loan Commitments may be increased incrementally up to, but shall never exceed, $150,000,000.
“Seventh Amendment Effective Date” shall mean May ___, 2020.
2.3Upon the satisfaction of the conditions set forth in Section 5, Schedule B to the Loan Agreement is hereby amended and restated in its entirety as provided on Schedule B attached hereto.
3.Limited Effect of Amendment.
3.1Except to the extent expressly set forth herein, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or Holdings or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower and Holdings, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing;
4.2Each of Borrower and Holdings has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their respective obligations under the Loan Agreement have been duly authorized;
4.4The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower or Holdings, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower and Holdings and is the binding obligation of each of Borrower and Holdings, enforceable against each of Borrower and Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower and Holdings;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof;
5.4Following timely delivery of a Request for Revolving Advance in an amount equal to or exceeding $150,000, the Lenders shall have funded such Revolving Loan Advance, and, in connection with such Revolving Loan Advance, Borrower agrees that the funded amount of such initial Revolving Loan Advance shall be reduced by the Increase OID of $150,000 associated with the $15,000,000 increase in the Revolving Loan Commitment pursuant to this Amendment; and
5.5After giving effect to this Amendment, no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same
instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages.
8.Release. BORROWER AND HOLDINGS, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE
COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower and Holdings: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise; (d) waives any other right, whether legal or equitable, which Borrower or Holdings may possess in and to the Collateral; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower and Holdings acknowledges and agrees that the waivers set forth in this Section 12 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
9.1Lender Addition Agreement. Each undersigned “Lender” (i) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Agreement and the other Loan Documents as are delegated to the Agent, by the terms thereof, together with such powers as are reasonably incidental thereto; and (ii) acknowledges and agrees that upon the Seventh Amendment Effective Date, such undersigned Person (if not currently a Lender party to the Loan Agreement) shall, automatically and without any further action, become a “Lender” under, and for all purposes of, the Loan Agreement and the other Loan Documents, and shall be subject to and bound by the terms thereof, and shall perform all the obligations of and shall have all rights of a Lender thereunder.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
KATAPULT GROUP, INC.
By: _/s/ Orlando Zayas________________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
LENDERS:
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND IV LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA SPECIAL OPPORTUNITIES FUND (CAYMAN) VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
Schedule B
See attached.
Schedule B
Revolving Commitments
| | | | | |
| Lender | Revolving Commitment |
| Atalaya Special Opportunities Fund VII LP | $32,680,000.00 |
| Atalaya Special Opportunities Fund (Cayman) VII LP | $17,320,000.00 |
| Atalaya Asset Income Fund IV LP | $25,000,000.00 |
| Total Revolving Commitments: | $75,000,000.00 |
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Eighth Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 28th day of September, 2020, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) KATAPULT GROUP, INC., a Delaware corporation (“Holdings”), (c) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”) and (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, as amended by that certain Second Amendment to Loan and Security Agreement, dated as of November 8, 2019, as amended by that certain Third Amendment to Loan and Security Agreement, dated as of November 20, 2019, as amended by that certain Fourth Amendment to Loan and Security Agreement, dated as of December 16, 2019, as amended by that certain Fifth Amendment to Loan and Security Agreement, dated as of April 3, 2020, as further amended by that certain Sixth Amendment to Loan and Security Agreement, dated as of April 29, 2020, and as further amended by that certain Seventh Amendment to Loan and Security Agreement, dated as of May 6, 2020 (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”).
B.Agent, Borrower and each Lender have agreed to execute this Amendment for purposes of effectuating a $50,000,000 increase to the Maximum Loan Amount under the Loan Agreement on the terms and conditions set forth in Section 2.13(a) of the Loan Agreement and as otherwise set forth herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Upon the satisfaction of the conditions set forth in Section 5, the cover page of the Loan Agreement is hereby amended by replacing the reference to “$75,000,000” with “$125,000,000”.
2.2Upon the satisfaction of the conditions set forth in Section 5, Section 1.1 of the Loan Agreement is hereby amended by adding or amending and restating the following definitions and placing them in appropriate alphabetical order:
“Revolving Loan Commitment” shall mean the commitment of a Lender to make or otherwise fund Revolving Loan Advances and “Revolving Loan Commitments” shall mean such commitments of all Lenders to fund Revolving Loan
Advances in the aggregate. The amount of each Lender’s Revolving Loan Commitment, if any, is set forth on Schedule B attached hereto, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Loan Commitments as of the Eighth Amendment Effective Date is $125,000,000.00, provided, that, upon the election of the Agent and any Lenders that elect to increase their Revolving Loan Commitment, pursuant to Section 2.13, the Revolving Loan Commitments may be increased incrementally up to, but shall never exceed, $150,000,000.
“Eighth Amendment Effective Date” shall mean September 28, 2020.
2.3Upon the satisfaction of the conditions set forth in Section 5, Schedule B to the Loan Agreement is hereby amended and restated in its entirety as provided on Schedule B attached hereto.
3.Limited Effect of Amendment.
3.1Except to the extent expressly set forth herein, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or Holdings or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower and Holdings, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing;
4.2Each of Borrower and Holdings has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their respective obligations under the Loan Agreement have been duly authorized;
4.4The execution and delivery by Borrower and Holdings of this Amendment and the performance by Borrower and Holdings of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower or Holdings, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower and Holdings and is the binding obligation of each of Borrower and Holdings, enforceable against each of Borrower and Holdings in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower and Holdings;
5.2Agent shall a have received a Note, duly executed by Borrower in favor of Atalaya Asset Income Fund V LP;
5.3Agent shall have received such additional documents, instruments and information as Agent may request;
5.4Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof;
5.5Following timely delivery of a Request for Revolving Advance in an amount equal to or exceeding $500,000, the Lenders shall have funded such Revolving Loan Advance, and, in connection with such Revolving Loan Advance, Borrower agrees that the funded amount of such initial Revolving Loan Advance shall be reduced by the Increase OID of $500,000 associated with the $50,000,000 increase in the Revolving Loan Commitment pursuant to this Amendment; and
5.6After giving effect to this Amendment, no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages.
8.Release. BORROWER AND HOLDINGS, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS,
EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower and Holdings: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise; (d) waives any other right, whether legal or equitable, which Borrower or Holdings may possess in and to the Collateral; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower and Holdings acknowledges and agrees that the waivers set forth in this Section 9 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
9.1Lender Addition Agreement. Each undersigned “Lender” (i) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Agreement and the other Loan Documents as are delegated to the Agent, by the terms thereof, together with such powers as are reasonably incidental thereto; and (ii) acknowledges and agrees that upon the Eighth Amendment Effective Date, such undersigned Person (if not currently a Lender party to the Loan Agreement) shall, automatically and without any further action, become a “Lender” under, and for all purposes of, the Loan Agreement and the other Loan Documents, and shall be subject to and bound by the terms thereof, and shall perform all the obligations of and shall have all rights of a Lender thereunder.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
KATAPULT GROUP, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
LENDERS:
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi____________________
Name:
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND IV LP
By: /s/ David Aidi____________________
Name:
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) IV LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA SPECIAL OPPORTUNITIES FUND (CAYMAN) VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND V LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
Schedule B
See attached.
Schedule B
Revolving Commitments
| | | | | |
| Lender | Revolving Commitment |
| Atalaya Special Opportunities Fund VII LP | $32,680,000.00 |
| Atalaya Special Opportunities Fund (Cayman) VII LP | $17,320,000.00 |
| Atalaya Asset Income Fund IV LP | $16,880,000.00 |
| Atalaya Asset Income Fund IV (Cayman) LP | $8,120,000.00 |
| Atalaya Asset Income Fund V LP | $50,000,000.00 |
| Total Revolving Commitments: | $125,000,000.00 |
ELEVENTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This Eleventh Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 1st day of July, 2021, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) KATAPULT GROUP, INC., a Delaware corporation (“Holdings”), (c) KATAPULT HOLDINGS, INC., a Delaware corporation (“Parent Entity”), (d) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”) and (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, as amended by that certain Second Amendment to Loan and Security Agreement, dated as of November 8, 2019, as amended by that certain Third Amendment to Loan and Security Agreement, dated as of November 20, 2019, as amended by that certain Fourth Amendment to Loan and Security Agreement, dated as of December 16, 2019, as amended by that certain Fifth Amendment to Loan and Security Agreement, dated as of April 3, 2020, as amended by that certain Sixth Amendment to Loan and Security Agreement, dated as of April 29, 2020, as amended by that certain Seventh Amendment to Loan and Security Agreement, dated as of May 6, 2020, as further amended by that certain Eighth Amendment to Loan and Security Agreement, dated as of September 28, 2020, as further amended by that certain Ninth Amendment and Joinder to Loan and Security Agreement, dated as of December 4, 2020 and as further amended by that certain Tenth Amendment and Joinder to Loan and Security Agreement, dated as of January 13, 2021 (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”).
B.Agent, Borrower and each Lender have agreed to execute this Amendment for the purpose of effectuating the matters set forth herein, all on the terms and conditions set forth herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Effective as of the date hereof, the Loan Agreement is hereby amended (a) to delete the stricken text (indicated textually in the same manner as the following examples: stricken text and stricken text) and (b) to add the double-underlined text (indicated textually in the same manner as the following examples: double-underlined text and double-underlined text), in each case, as set forth in the marked copy of the Loan Agreement, along with those certain exhibits, schedules and appendices to the Loan Agreement, attached hereto as Exhibit A hereto and made a part hereof for all purposes.
3.Limited Effect of Amendment.
3.1Except to the extent expressly set forth herein, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower, Holdings, Parent Entity or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower, Holdings and Parent Entity, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing;
4.2Each of Borrower, Holdings and Parent Entity has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower, Holdings and Parent Entity of this Amendment and the performance by Borrower, Holdings and Parent Entity of their respective obligations under the Loan Agreement have been duly authorized by all requisite action of such parties and have been duly executed and delivered by such parties;
4.4The execution and delivery by Borrower, Holdings and Parent Entity of this Amendment and the performance by Borrower, Holdings and Parent Entity of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, Holdings or Parent Entity, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower, Holdings and Parent Entity and is the binding obligation of each of Borrower, Holdings and Parent Entity, enforceable against each of Borrower, Holdings and Parent Entity in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors’ rights generally and to the effect of general principles of equity (whether in a proceeding at law or in equity).
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower, Holdings and Parent Entity;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof; and
5.4After giving effect to this Amendment, no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing.
6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages. The words “execution,” “executed”, “signed,” “signature,” and words of like import in this Amendment shall be deemed to include electronic signatures, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature.
8.Release. BORROWER, HOLDINGS AND PARENT ENTITY, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY
AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower, Holdings and Parent Entity: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC following the occurrence and during the continuance of an Event of Default; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral following the occurrence and during the continuance of an Event of Default; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise following the occurrence and during the continuance of an Event of Default; (d) waives any other right, whether legal or equitable, which Borrower, Holdings or Parent Entity may possess in and to the Collateral following the occurrence and during the continuance of an Event of Default; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable
manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower, Holdings and Parent Entity acknowledges and agrees that the waivers set forth in this Section 9 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
[Signature page follows.]
IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: /s/ Orlando Zayas_____________________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
KATAPULT GROUP, INC.
By: /s/ Orlando Zayas_____________________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
PARENT ENTITY:
KATAPULT HOLDINGS, INC.
By: /s/ Orlando Zayas_____________________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
CLASS A LENDERS:
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND IV LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) IV LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA SPECIAL OPPORTUNITIES FUND (CAYMAN) VII LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND V LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
CLASS B LENDER(S):
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND IV LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND V LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA SPECIAL OPPORTUNITIES FUND (CAYMAN) VII LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) IV LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) V LP
By: /s/ David Aidi_____________________
Name: David Aidi
Title: Authorized Signatory
EXHIBIT A
Conformed Loan Agreement
CONFORMED AS OF THE ELEVENTH AMENDMENT
$175,000,000 SENIOR SECURED TERM LOAN AND REVOLVING LOAN FACILITY
LOAN AND SECURITY AGREEMENT
between
KATAPULT SPV-1 LLC,
as Borrower,
and
KATAPULT GROUP, INC., as Holdings
And
KATAPULT HOLDINGS, INC., as Parent Entity
and
MIDTOWN MADISON MANAGEMENT LLC
as Agent
and
THE FINANCIAL INSTITUTIONS PARTY HERETO FROM TIME TO TIME
as Lenders
Dated as of
May 14, 2019
TABLE OF CONTENTS
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EXHIBITS
Exhibit A Borrowing Base Certificate
Exhibit B-1 Form of Revolving Note
Exhibit B-2 Form of Term Note
Exhibit C Form of Monthly Servicing Report/Lease Contract Multiple
Exhibit D Form of Portfolio Documents
Exhibit E Underwriting Guidelines
Exhibit F Form of Request for Revolving Advance
Exhibit G Servicing Policy
Exhibit H Performance Covenant Tables
Exhibit I Permitted Holders
Exhibit J Approved States
Exhibit K Series C Convertible Preferred Stock Purchase Agreement
SCHEDULES
Schedule A Wiring Instructions
Schedule B Commitments
Schedule 4.1 Required Consents
Schedule 5.3 Managers, Managing Members and Directors of each Credit Party
Schedule 5.5 [Reserved]
Schedule 5.10 Intellectual Property
Schedule 5.15 Affiliate Agreements
Schedule 5.16 Insurance
Schedule 5.17A Names
Schedule 5.17B Location of Offices, Records and Collateral
Schedule 5.17C Deposit Accounts and Investment Property
Schedule 6.8 Further Assurances and Post Closing Deliverables
Schedule 7.1 Permitted Indebtedness
Schedule 7.13 Approved Sub-Servicers
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the “Agreement”) dated as of May 14, 2019, is entered into by and among KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), KATAPULT GROUP, INC, a Delaware corporation (“Holdings”), KATAPULT HOLDINGS, INC., a Delaware corporation (“Parent Entity”), each of the lenders from time to time party hereto (individually each a “Lender” and collectively the “Lenders”) and MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for itself, as a Lender, and for the other Lenders (in such capacities, “Agent”).
WHEREAS, pursuant to the Purchase and Sale Agreement, the Borrower desires to purchase from Holdings all of its rights, title and interest in and to the Collateral, including, but not limited to, the Pledged Leases which were originated by Holdings and the Inventory related thereto;
WHEREAS, on the Closing Date Lenders made available to Borrower a senior secured revolving credit facility in an initial maximum principal amount of up to Fifty Million and No/100 Dollars ($50,000,000.00) (the “Initial Revolving Commitment Amount”);
WHEREAS, as of the Eighth Amendment Effective Date Lenders had increased the Initial Revolving Commitment Amount to a maximum principal amount of up to One Hundred Twenty-Five and No/100 Dollars ($125,000,000.00) (the “Existing Revolving Commitment Amount”);
WHEREAS, on the Ninth Amendment Effective Date, certain of the Lenders have agreed, upon and subject to the provisions, terms and conditions hereinafter set forth, to make available to Borrower a new senior secured term loan credit facility in an initial maximum principal amount of up to Fifty Million and No/100 Dollars ($50,000,000.00) to provide for working capital and general corporate needs and as otherwise provided herein;
WHEREAS, pursuant to the terms of this Agreement, Lenders shall have the exclusive right to increase the Existing Revolving Commitment Amount hereunder up to an aggregate total of Two Hundred Fifty Million and No/100 Dollars ($250,000,000.00);
WHEREAS, Borrower is willing to grant Agent, for the benefit of itself and the other Lenders, a first priority lien on and security interest in the Collateral to secure the Loans and other financial accommodations being granted by the Lenders to Borrower; and
WHEREAS, Lenders are willing to make the Loans available to Borrower upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Borrower, Agent and Lenders hereby agree as follows:
DEFINITIONS
General Terms
For purposes of the Loan Documents and all Annexes thereto, in addition to the definitions above and elsewhere in this Agreement or the other Loan Documents, the terms listed in this Article I shall have the meanings given such terms in this Article I. All capitalized terms used which are not specifically defined shall have the meanings provided in Article 9 of the UCC
in effect on the date hereof to the extent the same are used or defined therein. Unless otherwise specified, if a provision of this Agreement or any other Loan Document requires the consent of or approval of Agent or any Lender, such consent or approval shall be in Agent’s or such Lender’s sole discretion. Unless otherwise specified herein, this Agreement and any agreement or contract referred to herein shall mean such agreement as modified, amended or supplemented from time to time. Unless otherwise specified, as used in the Loan Documents or in any certificate, report, instrument or other document made or delivered pursuant to any of the Loan Documents, all accounting terms not defined in this Article I or elsewhere in this Agreement shall have the meanings given to such terms in and shall be interpreted in accordance with GAAP. Unless otherwise specified herein, the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.
“Account Lessee” shall mean any Person that is an obligor in respect of any Lease.
“Adjusted Current Lease Balance” shall mean for each Lease, (a) if the ratio of the Original Net Lease Cost to Lease Cost is equal to or greater than ninety percent (90%), the Current Lease Balance, and (b) if the ratio of the Original Net Lease Cost to Lease Cost is less than ninety percent (90%), the lesser of (i) the Original Net Lease Cost and (ii) the Current Lease Balance.
“Adjusted Parent Consolidated Net Income” shall mean, for any period, as calculated for Parent Entity on a consolidated basis, the sum of (a) the total Parent Consolidated Net Income for such period, plus (b) the total depreciation and amortization expense accrued by Parent Entity and its consolidated subsidiaries during such period plus (c) all non-cash stock compensation and warrant expenses during such period.
“Administration Fee” shall have the meaning set forth in Section 3.4.
“Advance” shall mean any borrowing under and advance of the Loan, including, but not limited to, the Term Loan, each Revolving Advance and any Protective Advance. Any amounts paid by Agent on behalf of Borrower under any Loan Document shall be an Advance for purposes of this Agreement.
“Advance Rate” shall mean, as of any date of determination, (a) for the period beginning on the Closing Date and ending on the date that is nine (9) months after the Closing Date, eighty-five percent (85%) and (b) thereafter, so long as no Advance Rate Trigger Event, Default or Event of Default exists, ninety percent (90%). If any Advance Rate Trigger Event has occurred, the Advance Rate shall be immediately reduced by five percent (5%); provided, that if, following any such Advance Rate Trigger Event, there occurs three (3) consecutive calendar months in which such Advance Rate Trigger Event no longer exists and no other Advance Rate Trigger Event, Default or Event of Default has occurred, then the Advance Rate shall be increased by five percent 5%.
“Advance Rate Trigger Event” shall mean the occurrence of any of the following events with respect to the portfolio of Pledged Leases securing the Loan, in each case, to be tested as of the last day of each calendar month but without giving effect to any Vintage Pool created prior to the February 2019 Vintage Pool:
(a) The Charge-off Percentage Ratio for any Vintage Pool exceeds the Advance Rate Trigger Charge-off Percentage Ratio for the corresponding thirty (30) day period set forth on Exhibit H-4 since the first payment date for each Lease within each such Vintage Pool. For the avoidance of doubt, the first thirty
day period following the origination date for each Lease within each Vintage Pool shall be Period 1; or
(b) The Cumulative Cash Collection Percentage Ratio for any Vintage Pool is less than the Advance Rate Trigger Cumulative Cash Collection Percentage Ratio for the corresponding thirty (30) day period set forth on Exhibit H-3 since the first payment date for each Lease within each such Vintage Pool. For the avoidance of doubt, the first thirty day period following the origination date for each Lease within each Vintage Pool shall be Period 1; or
(c) The average First Payment Default Ratio for the three most recent Vintage Pools (excluding the Vintage Pool originated during the month ending on the date of determination (i.e. as of end of December 2019, excluding the December 2019 Vintage Pool)) exceeds the Advance Rate Trigger First Payment Default Ratio (Trailing Three Months T+30) ratio set forth on Exhibit H-2; or
(d) The First Payment Default Ratio for any Vintage Pool within the three most recent Vintage Pools (excluding the Vintage Pool originated during the month ending on the date of determination (i.e. as of end of December 2019, excluding the December 2019 Vintage Pool)) exceeds the Advance Rate Trigger First Payment Default Ratio (T+30) ratio set forth on Exhibit H-1.
“Advensus” means Nearshore Call Center Services LTD, dba Advensus, a British Virgin Islands corporation.
“Affiliate” or “affiliate” shall mean, as to any Person, any other Person (a) that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, (b) who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to such Person. For purposes of this definition, the term “control” (and the correlative terms, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, whether through the ability to exercise voting power, by contract or otherwise.
“Agent” shall have the meaning assigned to it in the introductory paragraph hereof.
“Agent Advance” shall have the meaning assigned to it in Section 13.4.
“Agreement” shall have the meaning assigned to it in the introductory paragraph hereof.
“Allocation Notice” shall have the meaning assigned to it in Section 2.12(b).
“Amortized Lease Cost” shall mean, for any Lease and as of any date of determination, the product of (i) the cumulative payments received to date (excluding upfront payments, application fees and/or merchant discounts) related to such Lease and (ii) the quotient of (x) one and (y) the Lease Contract Multiple of such Lease.
“Anticipated SPAC Transaction” means a business combination transaction between Parent Entity and FinServ Acquisition Corp. and/or its Affiliates.
“Applicable Rate” shall mean the interest rates applicable from time to time under this Agreement.
“Applicable Law” shall mean any and all federal, state, local and/or applicable foreign statutes, ordinances, rules, regulations, court orders and decrees, administrative orders and decrees, and other legal requirements of any and every conceivable type applicable to the Loan, the Loan Documents, Borrower, Guarantors or the Collateral or any portion thereof, including, but not limited to, in each case, as applicable, Credit Protection Laws, credit disclosure laws and regulations, the Fair Labor Standards Act, and all state and federal usury laws.
“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and (a) that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender or (b) is a Person (other than a natural person) primarily engaged in the making of commercial loans having total assets in excess of $500,000,000.
“Approved State” shall mean a state listed on Exhibit J attached hereto.
“Availability” shall mean, at any date of determination, the lesser of (a) the Borrowing Base or (b) the aggregate of the Revolving Loan Commitments, minus, in each case, the aggregate principal balance of the outstanding Advances.
“Available Amounts” shall mean, as of any Payment Date, the sum of (a) all payments, including all Scheduled Payments, any prepayments, fees or other amounts collected from or on behalf of the Account Lessees on the Pledged Leases during the related Due Period, (b) all liquidation proceeds from the sale or disposition of any Pledged Lease and/or any property related thereto during the related Due Period, whether to a third party purchaser or an Affiliate of the Borrower, (c) any amount received by the Borrower or the Servicer related to a payment from the Guarantors regarding any Guaranty since the most recent Payment Date, (d) all other proceeds of the Collateral received by the Borrower or Servicer during the Due Period, including, but not limited to, judgment awards or settlements, late charges and other income collected from any source arising in connection with the Collateral and (e) all interest earned on the amounts on deposit in the Collateral Account since the previous Payment Date.
“Backup Servicer” shall mean Vervent Inc. (as successor to First Associates Loan Servicing, LLC), or such other Person designated and engaged by the Agent and, prior to the occurrence of an Event of Default, approved by the Borrower to succeed Vervent Inc. as Backup Servicer to perform the duties described in Section 6.13 hereunder and such other duties as may be agreed to by such Person, all in accordance with the terms, provisions, and conditions a Backup Servicing Agreement.
“Backup Servicer Fee” shall mean any fee payable monthly by Borrower to a Backup Servicer, such fee, including, without limitation, fees for verification services, to be as specified in the applicable Backup Servicing Agreement.
“Backup Servicing Agreement” shall mean that any Backup Servicing Agreement, to be entered into by and among Agent, Borrower and Backup Servicer regarding the provision of certain services by the Backup Servicer with respect to the Leases, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.
“Bankruptcy Code” shall mean Title 11 of the United States Code, 11 U.S.C. §§ 101 et. seq., as amended from time to time.
“Board” shall have the meaning assigned to it in Section 6.18 hereof.
“Borrower” shall have the meaning assigned to it in the introductory paragraph hereof.
“Borrowing Base” shall mean the (a) product of (i) the Advance Rate multiplied by (ii) the aggregate sum of the Adjusted Current Lease Balance for all Eligible Leases pledged as Collateral hereunder.
“Borrowing Base Certificate” shall mean a Borrowing Base Certificate substantially in the form of Exhibit A hereto.
“Business Day” shall mean any day that is not a Saturday, Sunday or other day on which (a) commercial banks in New York City are authorized or required by law to remain closed or (b) with respect to LIBOR, banks are not open for dealings in dollar deposits in the London interbank market.
“Calculated Rate” shall have the meaning assigned to it in Section 2.2(a) hereof.
“Cash Equivalents”: (a) securities with maturities of twelve (12) months or less from the date of acquisition or acceptance which are issued or fully guaranteed or insured by the United States, or any agency or instrumentality thereof, (b) bankers’ acceptances, certificates of deposit and eurodollar time deposits with maturities of nine (9) months or less from the date of acquisition and overnight bank deposits, in each case, of any Lender or of any international or national commercial bank with commercial paper rated, on the day of such purchase, at least A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody’s, (c) commercial paper or any other short term, liquid investment having a rating, on the date of purchase, of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s and that matures or resets not more than nine (9) months after the date of acquisition, (d) investments in money market funds, and (e) investments in mutual funds or other pooled investment vehicles, in each case acceptable to the Agent in its sole discretion, the assets of which consist solely of the foregoing.
“Change in Law” shall mean (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 3.3 by any lending office of such Lender or by such holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that notwithstanding anything herein to the contrary, all requests, rules, guidelines or directives concerning liquidity and capital adequacy issued by any Governmental Authority (x) under or in connection with the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended to the date hereof and from time to time hereafter, and any successor statute and (y) in connection with the implementation of the recommendations of the Bank for International Settlements or the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority), shall be a “Change in Law” regardless of the date adopted, issued, promulgated or implemented.
“Change of Control” shall mean:
(a)at any time prior to a Public Company Transition Date, the occurrence of any of the following:
(i)Blumberg Capital, CURO Financial Technologies Corp., Tribeca Ventures, Anchorage Capital and each other entity designated as a “Permitted Holder” on Exhibit I attached hereto, as amended from time to time with the consent of Agent (such consent not to be unreasonably withheld), at any time for any reason cease to collectively own at least 51% of the issued and outstanding Equity Interests of Parent Entity (as the
same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units);
(ii)Parent Entity at any time for any reason ceases to own 100% of the issued and outstanding Equity Interests of Holdings (as the same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units), free and clear of all Liens, rights, options, warrants or other similar agreements or understandings other than in favor of Agent, Lenders or their Affiliates;
(iii)Holdings at any time for any reason ceases to own 100% of the issued and outstanding Equity Interests of Borrower (as the same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units), free and clear of all Liens, rights, options, warrants or other similar agreements or understandings other than in favor of Agent, Lenders or their Affiliates; or
(iv)Parent Entity at any time ceases, directly or indirectly, to possess, directly or indirectly, the power to direct or cause the direction of the management or policies, whether through ownership of securities or other interests by contract or otherwise of Holdings; or
(v)any “change in/of control” or “sale” or “disposition” or “merger” or similar event as defined in any certificate of incorporation or formation or statement of designations or operating agreement or partnership agreement or trust agreement of Borrower or Holdings or in any document governing indebtedness of such Person (other than any Loan Documents) which in any such case gives the holder of such indebtedness the right to accelerate or otherwise require payment of such indebtedness prior to the maturity date thereof; and
(b)at any time after a Public Company Transition Date, the occurrence of any of the following:
(i)any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 35% or more of the equity securities of the Parent Entity entitled to vote for members of the board of directors or equivalent governing body of the Parent Entity on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or
(ii)during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Parent Entity cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (b) (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (b) (i) and (b) (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; and
(iii)Parent Entity at any time for any reason ceases to own 100% of the issued and outstanding Equity Interests of Holdings (as the same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units), free and clear of all Liens, rights, options, warrants or other similar agreements or understandings other than in favor of Agent, Lenders or their Affiliates;
(iv)Holdings at any time for any reason ceases to own 100% of the issued and outstanding Equity Interests of Borrower (as the same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units), free and clear of all Liens, rights, options, warrants or other similar agreements or understandings other than in favor of Agent, Lenders or their Affiliates; or
(v)the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or more series of related transactions, of all or substantially all of the assets of the Parent Entity and the assets of its Subsidiaries taken as a whole to any “person” (as that term is defined in Section 13(d)(3) of the Exchange Act) (other than to the Parent Entity or its Subsidiaries).
Notwithstanding the foregoing, an initial public offering of the Parent Entity or a SPAC Transaction, the consummation of which would constitute a “Change of Control” under any other portion of this definition shall not be a “Change of Control”.
“Charged-off Lease” shall mean (a) any Pledged Lease for which any portion of a Scheduled Payment (without giving effect to any modifications of such Pledged Lease after the date such Pledged Lease was first pledged hereunder or under any other Loan Document) is delinquent more than ninety twenty (90) days, (b) with respect to which Servicer or Borrower shall have reasonably determined in good faith that the related Account Lessee will not resume making Scheduled Payments, (c) unless otherwise approved by Agent in writing in its sole discretion, the related Account Lessee shall have become the subject of a proceeding under a Debtor Relief Law and Servicer or Borrower shall have been notified thereof or (d) that has been specifically and separately reserved against by Borrower or deemed charged-off or non-collectible by Borrower or Servicer.
“Charge-off Percentage Ratio” shall mean, with respect to any Vintage Pool, the percentage equivalent to a fraction, (a) the numerator of which is the aggregate Lease Cost of such Lease related to such Vintage Pool that have become and remain Charged-off Leases and (b) the denominator of which is the aggregate Lease Cost of the Pledged Leases in such Vintage Pool.
“Charter and Good Standing Documents” shall mean, for the applicable Person, (i) a copy of the certificate of incorporation, certificate of formation, statutory certificate of trust or other applicable charter document certified as of a date not more than five (5) Business Days before the Closing Date by the applicable Governmental Authority of the jurisdiction of incorporation of such Person, (ii) a copy of the bylaws, operating agreement, trust agreement or other applicable organizational document certified as of the Closing Date by the corporate secretary or assistant secretary of such Person, (iii) an original certificate of good standing as of a date not more than five (5) Business Days before the Closing Date issued by the applicable Governmental Authority of the jurisdiction of incorporation of such Person and of every other jurisdiction in which such Person is otherwise required to be in good standing, and (iv) copies of the resolutions of the Board of Directors (or other applicable governing body) and, if required, stockholders or other equity owners authorizing the execution, delivery and performance of the Loan Documents to which such Person, as applicable, is a party, certified by an authorized officer of such Person as of the Closing Date.
“Claims” shall mean any and all liabilities, obligations, losses, damages, penalties, claims, actions, litigation, proceedings, investigations, judgments, suits, fees, costs, expenses, charges, advances and disbursements of any kind (including, without limitation, fees, costs, expenses and charges of counsel (including in-house counsel)).
“Class A Lender” shall mean each Lender having a Revolving Loan Commitment or holding Revolving Advances.
“Class A Obligations” shall mean all Obligations owed to the Class A Lenders in respect of the Revolving Advances.
“Class B Lender” shall mean each Lender having a Term Loan Commitment or holding a portion of the Term Loan.
“Class B Lockout Period Termination Date” has the meaning given to such term in Section 2.5(c).
“Closing” shall mean the satisfaction, or written waiver by Agent and the Lenders, of all of the conditions precedent set forth in this Agreement required to be satisfied prior to the consummation of the transactions contemplated hereby.
“Closing Date” shall mean the date of this Agreement.
“Code” shall mean the Internal Revenue Code of 1986, as amended, and all rules and regulations promulgated thereunder.
“Collateral” shall mean, collectively and each individually, all collateral and/or security granted and/or securities pledged to Agent for the benefit of itself and the other Lenders, by Borrower pursuant to the Loan Documents including, without limitation, the items set forth in Section 2.8 of this Agreement.
“Collateral Assignment of Purchase Agreement” shall mean that certain Collateral Assignment of Purchase and Sale Agreement, dated on or about the Closing Date, executed by Borrower in favor of Agent and agreed to and acknowledged by Holdings, as the same may be amended, restated or modified from time to time.
“Collateral Account” shall mean, individually and collectively, (a) that certain deposit account at Collateral Account Bank held in the name of Borrower, with account number 1001851631 or (b) following the occurrence and during the continuance of an Event of Default, such other deposit account as designated from time to time by Agent in a written notice to Borrower and Servicer.
“Collateral Account Bank” shall mean Pacific Western Bank or such other bank where the Collateral Account is being held from time to time in accordance with the terms of this Agreement.”
“Collateral Account Control Agreement” shall mean any full dominion account control agreement by and among Agent, Borrower and Collateral Account Bank, which pledges a Collateral Account and all funds and sums contained therein to Agent, for the benefit of the Lenders, and provides for disposition of funds therefrom, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.
“Contingent Obligations” shall mean, as to any Person, any obligation of such Person guaranteeing or intending to guaranty any Indebtedness, leases, dividends or other obligations
(“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or to hold harmless the owner of such primary obligation against loss in respect thereof, provided, however, that the term “Contingent Obligation” shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.
“Contract Right” shall mean any right of Borrower to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance.
“Convertible Note” shall mean those certain convertible notes of Parent Entity listed on Schedule 1.1(a) attached hereto.
“Credit Card Account” shall mean an arrangement whereby an Account Lessee makes Scheduled Payments under a Lease via pre-authorized debit or charge to a Major Credit Card.
“Credit Party” shall mean individually, Borrower and each Guarantor and “Credit Parties” shall mean, collectively, the Borrower and Guarantors.
“Credit Protection Laws” shall mean all federal, state and local laws in respect of the business of extending credit to borrowers, including without limitation, the Truth in Lending Act (and Regulation M promulgated thereunder), Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Gramm-Leach-Bliley Financial Privacy Act, Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, all rules and regulations issued by the Consumer Financial Protection Bureau, Dodd–Frank Wall Street Reform and Consumer Protection Act, anti-discrimination and fair lending laws, laws relating to servicing procedures or maximum charges and rates of interest, and other similar laws, each to the extent applicable, and all applicable regulations in respect of any of the foregoing.
“Cumulative Cash Collection Percentage Ratio” shall mean, with respect to any Vintage Pool, the percentage equivalent to a fraction, the numerator of which is the sum of all payments (including prepayments and application and/or other upfront payments, but excluding any sales tax payments) collected from or on behalf of the Account Lessees on each Pledged Lease in such Vintage Pool since the date that such Pledged Lease was originated and the denominator of which is the sum of the Lease Costs (as determined for each Pledged Lease as of the date such Pledged Lease was originated) of each Pledged Lease with respect to such Vintage Pool.
“Current Lease Balance” shall mean, for any Lease and as of any date of determination (i) the Lease Cost less (ii) the Amortized Lease Cost of such Lease at such time.
“Debtor Relief Law” shall mean, collectively, the Bankruptcy Code and all other United States or foreign applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as amended from time to time.
“Deemed Liquidation Event” shall have the meaning set forth in the certificate of incorporation of Holdings, as in effect on the Ninth Amendment Effective Date, provided, that in no event shall any transaction involving the purchase of capital stock from one holder of Equity Interests of Holdings by another holder of Equity Interests of Holdings constitute a Deemed Liquidation Event.
“Default” shall mean any event, fact, circumstance or condition that, with the giving of applicable notice or passage of time, if any, or both, would constitute or be or result in an Event of Default.
“Default Rate” shall have the meaning assigned to it in Section 3.2 hereof.
“Default Trigger Event” shall mean the occurrence of any of the following events with respect to the portfolio of Pledged Leases securing the Loan, in each case, to be tested as of the last day of each calendar month but without giving effect to any Vintage Pool created prior to the February 2019 Vintage Pool:
(a) The Charge-off Percentage Ratio for any Vintage Pool exceeds the Charge-off Trigger Percentage Ratio for the corresponding month set forth on Exhibit H-4 since the first payment date for each Lease within each such Vintage Pool. For the avoidance of doubt, the first thirty day period following the origination date for each Lease within each Vintage Pool shall be Period 1; or
(b) The Cumulative Cash Collection Percentage Ratio for any Vintage Pool is less than the Default Trigger Cumulative Cash Collection Percentage Ratio for the corresponding month set forth on Exhibit H-3 since the first payment date for each Lease within each such Vintage Pool. For the avoidance of doubt, the first thirty day period following the origination date for each Lease within each Vintage Pool shall be Period 1.
“Defaulted Lease” shall mean (a) any Pledged Lease for which any portion of a Scheduled Payment (without giving effect to any modifications of such Pledged Lease after the date such Pledged Lease was first pledged hereunder or under any other Loan Document) is delinquent more than sixty (60) days, (b) with respect to which Servicer or Borrower shall have reasonably determined in good faith that the related Account Lessee will not resume making Scheduled Payments, (c) unless otherwise approved by Agent in writing in its sole discretion, the related Account Lessee shall have become the subject of a proceeding under a Debtor Relief Law and Servicer or Borrower shall have been notified thereof or (d) that has been specifically and separately reserved against by Borrower or deemed charged-off or non-collectible by Borrower or Servicer.
“Defective Lease” shall mean any Pledged Lease with an uncured breach of any representation or warranty of Borrower or that Holdings made under the Purchase and Sale Agreement.
“Deposit Account” shall mean, individually and collectively, any bank or other depository accounts of Borrower (or if referring to another Person, such other Person’s).
“Designee” shall have the meaning assigned to it in Section 6.18 hereof.
“Distributable Amounts Limit” means (i) the product of (a) the cumulative Adjusted Parent Consolidated Net Income since August 1, 2020 and (b) fifty percent (50.0%), minus (ii) the cumulative aggregate amount paid by the Parent Entity to repurchase shares pursuant to clause (B) of the proviso to Section 7.4 since the Ninth Amendment Effective Date, excluding amounts paid by the Parent Entity in respect of any ROFR Share Repurchases since the Ninth Amendment Effective Date.
“Division” shall mean, with respect to any Person which is an entity, the division of such Person into two (2) or more separate such Persons, with the dividing Person either continuing or terminating its existence as part of such division, including as contemplated under Section 18-217 of the Delaware Limited Liability Act for limited liability companies formed under Delaware law, or any analogous action taken pursuant to any other Applicable Law with respect to any corporation, limited liability company, partnership or other entity. The word “Divide,” when capitalized, shall have a correlative meaning.
“Dollars” and “$” shall mean lawful money of the United States of America.
“Due Period” shall mean, for any Payment Date, the calendar week ending on the immediately preceding Friday.
“Eighth Amendment Effective Date” shall mean September 28, 2020.
“Eligible Leases” shall mean those Leases that meet, as of any date of determination, all of the following requirements:
(i)such Lease has a Lease Term of no more than eighteen (18) months;
(ii)such Lease has a Current Lease Balance of (x) not more than $3,500 or (y) solely with respect to Leases used to acquire automobile-related parts, not more than $5,000; provided that the aggregate amount of Eligible Leases by virtue of this clause (y) shall not exceed $1,000,000 as of any date of determination;
(iii)payments under such Lease are due in Dollars and the Portfolio Documents do not permit the currency in which such Lease is payable to be changed, and all previous payments have been made by the related Account Lessee and not by Holdings, Borrower or any Affiliate thereof;
(iv)payments in respect of such Lease shall be due and payable weekly, bi-weekly, monthly or semi-monthly in equal installments;
(v)such Lease and all related Portfolio Documents shall be in full force and effect and shall represent a legal, or valid and binding and absolute and unconditional payment obligation of the applicable Account Lessee enforceable against such Account Lessee in accordance with its terms for the amount outstanding thereof without any right of rescission, offset, counterclaim or defense, except to the extent that enforceability may be limited by Debtor Relief Laws and general principles of equity, and is not contingent in any respect for any reason;
(vi)to Borrower’s knowledge after due inquiry, the applicable Account Lessee is not the subject of any proceeding under any Debtor Relief Law;
(vii)such Lease is not a Defaulted Lease;
(viii)such Lease would not cause the percentage of Eligible Leases for which the Account Lessee thereon nor any guarantor thereof is an employee, officer, director or Affiliate of, Holdings or Borrower to exceed 1% of Eligible Leases;
(ix)Holdings or Borrower shall not be engaged in any adverse litigation with the applicable Account Lessee in respect of such Lease;
(x)such Lease shall have been originated, documented and closed in accordance with the Underwriting Guidelines in all material respects and such Lease and related Portfolio Documents shall not have been modified from their original terms in any material respect;
(xi)the applicable Account Lessee’s Lease application and the Portfolio Documents evidencing such Lease shall have been delivered to Agent or Backup Servicer in accordance with Section 2.9 hereof and the related Verification Certificate shall not have any exceptions noted by the Backup Servicer;
(xii)such Lease shall comply in all material respects with all Applicable Laws and all statutory or other applicable cancellation or rescission periods related thereto have expired;
(xiii)to Borrower’s knowledge, all amounts and information in respect of such Lease or furnished to Agent in connection therewith shall be true and correct and undisputed by the Account Lessee thereon or any guarantor thereof;
(xiv)such Lease shall not be a renewal, amendment, modification, waiver or extension of any Defective Lease or Defaulted Lease that was previously substituted with an Eligible Lease, except as otherwise approved in writing by Agent;
(xv)neither Borrower nor Holdings shall have made a Material Modification with respect to such Lease without the consent of Agent;
(xvi)such Lease shall not be evidenced by a judgment or have been reduced to judgment;
(xvii)such Lease shall not be a revolving line of credit;
(xviii)such Lease shall not have been specifically and separately reserved against by Borrower or Holdings (except for loss provisions that Borrower or Holdings makes as part of its policies in accordance with GAAP), have been the subject of fraud of any kind or deemed charged-off or non-collectible by Holdings, Borrower or Servicer in accordance with standard servicing procedures;
(xix)the form of Portfolio Documents relating to such Lease shall be (i) substantially in the form of the Portfolio Documents in use by Holdings or Borrower as of the Closing Date or as modified in accordance with Schedule 6.8 hereof, (ii) substantially in the form attached hereto as Exhibit D or (iii) otherwise in form and content acceptable to Agent in its sole discretion and approved in advance by Agent in writing, in each case, except as may be required by Applicable Law;
(xx)following the sale of such Lease to Borrower, such Lease shall be 100% owned by Borrower and no other Person (other than Borrower and Agent) owns or claims any legal or beneficial interest therein;
(xxi)the Lease and all other Portfolio Documents requiring the signature of an Account Lessee was signed with a digital or electronic signature that complies with the Uniform Electronic Transaction Act or, as applicable to the jurisdiction governing such Lease, the Electronic Signatures in Global and National Commerce Act (E-Sign Act), including all consumer consent and other applicable provisions thereof;
(xxii)such Lease represents the undisputed, bona fide transaction created by Holdings in the ordinary course of Holdings’ business and completed in accordance with the terms and provisions contained in the related Portfolio Documents;
(xxiii)the Account Lessee thereunder is a resident of the United States and/or its territories;
(xxiv)such Lease and the Inventory related to such Lease has been absolutely sold, transferred and conveyed by Holdings to Borrower and purchased and accepted by Borrower from Holdings, pursuant to the Purchase and Sale Agreement and, after giving effect to such sale, transfer and conveyance, such Lease shall be 100% owned by Borrower and no other Person (other than Borrower) owns or claims any legal or beneficial interest therein;
(xxv)no facts, events or occurrences exist that, in any way, impair the validity or enforcement thereof or tend to reduce the amount payable thereunder from the amount of the Lease shown on any schedule, or on all contracts, invoices or statements delivered to Agent with respect thereto;
(xxvi)all Account Lessees in connection with such Lease were of sufficient age to have the legal capacity to contract at the time any contract or other document giving rise to the Lease was executed and generally have the ability to pay their debts as they become due;
(xxvii) no proceedings or actions are pending, in existence or are, to Borrower’s knowledge, threatened against any Account Lessee with respect to such Lease could reasonably be expected to materially impair such Account Lessee’s ability to perform its obligations under the applicable Lease, provided, that Borrower shall have no obligation to make any inquiry of any Account Lessee regarding the same;
(xxviii) such Lease and the Collateral related to such Lease have not been assigned or pledged to any Person other than Agent, for the benefit of itself and the other Lenders;
(xxix) except as would not result in a failure to satisfy the requirements set forth in clause (xiv) above no instrument of release or waiver has been executed in connection with any Portfolio Document with respect to such Lease, and the Account Lessee in respect of such Lease has not been released from its obligations thereunder, in whole or in part, and no action has been taken by the Borrower to release any collateral from the Portfolio Documents with respect to such Lease;
(xxx)the Account Lessee related to such Lease does not reside in a state for which a Regulatory Trigger Event has occurred and is continuing;
(xxxi)such Lease is not a Defective Lease;
(xxxii)no buyout or repurchase option with respect to such Lease or the Inventory that is the subject of such Lease has been exercised by the Account Lessee related to such Lease;
(xxxiii) the goods that are the subject of such Lease shall consist solely of Inventory and related items;
(xxxiv) the Lease Contract Multiple with respect to such Lease is not less than 1.7x.
(xxxv)such Lease is for the leasing of goods that have been fully delivered, and at the time of delivery were new and in good working order, and for which there are no outstanding disputes;
(xxxvi) the goods which are the subject of such Lease have not been (i) returned to Borrower by the Account Lessee, (ii) repossessed by Borrower, or (iii) acquired by the Account Lessee by exercising any option to acquire said goods;
(xxxvii)such Lease is not a Lease that would cause (a) the Eligible Leases pledged as Collateral with Account Lessees who resided in any single State at the time of the origination of such Lease to exceed thirty percent (30%) (as determined on the basis of the aggregate Current Lease Balances of the Eligible Leases pledged as Collateral) or (b) the Eligible Leases pledged as Collateral with Account Lessees who resided at the time of the origination of such Lease in all of the four (4) States with the highest aggregate Current Lease Balances of the Eligible Leases pledged as Collateral to exceed fifty-five percent (55%) (as determined on the basis of the aggregate Current Lease Balances and the Eligible Leases pledged as Collateral);
(xxxviii) such Lease is not a Lease that would cause Eligible Leases pledged as Collateral originated through (i) the Wayfair Inc. retail partnership to, commencing January 1, 2022, exceed sixty-five percent (65%) or (ii) any other single retail partnership of Borrower, Holdings or Parent Entity to exceed, unless otherwise approved by the Agent in writing, twenty-five percent (25%) (in each case, as determined on the basis of the aggregate Current Lease Balances of the Eligible Leases pledged as Collateral); provided that upon the occurrence of a SPAC Transaction, the limitation with respect to the Wayfair Inc. retail partnership shall no longer apply;
(xxxix) such Lease is not a Lease that would cause the quotient of Original Net Lease Cost to Lease Cost or all Eligible Leases to be less than 95%.
(xl)such Lease is not a Lease that would cause Eligible Leases pledged as Collateral that constitute Unmatured Defaulted Leases to exceed ten percent (10%) (as determined on the basis of the aggregate Current Lease Balances of the Eligible Leases pledged as Collateral);
(xli)such Lease is not a Lease that would cause the average Current Lease Balance of all Eligible Leases to exceed $1,000;
(xlii)such Lease shall have been originated in an Approved State.
“Equity Interests” shall mean, with respect to any Person, its equity ownership interests, its common stock and any other capital stock or other equity ownership units of such Person authorized from time to time, and any other shares, options, interests, participations or other equivalents (however designated) of or in such Person, whether voting or nonvoting, including, without limitation, common stock, options, warrants, preferred stock, phantom stock, membership units (common or preferred), stock appreciation rights, membership unit appreciation rights, convertible notes or debentures, stock purchase rights, membership unit purchase rights and all securities convertible, exercisable or exchangeable, in whole or in part, into any one or more of the foregoing.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
“ERISA Affiliate” shall mean, with respect to any Person, any trade or business (whether or not incorporated) which is treated as a single employer with such Person under Section 414 of the Code or Section 4001 of ERISA.
“Event of Default” shall mean the occurrence of any event set forth in Article VIII.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Excluded Deposit Account” shall mean (i) deposit accounts or trust accounts specifically and exclusively used for payroll, payroll taxes, deferred compensation and other employee wage and benefit payments to or for the direct benefit of a Credit Party’s employees, and (ii) escrow accounts and other accounts holding funds for third parties, including that certain account maintained in the name of Holdings at Silicon Valley Bank having account number 3302893366 so long as it is maintained for the benefit of Holdings’ landlord with respect to the real property located at 27 West 24th Street, Suite 1101, New York, NY 10010.
“Excluded Taxes” shall have the meaning assigned to it in Section 13.8(a) hereof.
“Fair Valuation” shall mean the determination of the value of the consolidated assets of a Person on the basis of the amount which may be realized by a willing seller within a reasonable time through collection or sale of such assets at market value on a going concern basis to an interested buyer who is willing to purchase under ordinary selling conditions in an arm’s length transaction.
“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“First Payment Default Ratio” shall mean, with respect to any Vintage Pool as of the date on which all Leases in such Vintage Pool have had their first Scheduled Payment date occur and, subsequently, thirty (30) calendar days have elapsed, the percentage equivalent of the fraction (a) whose numerator is the number of Pledged Leases comprising such Vintage Pool whose first Scheduled Payment (excluding any Scheduled Payment that was due on the date of origination of a Lease) was thirty (30) calendar days delinquent and (b) whose denominator is the number of all Pledged Leases comprising such Vintage Pool for which, as of the date of determination, have had their first Scheduled Payment date occur and, subsequently, thirty (30) calendar days have elapsed.
“First Payment Default Trigger Event” shall mean the occurrence of any of the following events with respect to the portfolio of Pledged Leases securing the Loan, in each case, to be tested as of the last day of each calendar month but without giving effect to any Vintage Pool created prior to the January 2019 Vintage Pool:
(a) The average First Payment Default Ratio for the three most recent Vintage Pools (excluding the Vintage Pool originated during the month ending on the date of determination (i.e. as of end of December 2019, excluding the December 2019
Vintage Pool)) exceeds the Default Trigger First Payment Default Ratio (Trailing Three Months T+30) set forth on Exhibit H-2; or
(b) The First Payment Default Ratio for any Vintage Pool (excluding the Vintage Pool originated during the month ending on the date of determination (i.e. as of end of December 2019, excluding the December 2019 Vintage Pool)) exceeds the Default Trigger First Payment Default Ratio (T+30) ratio set forth on Exhibit H-1.
“GAAP” shall mean generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Authority” shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia.
“Guarantor” shall mean, at any time, collectively and each individually, all guarantors of the Obligations or any part thereof at such time, including, without limitation, the Payment Guarantors and the Indemnity Guarantors.
“Guaranty” shall mean, collectively and each individually, all guarantees executed by any Guarantors, including, but not limited to, the Payment Guaranty and the Indemnity Guaranty.
“Hedging Transaction” of any Person shall mean (a) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into by such Person that is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, spot transaction, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
“Holdings” shall have the meaning assigned to it in the introductory paragraph hereof.
“Increase OID” shall have the meaning assigned to it Section 3.5(c) hereof.
“Indebtedness” of any Person shall mean, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed (in which case non-recourse Indebtedness, for the purpose of this clause (f), shall be limited to the fair market value of the property subject to such Lien), (g) all Guaranties or other Contingent Obligations by such Person of Indebtedness of others, (h) all capital lease obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
“Indemnified Persons” shall have the meaning assigned to it in Section 12.4 hereof.
“Indemnified Taxes” shall have the meaning assigned to it in Section 13.8(a) hereof.
“Indemnity Guarantor” shall mean each of Holdings, Parent Entity and each other Person party to the Indemnity Guaranty from time to time.
“Indemnity Guaranty” shall mean each Indemnity Guaranty, dated as of the date hereof, made by each Indemnity Guarantor in favor of Agent, as amended from time to time.
“Ineligible Lease” shall mean any Lease that fails at any time to meet all of the criteria set forth in the definition of “Eligible Lease” set forth herein.
“Ineligible Transferee” shall have the meaning assigned to it in Section 12.2(a) hereof.
“Initial Term Loan Funding Date” means, the date that the initial Term Loan is funded hereunder.
“Insured Event” shall have the meaning assigned to it in Section 12.4 hereof.
“Interest Reserve Account” shall mean that certain deposit account at Silicon Valley Bank held in the name of Holdings, with account number 3302706538, funded solely via capital contributions from the direct and indirect holders of its Equity Interests, which shall at all times contain cumulative gross deposits since the Closing Date in an amount equal to or greater than the product of (a) the sum of (i) one and (ii) the months that have elapsed since the Closing Date and (b) $75,000.00.
“Inventory” shall mean furniture, household furnishings, appliances, consumer electronics (including cell phones), fitness equipment, tools and/or other moveable but non-perishable goods, together with accessories related thereto.
“Key Man Trigger Event” shall mean the failure of Orlando Zayas to be the Chief Executive Officer of Holdings, unless a successor chief executive officer approved by the Agent is appointed within ninety (90) days thereafter.
“Lease Contract Multiple” shall mean, for each Pledged Lease, quotient of (a) the aggregate dollar amount of the scheduled payments (excluding upfront payments, application fees, and/or merchant discounts) owed by an Account Lessee over the term of such Pledged Lease and (b) the Lease Cost of such Pledged Lease.
“Lease Cost” shall mean, for any Pledged Lease, the total purchase price paid (excluding any delivery, installation and warranty costs charged to the applicable Account Lessee) by Holdings to purchase the Inventory that is the subject of such Pledged Lease at the origination of such Pledged Lease.
“Lease Term” shall mean, with respect to any Pledged Lease, the original term of the Lease to expiration calculated in calendar months.
“Leases” shall mean all rights to payment (including, without limitation, the Scheduled Payments) owing by an Account Lessee in respect of a lease or leases, lease-to-own or other financial accommodations made or extended by Borrower (or a predecessor in interest, including, without limitation, Holdings) to or for the benefit of such Account Lessee in connection with the purchase of Inventory. Any such Lease shall include, without limitation, all rights (including payment rights and enforcement rights), claims and entitlements under or pursuant to all related Portfolio Documents in respect thereof, and all supporting obligations in connection therewith.
“Lender” and “Lenders” shall have the meanings assigned to them in the introductory paragraph hereof.
“Lender Addition Agreement” shall have the meaning assigned to it in Section 12.2(a) hereof.
“Lending Office” shall mean the office or offices of any Lender set forth opposite its name on the signature page hereto, as updated from time to time.
“LIBOR Rate” shall mean, in respect of any calendar month, a rate per annum rounded upwards, if necessary, to the nearest 1/1000 of 1% (3 decimal places) equal to the rate of interest which is identified and normally published by Bloomberg Professional Service page USD-LIBOR-ICE (or any equivalent page used by Bloomberg Professional Service from time to time or, if Bloomberg Professional Service no longer reports the LIBOR Rate, another nationally-recognized rate reporting source acceptable to Agent) as the offered rate for loans in United States dollars for a one (1) month period as of 11:00 a.m. (London time) first calendar day of such month (or, in the case of the month that includes the date hereof, the date hereof). If (i) Bloomberg Professional Service (or another nationally-recognized rate reporting source acceptable to Agent) no longer reports the LIBOR Rate or (ii) Agent determines in good faith that the rate so reported no longer accurately reflects the rate available to Agent in the London Interbank Market or (iii) if such index no longer exists or if page USD-LIBOR-ICE no longer exists or accurately reflects the rate available to Agent in the London Interbank Market, then in each case of the foregoing clauses (i) through (iii), Agent may select a comparable replacement index or replacement page, as the case may be, (provided that such replacement rate is approved by the Borrower (which approval shall not be unreasonably withheld or delayed); provided that (a) in the case that the conditions set forth in the foregoing clause (i) through (iii) are likely to continue to occur or exist for an indefinite time frame or (b) the supervisor for the administrator of the screen rate used by the Agent pursuant this definition or a Governmental Authority having jurisdiction over the Agent, in each case, has made a public statement identifying a specific date after which such screen rate shall no longer be used or published for determining interest rates for loans, in the case of the foregoing clauses (a) and (b), Agent in its Permitted Discretion, may select a comparable replacement index or replacement page that gives due consideration to the
then prevailing market convention for determining a rate of interest for privately placed secured loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable to effect a comparable overall yield to that which was in place immediately prior to the occurrence of any of the foregoing events described by clauses (i) through (iii) in the foregoing clause (provided that such replacement rate and amendments are approved by the Borrower (which approval shall not be unreasonably withheld or delayed). Notwithstanding the foregoing, in no event shall the LIBOR Rate with respect to (x) the Revolving Calculated Rate be less than two percent (2.00%) at any time and (y) with respect to the Term Loan Calculated Rate be less than one percent (1.00%) at any time.
“Lien” shall mean any mortgage, deed of trust, deed to secure debt, or pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested in some other Person for security purposes.
“Liquidity” means, as of any date of determination, the amount of unrestricted cash on hand of Parent Entity and its Subsidiaries as of such date.
“Loan” shall mean, collectively, the Term Loan, each Revolving Advance made by Lenders to the Borrower, any Protective Advances or other Advances by Agent or Lenders pursuant to the terms hereof, and all Obligations related thereto.
“Loan Documents” shall mean, collectively and each individually, this Agreement, the Notes, the Security Documents, each Servicing Agreement, the Backup Servicing Agreement, the Borrowing Base Certificate, the Collateral Account Control Agreement, any other blocked account agreement or account control agreement and all other agreements, documents, instruments and certificates heretofore or hereafter executed or delivered to Agent and/or Lenders in connection with any of the foregoing or the Loan, as the same may be amended, modified or supplemented from time to time.
“Major Credit Card” shall mean a bank card issued by any VISA USA, Inc., MasterCard International Incorporated, American Express Company or Discover Bank.
“Material Agreements” shall mean (a) all instruments, agreements, indentures or notes governing the terms of any Indebtedness, (b) the Purchase and Sale Agreement, (c) the Servicing Agreement and (d) all other agreements, documents, contracts, indentures and instruments (i) involving the performance of services, delivery of goods or materials, or payments by or to the applicable Person of an amount or value in excess of $500,000 in the aggregate per year for agreements of Borrower and $1,000,000 in the aggregate per year for agreements of any other Credit Party, other than (i) leases of real property, (ii) merchant service agreements, (iii) payment processing agreements, (vi) professional service contract, (vii) service agreements (including with respect to software and other information technology), and (viii) employment agreements or (ii) of which a default, breach or termination could reasonably be expected to result in a Material Adverse Effect.
“Material Adverse Effect” shall mean any event, condition, obligation, liability or circumstance or set of events, conditions, obligations, liabilities or circumstances or any change(s) which:
(i) has had or reasonably could be expected to have a material adverse effect upon or change in (a) the legality, validity or enforceability of any Loan Document, (b) the perfection or priority of any Lien granted to Agent or any
Lender under any of the Security Documents or (c) the value, validity, enforceability or collectability of a material portion of the Pledged Leases or any of the other Collateral;
(ii) has been or reasonably could be expected to be material and adverse to the value of the business, operations, properties, assets, liabilities or financial condition of any Credit Party; or
(iii) has materially impaired or reasonably could be expected to materially impair the ability of the Credit Parties to perform any of the Obligations or their obligations under the Loan Documents.
“Material Modification” means any modification of a Lease that would (a) forgive any scheduled repayment, (b) reduce the interest rate, (c) reduce the Current Lease Balance of the Lease or (d) be materially adverse to Agent and/or Lenders.
“Maturity Date” shall mean the date that is three (3) years after the Initial Term Loan Funding Date; provided that if the Initial Term Loan Funding Date has not occurred by December 4, 2020, or such later date as permitted by Agent in its sole discretion, the “Maturity Date” shall mean the earlier to occur of (x) May 14, 2023 and (y) at the Agent’s option any date that is within the six (6) month period preceding the earliest maturity date of any existing or future Significant Debt Facility of Parent Entity, Holdings and/or any of their Subsidiaries so long as the Agent has identified such “Maturity Date” and given Borrower not less than one hundred twenty (120) calendar days prior written notice in advance of its designation under this clause (x).
“Maximum Revolving Loan Amount” shall mean at any time the aggregate amount of the Revolving Loan Commitments held by all Lenders at such time.
“Maximum Rate” shall mean the highest lawful and non-usurious rate of interest applicable to the Loan, that at any time or from time to time may be contracted for, taken, reserved, charged, or received on the Loan and the Obligations under the laws of the United States and the laws of such states as may be applicable thereto, that are in effect or, to the extent allowed by such laws, that may be hereafter in effect and that allow a higher maximum nonusurious and lawful interest rate than would any Applicable Laws now allow.
“Minimum Utilization Additional Interest” shall have the meaning set forth in Section 3.6 hereof.
“Minimum Utilization Ratio” shall mean, for the periods described in the table below, the applicable percentage set forth below for such period:
| | | | | |
| Period | Minimum Utilization Ratio |
| Each of the first twelve (12) months following the Closing Date | 0% |
| Each of the months occurring thirteen (13) months following the Closing Date through (and including) twenty-four (24) months following the Closing Date | 25% |
| Each of the months occurring twenty five (25) months following the Closing Date through (and including) the end of the Maturity Date | 50% |
“Monthly Servicing Report” shall mean each monthly report prepared by the Servicer in accordance with the Servicing Agreement substantially in the form of Exhibit C attached hereto.
“Ninth Amendment” means that certain Ninth Amendment to Loan and Security Agreement, dated as of the Ninth Amendment Effective Date.
“Ninth Amendment Effective Date” means December 4, 2020.
“Non-Consenting Lender” shall have the meaning assigned to it in Section 10.4(d).
“Non-Funding Lender” shall have the meaning assigned to it in Section 13.7.
“Note(s)” shall mean, individually and collectively, any Notes payable to the order of the Agent, for the benefit of Lenders, or payable to a Lender, executed by Borrower evidencing the Loan, as the same may be amended, modified, supplemented and/or restated from time to time.
“Obligations” shall mean, without duplication, all present and future obligations, Indebtedness and liabilities of Borrower to Agent and Lenders at any time and from time to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent, due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, under any of the Loan Documents or otherwise relating to this Agreement, any Notes and/or the Loan, including, without limitation, principal, interest (including PIK Interest), all applicable fees, charges and expenses and/or all amounts paid or advanced by Agent or a Lender on behalf of or for the benefit of Borrower for any reason at any time, and including, in each case, obligations of performance as well as obligations of payment and interest that accrue after the commencement of any proceeding under any Debtor Relief Law by or against Borrower.
“OFAC” shall mean the U.S. Department of Treasury’s Office of Foreign Asset Control.
“Original Net Lease Cost” shall mean, for each Lease, the difference between (a) the total retail price charged to the Account Lessee (including any delivery, installation and warranty costs) related to such Lease and (b) any upfront Account Lessee payments (including, but not limited to, application fees), and merchant discounts associated with such Lease.
“Other Lender” shall have the meaning assigned to it in Section 13.7 hereof.
“Other Taxes” shall have the meaning assigned to it in Section 13.8(b) hereof.
“PAC” shall mean an arrangement whereby an Account Lessee makes Scheduled Payments under a Pledged Lease via pre-authorized debit.
“Parent Consolidated Net Income” shall mean, for any period, an amount equal to (a) the net income (or loss) of the Parent Entity and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, minus (b) any net extraordinary, nonrecurring or unusual gains, plus (c) any net extraordinary, nonrecurring or unusual losses not to exceed five percent (5%) of “Parent Consolidated Net Income”. For the avoidance of doubt, any net extraordinary, nonrecurring or unusual losses beyond five percent (5%) of “Parent Consolidated Net Income” shall be subject to the approval of Agent in its Permitted Discretion.
“Parent Entity” shall have the meaning assigned to it in the introductory paragraph hereof.
“Parent Entity Co-Sale Agreement” shall mean that certain Amended and Restated Right of First Refusal and Co-Sale Agreement dated as of April 12, 2019 by and among the Parent Entity, the investors listed on Exhibit A thereto, and the key holders listed on Exhibit B thereto, as amended by that certain Omnibus Amendment to Series C Investment Documents dated as of September 18, 2020 with an effective date of April 12, 2019, as the same may be otherwise amended, restated, supplemented or otherwise modified from time to time.
“Participant” shall have the meaning assigned to it in Section 12.2(b) hereof.
“Patriot Act” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56, as amended.
“Payment Date” shall mean the Wednesday of each calendar week that the Loans are outstanding, or if such day is not a Business Day, on the next succeeding Business Day.
“Payment Guarantor” shall mean each of Holdings, Parent Entity, each subsidiary of Holdings (other than Borrower) and each other Person party to the Payment Guaranty from time to time.
“Payment Guaranty” shall mean that certain Payment Guaranty and Security Agreement dated as of the date hereof made by Holdings, Parent Entity and each subsidiary of Holdings (other than Borrower) from time to time party thereto, in favor of Agent, as amended from time to time.
“Permit” shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations and approvals.
“Permitted Discretion” shall mean a determination or judgment made in good faith in the exercise of reasonable (from the perspective of a secured lender) credit or business judgment.
“Permitted Indebtedness” shall mean: (a) the Obligations; (b) existing Indebtedness listed on Schedule 7.1 hereof; (c) Indebtedness consisting of Permitted Loans made by one or more Credit Parties to any other Credit Party; (d) interest rate hedges that are entered into by Credit Parties to hedge their risks with respect to outstanding Indebtedness of Credit Parties and not for speculative or investment purposes; (e) trade debt incurred in the ordinary course of business, (f) subject to the terms thereof, Indebtedness permitted under Section 2.13(d) and indemnity guarantees of any such Indebtedness and (g) unsecured Indebtedness in respect of financing insurance premiums in the ordinary course of business.
“Permitted Liens” shall mean Liens of Borrower permitted under Section 7.2 hereof.
“Permitted Loan” shall mean, with respect to any Credit Party, an intercompany loan owed by such Credit Party to another Credit Party, which intercompany loan is subject to a subordination agreement substantially in form and substance satisfactory to Agent in its Permitted Discretion.
“Person” shall mean an individual, a partnership, a corporation, a limited liability company, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature.
“PIK Interest” shall mean interest that is paid in kind, and not in cash, by capitalizing such interest as principal of the outstanding Loan as provided herein.
“Pledge Agreement” shall mean that certain Pledge Agreement made by Holdings in favor of Agent, as the same may be amended, modified, supplemented and/or restated from time to time.
“Pledged Leases” shall mean each Lease pledged as Collateral hereunder in accordance with Section 2.8 hereof or any other Loan Document. For the avoidance of doubt, the term “Pledged Leases” shall not include any Third Party Serviced Lease.
“Portfolio Documents” shall mean, collectively, any Lease or contract, and any other agreement or document executed and delivered by an Account Lessee in connection with such Lease to or for the benefit of Holdings or any subsequent transferee thereof, including renewals, extensions, modifications and amendments thereof.
“Positive Net Income Trigger Date” shall mean the earliest date on which the Borrower has furnished to Agent financial statements that evidence that the Trailing Six Month Parent Consolidated Net Income has been greater than zero for three (3) consecutive calendar months.
“Prepayment Date” shall mean (i) the date specified in any notice of prepayment delivered to the Agent in accordance with Section 2.5(b) or Section 2.5(c) or the date of any prepayment pursuant to Section 2.6(a) or Section 2.6(b).
“Pro Rata Share” shall mean, (a) with respect to any Lender as to all Lenders holding Revolving Loan Commitments, the percentage obtained by dividing (i) the aggregate amount of the Revolving Loan Advances outstanding made by such Lender by (ii) the aggregate amount of all the Revolving Loan Advances outstanding, as such percentage may be adjusted by assignments as permitted hereunder; provided, however, that if no Revolving Loan Advances are outstanding, then the percentage shall be obtained by dividing (i) the Revolving Loan Commitment held by such Lender by (ii) the aggregate amount of all of the Revolving Loan Commitments and (b) with respect to any Lender as to all Lenders holding Term Loan Commitments, the percentage obtained by dividing (i) the Term Loan Commitment held by such Lender by (ii) the aggregate amount of all of the Term Loan Commitments.
“Protective Advance” shall have the meaning assigned to it Section 2.7(b).
“Public Company Transition Date” shall mean the date on which the Parent Entity becomes subject to the periodic reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended following an initial public offering or a SPAC Transaction.
“Purchase and Sale Agreement” shall mean that certain Master Purchase and Sale Agreement, dated as of the Closing Date, by and between Holdings, as seller of the Pledged Leases, and Borrower, as purchaser of the Pledged Leases, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.
“Receipt” shall have the meaning assigned to it in Section 12.5 hereof.
“Register” shall have the meaning assigned to it in Section 12.2(c) hereof.
“Regulatory Trigger Event” shall mean (x) a “Level One Regulatory Trigger Event” which shall mean, the commencement by any Governmental Authority of any formal inquiry or investigation (which for the avoidance of doubt excludes any Routine Inquiry), legal action or
proceeding, against (i) any of Borrower, Holdings, Servicer, any third party that has been engaged by Servicer as a sub-servicer or any of Borrower’s Affiliates challenging its authority to originate, hold, own, service, collect, pledge or enforce any Pledged Lease with respect to the residents of any state, or otherwise alleging any non-compliance by any of Borrower, Holdings, Servicer, any third party that has been engaged by Servicer as a sub-servicer or any of Borrower’s Affiliates with such state’s Applicable Laws related to originating, holding, collecting, pledging, servicing or enforcing such Pledged Leases or otherwise related to such Pledged Leases; (ii) any of Borrower, Holdings, Servicer, any third party that has been engaged by Servicer or as a sub-servicer or any of Borrower’s Affiliates, relating to the operation of its business; or (iii) the consumer leasing industry or consumer retail installment contract industry or any member of such industries, which the Agent, in its Permitted Discretion, believes would have a material adverse effect on either of such industries, as a whole, which inquiry, investigation, legal action or proceeding is not released or terminated in a manner acceptable to Agent in its Permitted Discretion within forty-five (45) calendar days of commencement thereof or (y) a “Level Two Regulatory Trigger Event” which shall mean the issuance or entering of any stay, order, judgment, cease and desist order, injunction, temporary restraining order, or other judicial or non-judicial sanction, order or ruling against any of Borrower, Holdings, Servicer, any third party that has been engaged by Servicer as a sub-servicer or any of Borrower’s Affiliates related in any way to the originating, holding, collecting, pledging, servicing or enforcing of any Pledged Leases or rendering the Purchase and Sale Agreement or Portfolio Documents unenforceable in such state; provided, that, in each case, upon the favorable resolution of such inquiry, investigation, action or proceeding as determined by Agent in its Permitted Discretion and confirmed by written notice from Agent (whether by judgment, withdrawal of such action or proceeding or settlement of such action or proceeding), such Regulatory Trigger Event for such Governmental Authority shall cease to exist immediately upon such determination by Agent.
“Release Price” shall mean an amount equal to the then Current Lease Balance of the Pledged Lease as of the close of business on the last Business Day of the Due Period relating to the Payment Date immediately preceding the date on which the release is to be made.
“Request for Revolving Advance” shall have the meaning assigned to it in Section 4.2(a) hereof.
“Required Loan Overadvance Principal Payment” shall mean, with respect to any Payment Date, the positive difference, if any, as of the last day of the calendar week immediately preceding such Payment Date of (a) the outstanding principal balance of the Revolving Advances (prior to giving effect to any payments to be made on such Payment Date) minus (b) the Borrowing Base.
“Requisite Lenders” shall mean at any time Lenders then holding fifty-one percent (51%) or more of the aggregate amount of the Advances then outstanding, provided, that at any time that Agent and its Affiliates collectively own more than thirty five percent (35%) or more of the aggregate amount of the Advances then outstanding, then Requisite Lenders must include Agent and any matter requiring the consent or approval of Requisite Lenders shall require the consent or approval of Agent.
“Responsible Officer” shall mean the chief executive officer, chief financial officer or the president of Borrower, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants or delivery of financial information, the chief financial officer, the treasurer or the controller of Borrower, or any other officer having substantially the same authority and responsibility, and in all cases such person shall be listed on an incumbency certificate delivered to Agent, in form and substance acceptable to Agent in its sole discretion.
“Revolving Advance” or “Revolving Loan Advance” shall have the meaning assigned to it in Section 2.1 hereof.
“Revolving Advance Prepayment Additional Interest” shall mean additional interest payable to Agent upon any Prepayment Date with respect to the Revolving Advances in an amount equal to (i) if such Prepayment Date occurs after the Revolving Lockout Period Termination Date but on or prior to the thirty-six (36) month anniversary of the Closing Date, five percent (5.0%) of the then applicable Maximum Revolving Loan Amount, or (ii) if such Prepayment Date occurs after the thirty-six month anniversary of the Closing Date but on or prior to the forty-two month anniversary of the Closing Date, three percent (3.0%) of the of the then applicable Maximum Revolving Loan Amount; provided, that if such prepayment is made pursuant to a refinancing of the Loan by Agent or any of its Affiliates, the Revolving Advance Prepayment Additional Interest for such prepayment shall be fifty percent (50%) of the amounts provided above.
“Revolving Credit Period” shall mean the period beginning on the Closing Date and ending on the Maturity Date, unless terminated earlier in accordance with the provisions hereof.
“Revolving Commitment Lockout Period Additional Interest” shall mean additional interest payable to Agent upon any prepayment of the Loan contemplated by Section 2.5(b) or Section 2.6(a) occurring prior to the Revolving Lockout Period Termination Date, in an amount equal to the sum of (i) five percent (5.0%) of the then applicable Maximum Revolving Loan Amount plus (ii) an amount equal to the amount of interest that would have accrued on the sum of the principal balance of the Revolving Advances plus projected further utilization of the Loan hereunder (as determined by Agent in its Permitted Discretion), from such date of prepayment to May 14, 2021, at a per annum rate equal to the Revolving Calculated Rate.
“Revolving Lockout Period Termination Date” has the meaning given to such term in Section 2.5(c).
“Revolving Loan Commitment” shall mean the commitment of a Class A Lender to make or otherwise fund Revolving Loan Advances and “Revolving Loan Commitments” shall mean such commitments of all Lenders to fund Revolving Loan Advances in the aggregate. The amount of each Lender’s Revolving Loan Commitment, if any, is set forth on Schedule B attached hereto, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Loan Commitments as of the Eighth Amendment Effective Date is $125,000,000.00, provided, that, upon the election of the Agent and any Lenders that elect to increase their Revolving Loan Commitment, pursuant to Section 2.13, the Revolving Loan Commitments may be increased incrementally up to, but shall never exceed, $250,000,000.
“ROFR Share Repurchases” “shall have the meaning assigned to it Section 7.4.
“Routine Inquiry” shall mean, without limitation, any inquiry, written or otherwise, made by a competent Governmental Authority with legal authority to regulate the activities of Borrower, Holdings or their respective Affiliates with respect to the Leases, made via a form letter or otherwise in connection with the routine transmittal of a consumer complaint or an alleged failure to comply with such State’s lending licensing requirements or its deferred deposit or “payday” lending laws or similar laws that are not applicable to Borrower, Holdings or their respective Affiliates with respect to the Leases.
“Scheduled Payment” shall mean the originally scheduled weekly, bi-weekly or monthly payment by or on behalf of an Account Lessee on a Lease.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Security Documents” shall mean this Agreement, each Guaranty, the Collateral Assignment of Purchase Agreement, the Pledge Agreement, UCC financing statements, the Collateral Account Control Agreement, other agreements related to Deposit Accounts, and all other documents or instruments necessary to create or perfect the Liens in the Collateral, as such may be modified, amended or supplemented from time to time.
“Servicer” shall mean Holdings or such other Person, prior to the occurrence of an Event of Default, designated and engaged by the Borrower and approved by Agent (including, without limitation, Advensus).
“Servicer Default” shall mean a “Servicer Event of Default” as such term is defined in the Servicing Agreement.
“Servicer Physical Payment Address” shall have the meaning assigned to it in Section 2.3(a) hereof.
“Servicing Agreement” shall mean (a) that certain Servicing Agreement, dated as of the Closing Date, by and among the Borrower, Holdings and Agent, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time and (b) each other agreement pursuant to which Pledged Leases will be serviced and administered in accordance with the terms of this Agreement.
“Servicing Fee” shall mean the fee payable monthly to Holdings pursuant to the Servicing Agreement, which shall be equal to the product of (i) three percent (3%) and (ii) the sum of the amounts described in clauses (a), (c) and (e) of the definition of “Available Amounts” collected by Servicer during the calendar month immediately preceding the Payment Date on which fee is to be paid to the Servicer.
“Servicing Policy” means servicing, collections and payment plan policies of each Servicer, copies of which are attached hereto as Exhibit G, as such policies may be amended from time to time in compliance with the applicable Servicing Agreement.
“Settlement Date” shall have the meaning assigned to it in Section 13.5(a)(ii) hereof.
“Significant Debt Facility” shall mean any credit facility, note, agreement or indenture or other debt instrument evidencing Indebtedness of Parent Entity or Holdings and/or their Subsidiaries in excess of $1,000,000 (all indebtedness (x) made on substantially the same terms and (y) held by the same lenders or Affiliates of such lenders shall be considered in totality when calculating compliance with this threshold.
“Solvency Certificate” shall have the meaning assigned to it in Section 4.1(e) hereof.
“SPAC Transaction” means a business combination transaction or series of transactions whereby the Parent Entity or a newly formed holding company of the Parent Entity formed to facilitate such transaction or series of transactions is acquired by or combined with any special purpose acquisition company (SPAC) or one or more newly formed merger subsidiaries of such special purpose acquisition company (SPAC), with the purpose of taking, directly or indirectly, the Parent Entity public without going through the traditional initial public offering process. To the extent there is any inconsistency between this definition and the definition of “SPAC Transaction” in any other Loan Document, including, without limitation, the Warrants, this definition shall control. For the sake of clarity, a SPAC Transaction includes the Anticipated SPAC Transaction.
“Specified Regulatory Change” means a legal or regulatory change, the effect of which is to materially and adversely impair the ability of any Borrower, Holdings or Parent Entity to originate, own, hold, pledge, service, collect or enforce the Pledged Leases or similar assets.
“Subsidiary” shall mean, as to any Person, any other Person in which more than fifty percent (50%) of all Voting Equity Interests is owned directly or indirectly by such Person or one or more of its Subsidiaries.
“Tangible Net Worth” shall mean, for any Person, without duplication, an amount equal to, such Person’s (a) total assets, minus (b) capitalized information technology expenses, capitalized transaction expense and other capitalized expenses, minus (c) prepaid expenses, minus (d) other intangible assets, minus (e) total liabilities. For the avoidance of doubt the calculation of the Tangible Net Worth hereunder shall be made without including any accrued and unpaid PIK Interest.
“Tangible Net Worth to Term Loan Ratio” means the ratio of (a) Tangible Net Worth of Parent Entity and its Subsidiaries, on a consolidated basis, to (b) the outstanding principal balance of the Term Loan (including PIK Interest).
“Taxes” shall mean present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (including penalties, interest and additions to tax), imposed by any Governmental Authority.
“Termination Date” shall have the meaning assigned to it in Section 11.1 hereof.
“Term Loan” shall have the meaning assigned to it in Section 2.1 hereof.
“Term Loan Commitment” shall mean, as to any Class B Lender, the obligation of such Lender (if applicable), to make its Term Loan on the Initial Term Loan Funding Date. The amount of each Lender’s Term Loan Commitment, if any, is set forth on Schedule B attached hereto, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Term Loan Commitments as of the Ninth Amendment Effective Date is $50,000,000.00.
“Term Loan Lockout Period Additional Interest” shall mean additional interest payable to Agent upon any prepayment of the Term Loan for any reason prior to the Class B Lockout Period Termination Date, in an amount equal to (i) $1,000,000.00 plus (ii) the amount of interest that would have accrued on the sum of the principal balance of the Term Loan from such date of prepayment to and including the Class B Lockout Period Termination Date, at a per annum rate equal to the Term Loan Calculated Rate.
“Term Loan Prepayment Additional Interest” shall mean additional interest payable to Agent upon any Prepayment Date with respect to the Term Loan in an amount equal to (i) if such Prepayment Date occurs after the Class B Lockout Period Termination Date but on or prior to the twenty-four (24) month anniversary of the Initial Term Loan Funding Date, $1,000,000.00, (ii) if such Prepayment Date occurs after the twenty-four (24) month anniversary of the Initial Term Loan Funding Date but on or prior to the thirty (30) month anniversary of the Initial Term Loan Funding Date, $500,000.00 or (iii) if such Prepayment Date occurs after the date that is thirty (30) months after the Initial Term Loan Funding Date, $0.00.
“Third Party Serviced Lease” shall mean any Lease originated through Holdings’ origination platform on behalf of a third-party (including Metro PCS) and serviced by Holdings.
“Total Advance Rate” shall mean, as of any date of determination, a percentage equal to the quotient of (a) the sum of (i) the difference between (x) the total principal amount outstanding under the Term Loan as of such date and (y) $20,000,000 plus (ii) the total amount of Revolving Loan Advances outstanding as of such date divided, by (b) the aggregate Adjusted Current Lease Balance for all Eligible Leases pledged hereunder.
“Trailing Six Month Parent Consolidated Net Income” shall mean the sum of the Parent Consolidated Net Income for the prior six (6) calendar month period.
“Transferee” shall have the meaning assigned to it in Section 12.2(a) hereof.
“TTM Adjusted EBITDA” shall mean, as of each month end, as calculated for Parent Entity on a consolidated basis, the sum of (a) the total Parent Consolidated Net Income during the proceeding twelve months, plus (b) the total interest expense of Parent Entity and its consolidated subsidiaries accrued and all other debt issuance costs incurred by Parent Entity and its consolidated subsidiaries during the proceeding twelve months, plus (c) the total tax expense accrued by Parent Entity and its consolidated subsidiaries during the proceeding twelve months, plus (d) the total depreciation and amortization expense accrued by Parent Entity and its consolidated subsidiaries during the proceeding twelve months plus (e) all non-cash stock compensation and warrant expenses.
“UCC” shall mean the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” shall mean the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
“Underwriting Guidelines” shall mean Holdings’ customary credit and underwriting and guidelines as set forth in its underwriting model, a copy of each is attached hereto as Exhibit E, as such guidelines are amended from time to time with the consent of Agent (which consent may be provided in Agent’s Permitted Discretion), provided, that any material amendments thereto shall be subject to Agent’s consent, which may be granted in Agent’s Permitted Discretion.
“Unrelated Connections” shall have the meaning assigned to it in Section 13.8(a) hereof.
“Unmatured Defaulted Lease” shall mean any Pledged Lease for which any portion of a Scheduled Payment (without giving effect to any modifications of such Pledged Lease after the date such Pledged Lease was first pledged hereunder or under any other Loan Document) is delinquent more than thirty (30) but less than sixty (60) days.
“Utilization Ratio” shall mean, as of any date of determination, the percentage calculated as (a) the total outstanding principal balance of the Loans as of such date, divided by (b) the then applicable Maximum Revolving Loan Amount.
“Verification Certificate” shall mean the original certificate in the form annexed to the Backup Servicing Agreement, duly completed and signed by the Backup Servicer.
“Verification Deliverables” shall mean:
with respect to each Pledged Lease:
(a) an electronic schedule in a format described in the Backup Servicing Agreement containing a list of the proposed Leases to be pledged to Agent
as Collateral for the Loan (including such Pledged Lease), and account information with respect thereto;
(b) complete and accurate copy of the electronic record of the original electronic credit application, Lease and the electronic signature by the related Account Lessee, and which shall originally be payable to Holdings and, with respect to each electronic Lease, a bill of sale (or other documentation acceptable to Agent in its Permitted Discretion) which evidences a complete chain of title and ownership from Holdings to Borrower, and such other documentation evidencing the pledge from Borrower in favor of Agent, all as further provided in the Backup Servicing Agreement;
(c) electronic copies of all other agreements and documents relating to such Lease; and
(d) a copy of each of the credit application, truth-in-lending disclosure, credit report and similar information provided by or related to each Account Lessee for such Lease; and
(e) such other documents not otherwise described above as Agent, as specified in writing to Borrower, may reasonably require from time to time.
“Vintage Pool” shall mean and refers to, at any given time, all Pledged Leases that were originated in a particular fiscal month. By way of example, and not by way of limitation, all Pledged Leases that were originated in a single fiscal month shall constitute one Vintage Pool, regardless of when Borrower purchases said Pledged Leases from Holdings.
“Voting Equity Interests” means, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right to so vote has been suspended by the happening of such contingency.
“VPC Bridge Notes” shall mean each of the promissory notes made by Holdings in favor of Victory Park Capital Management listed on Schedule 1.1(b) hereof.
“Warrants” means the Warrant issued by Holdings to Agent on or before the Ninth Amendment Effective Date, as amended, restated, supplemented or otherwise modified from time to time.
LOAN, PAYMENTS, INTEREST AND COLLATERAL
The Revolving Loan Advances; Term Loan
Revolving Loan Advances. Subject to the provisions of this Agreement, including, without limitation satisfaction or waiver in writing by Agent of all conditions set forth in Article IV hereof, each Lender severally agrees to make Advances (or to request Agent to make Agent Advances pursuant to Section 13.4(b)) up to such Lender’s respective Revolving Loan Commitment to Borrower under the Loan from time to time on or prior to the last day of the Revolving Credit Period (collectively, the “Revolving Advances” or the “Revolving Loan Advances”). Each Revolving Loan Advance shall be made in an amount requested by Borrower not to exceed the Availability as of such date of determination by deposit into a Deposit Account designated by Borrower; provided, that under no circumstances shall the outstanding amount of
the Revolving Loan Advances exceed the Maximum Revolving Loan Amount, and provided, further, no Lender shall be obligated to provide funding for any Revolving Loan Advance that would increase the aggregate of all outstanding amounts funded by such Lender (including any Revolving Loan Advances made by any predecessor in interest to such Lender) to an amount in excess of the stated principal amount of that Lender’s Note or such Lender’s Revolving Loan Commitment. Unless otherwise permitted by Agent, each Revolving Loan Advance shall be in an amount of at least Two Hundred Fifty Thousand Dollars ($250,000). No more than one (1) Revolving Loan Advance may be made hereunder in any calendar week. Any such request for a Revolving Loan Advance by Borrower must be made by 1:00 p.m. EST two (2) Business Days prior to the proposed borrowing date and shall contain a certification from an officer of Borrower representing that all conditions precedent to the funding of such Revolving Advance contained herein are satisfied. Subject to the terms hereof Revolving Advances may be repaid and re-borrowed prior to the expiration of the Revolving Credit Period. The failure of any Lender to make any Advance required to be made by it shall not relieve any other Lender of its obligations hereunder; provided, that the Revolving Loan Commitment of each Lender is several and no Lender shall be responsible for any other Lender’s failure to make required Advances. Notwithstanding anything else herein to the contrary, no Revolving Loan Advances shall be made or requested after the last day of the Revolving Credit Period. In connection with the initial Revolving Advance made to Borrower on or after the Closing Date, Agent shall retain (for the benefit of Lenders), the OID required to be paid in accordance with Section 3.5(a). In the event the Maximum Revolving Loan Amount is increased in accordance with Section 2.14 hereof, Agent may retain (for the benefit of Lenders) from the next Revolving Advance made to Borrower, any Increase OID required to be paid in accordance with Section 3.5(b) or (c) hereof from the Revolving Loan Advance(s) following such increase.
Term Loan. Subject to the terms and conditions of this Agreement, each Class B Lender, severally and not jointly, will make a term loan to Borrowers in the amount equal to such Lender’s Pro Rata Share of the Term Loan Commitments (the “Term Loan”). Subject to the satisfaction of the conditions set forth in Section 4.3 hereof, the Term Loan shall be advanced on the Initial Term Loan Funding Date. The Term Loan shall be, with respect to principal, payable in full on the Maturity Date.
Notes. The Advances made by each Lender shall, to the extent requested by a Lender, be evidenced by a promissory note payable to the order of such Lender, substantially in the form of Exhibit B-1 with respect to Revolving Loan Advances and Exhibit B-2 with respect Advances of the Term Loan (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, a “Note”), executed by Borrower and delivered to the Agent on the Closing Date or Ninth Amendment Effective Date as applicable (or after the Closing Date or Ninth Amendment Effective Date in respect of any assignee of a Lender who becomes a Lender pursuant to Section 12.2 or any Lender who requests a Note after the Closing Date). The Note payable to the order of a Lender shall be in a stated maximum principal amount equal to such Lender’s applicable Revolving Loan Commitment or Term Loan Commitment as applicable.
Payment of the Loan. Borrower shall repay the Loan pursuant to and in accordance with the terms of this Agreement and the Notes evidencing the Loans. Each Revolving Advance shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date. All other amounts outstanding under the Loan and all other Obligations under the Loan shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date.
Promptly following receipt of a Request for Revolving Advance in accordance with Section 4.2(a) and all other deliverables described therein, Agent shall advise each Class A Lender of the details thereof and of the amount of such Class A Lender’s Revolving Advance to
be made as a part of the requested Revolving Advance. Each Class A Lender shall make each Revolving Advance to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon (New York City time) to the account of Agent most recently designated by it for such purpose by notice to Lenders. Unless Agent shall have received notice from a Class A Lender prior to the proposed date of any Revolving Advance that such Class A Lender will not make available to Agent such Class A Lender’s share of such Revolving Advance, Agent may assume that such Class A Lender has made such share available on such date in accordance with the previous sentence and may, in reliance upon such assumption, make available to Borrower a corresponding amount. In lieu of the foregoing, Agent may, on behalf of any Class A Lender, make, or cause Lender that is an Affiliate of Agent to make, Revolving Advances hereunder upon satisfaction of the provisions of Section 4.2(a). Each Class A Lender shall, upon demand, reimburse Agent (or such Affiliate of Agent) for such Class A Lender’s Pro Rata Share of each such Revolving Advance. In such event, if a Class A Lender has not in fact made its share of the applicable Revolving Advance available to Agent, then the applicable Lender and Borrower severally agree to pay to Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to Borrower to but excluding the date of payment to Agent, at the applicable Revolving Calculated Rate and, until such Lender has paid such amount to Agent, all amounts owed to such Lender hereunder (whether interest, fees, principal or otherwise) shall paid to Agent (or any Affiliate of Agent that has funded such amounts in lieu of such Lender) in such amount as is necessary to repay in full such unfunded amounts owed by such Lender and such Lender shall not be entitled to receive any amounts hereunder until such unfunded amounts have been repaid in full. If such Lender pays such amount to Agent, then such amount shall constitute such Lender’s Pro Rata Share of such Revolving Advance. No Class A Lender shall be obligated to make a Revolving Advance on behalf of another Class A Lender.
Interest on the Loan
The Borrower agrees to pay interest in respect of the outstanding principal amount of the Revolving Loan Advances, weekly in arrears in accordance with Section 2.4 to Agent for the account of Lenders, from the date the proceeds thereof are made available to the Borrower until paid in full, (x) at all times prior to the occurrence of a Positive Net Income Trigger Date, at a rate per annum equal to the lesser of (i)(A) the LIBOR Rate plus eleven (11%) per annum (such rate, the “Initial Revolving Calculated Rate”) and (ii) the Maximum Rate and (y) after the occurrence of a Positive Net Income Trigger Date, at a rate per annum equal to the lesser of (i)(A) the LIBOR Rate plus (B) seven and one half of one percent (7.5%) per annum (such rate, the “Positive Net Income Trigger Calculated Rate” and together with the Initial Revolving Calculated Rate, each a “Revolving Calculated Rate”) and (ii) the Maximum Rate. The Borrower agrees to pay interest in respect of the outstanding principal amount of the Term Loan, weekly in arrears, the Current Interest (as defined below) portion of which to be paid in accordance with Section 2.4, to Agent for the account of Lenders holding Term Loan Commitments, from the date the proceeds thereof are made available to the Borrower until paid in full, at a rate per annum equal to the lesser of (i) the LIBOR Rate plus (A) eight (8%) per annum (“Current Interest”) plus (B) an additional three percent (3%) per annum (“PIK Interest”) to be paid in kind by capitalizing such PIK Interest and adding it to the outstanding principal balance of the Term Loan and (ii) the Maximum Rate (the “Term Loan Calculated Rate” and together with the Revolving Calculated Rate, the “Calculated Rate”). All such payments of interest shall be made weekly pursuant to Section 2.4, and, in any event, shall be due and owing no later than the Payment Date of each calendar week for the immediately preceding calendar week, provided, that, on any Interest Settlement Date on which interest has accrued, but has not been paid pursuant to Section 2.4, Agent shall be entitled to apply any or all Available Amounts on deposit in the Collateral Account to the payment of any accrued interest and fees for the preceding month payable to the Lenders pursuant to Section 13.5(a)(iii) hereof. The amount of PIK Interest accrued on any Payment Date shall automatically and without further
action be added to the outstanding principal balance of the Term Loan on such Payment Date and any outstanding PIK Interest as of the Maturity Date shall be payable in cash as part of the principal required to be repaid on the earlier of (1) the Maturity Date or (2) the required repayment of the Term Loan, whether by reason of acceleration or otherwise. If Lenders are prevented from charging or collecting interest at the applicable Calculated Rate, to the extent permitted by law, then the interest rate shall continue to be the Maximum Rate until such time as Lenders have charged and collected the full amount of interest that would be chargeable and collectable if interest at the applicable Calculated Rate had always been lawfully chargeable and collectible. Whenever, subsequent to the date of this Agreement, the LIBOR Rate is increased or decreased, the Applicable Rate shall be similarly changed without notice or demand of any kind by an amount equal to the amount of such change in the LIBOR Rate (subject to the Maximum Rate).
The weekly interest due on the principal balance of the Loan outstanding shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days and shall be calculated by determining the average daily principal balance of the Obligations under the Loan Documents outstanding for each day.
Loan Collections; Repayment.
Borrower shall, or shall cause Servicer to, instruct the Account Lessee and the Servicer’s payment processing company of each Pledged Lease to pay directly to the Collateral Account or by delivery to the addresses set forth in the Servicing Agreement (the “Servicer Physical Payment Address, all Scheduled Payments, prepayments (both voluntary and mandatory), and other amounts received of any and every description payable to Borrower by or on behalf of such Account Lessee pursuant to the applicable Pledged Lease, the related Portfolio Documents, or any other related documents or instruments. All such amounts delivered to the Servicer Physical Payment Address shall be received and held in trust for the sole and exclusive benefit of the Agent and shall be directed to the Collateral Account within two (2) Business Days after such amounts so received and held by the Servicer equals or exceeds $25,000. In the event that Servicer or Borrower receives any payments on any Pledged Lease directly from or on behalf of the Account Lessee thereof in a manner other than through a deposit into the Collateral Account or a payment at a Servicer Physical Payment Address, the Servicer or Borrower, as applicable, shall receive and hold all such payments in trust for the sole and exclusive benefit of Agent, and Servicer or Borrower, as applicable, shall deliver to the Collateral Account within two (2) Business Days after such amounts so received and held by the Servicer equals or exceeds $25,000 all such payments (in the form so received) as and when received by Servicer or Borrower, as applicable, unless Agent shall have notified Servicer or Borrower, as applicable, to deliver directly to Agent all payments in respect of the Leases after the occurrence and during the continuance of an Event of Default, in which event all such payments (in the form received) shall be endorsed by Servicer or Borrower, as applicable, to Agent and delivered to Agent promptly upon Servicer or Borrower’s receipt thereof.
At any time after the occurrence and during the continuance of an Event of Default, Agent shall have the right to notify any Account Lessee to mail or otherwise deliver payments directly to an address determined by Agent or to otherwise deposit such sums in the Collateral Account or any other deposit account established by Agent from time to time.
All Scheduled Payments, interest, principal, prepayments (both voluntary and mandatory), and other amounts received of any and every description payable to Borrower by or on behalf of such Account Lessee pursuant to the applicable Lease, the related Portfolio Documents, or any other related documents or instruments with respect to the Leases pledged as Collateral for the Revolving Advances shall be paid directly to the Collateral Account.
Promise to Pay; Manner of Payment.
Payments. On each Payment Date, payments shall be made by the Agent from the Collateral Account in the following order of priority and to the extent of the Available Amounts:
to the Borrower, the portion of the Available Amounts that are identifiable as sales tax receipts received by Borrower or Servicer during the period since the prior Payment Date with respect to any Pledged Lease;
on the last Payment Date to occur in each calendar month, to Servicer, the Servicing Fee for such calendar month until paid in full, and any such fees that remain unpaid with respect to one or more prior Payment Dates, provided, that if Servicer is Holdings or an Affiliate of Holdings, such payments shall not be made if an Event of Default has occurred and is continuing as of such Payment Date unless otherwise agreed by Agent in its sole discretion;
on the last Payment Date to occur in each calendar month, to the Backup Servicer, the Backup Servicer Fee for such calendar month until paid in full, including any such fees that remain unpaid with respect to one or more prior Payment Dates;
to Agent, for the benefit of Lenders, first, any Protective Advances, together with all interest owed with respect to all Protective Advances, and second, any indemnities owed by Borrower or any Guarantor to Agent or any Lender, in each case, to the extent not previously reimbursed or paid;
to Agent, for the benefit of itself and the Class A Lenders, all accrued and unpaid, costs, fees and expenses relating to the Revolving Advances as of such Payment Date;
to Agent, for the benefit of itself and the Class A Lenders, all accrued and unpaid interest (including any Revolving Advance Prepayment Additional Interest, Revolving Commitment Lockout Period Additional Interest and Additional Interest) relating to the Revolving Advances as of such Payment Date;
if no Event of Default has occurred and is continuing, to Agent, for the benefit of itself and the Class A Lenders, the Required Loan Overadvance Principal Payment, if any;
to Agent, for the benefit of itself and the Class B Lenders, all accrued and unpaid, costs, fees and expenses relating to the Term Loan as of such Payment Date;
to Agent, for the benefit of itself and the Class B Lenders all accrued and unpaid interest (including any Term Loan Prepayment Additional Interest and Term Loan Lockout Period Additional Interest, but excluding PIK Interest) relating to the Term Loan as of such Payment Date;
if no Event of Default has occurred and is continuing and if directed in writing by the Borrower, to Agent, for the benefit of itself and the Lenders, the Revolving Advances in the amount specified by the Borrower in such writing;
if an Event of Default has occurred and is continuing, to Agent, for the benefit of Lenders, any remaining Available Amounts in the Collateral Account to the extent of Obligations owing to Lenders to be applied in accordance with Section 2.4(c) hereof; and
to the Borrower, any remaining Available Amounts in the Collateral Account.
In the event that amounts distributed under Section 2.4(a) as of each Payment Date are insufficient for payment of the amounts set forth in Section 2.4(a)(i),(ii), (iii), (iv), (v) and (vii) for such Payment Date, Borrower shall pay an amount equal to the extent of such insufficiency (i) through a Revolving Loan Advance (if available pursuant to the terms hereof) hereunder on such date of determination, or (ii) if insufficient Availability or another failure of a condition precedent to an Advance then exists, from a wire transfer of immediately available funds by Holdings or Borrower within two (2) Business Days of request by Agent. Agent shall distribute any such payment received by it for the account of any Lender to the appropriate Lender in accordance with the terms hereof.
Following the occurrence and during the continuance of an Event of Default, payments shall be made by the Agent from the Collateral Account in the following order of priority and to the extent of the Available Amounts:
on the last Payment Date to occur in each calendar month, to Servicer, the Servicing Fee for such calendar month until paid in full, and any such fees that remain unpaid with respect to one or more prior Payment Dates, provided, that if Servicer is Holdings or an Affiliate of Holdings, such payments shall not be made unless otherwise agreed by Agent in its sole discretion;
on the last Payment Date to occur in each calendar month, to the Backup Servicer, the Backup Servicer Fee for such calendar month until paid in full, including any such fees that remain unpaid with respect to one or more prior Payment Dates;
to Agent, for the benefit of Lenders, first, any Protective Advances, together with all interest owed with respect to all Protective Advances, and second, any indemnities owed by Borrower or any Guarantor to Agent or any Lender, in each case, to the extent not previously reimbursed or paid;
to Agent, for the benefit of itself and the Class A Lenders, all accrued and unpaid, costs, fees and expenses relating to the Revolving Advances as of such Payment Date;
to Agent, for the benefit of itself and the Class A Lenders all accrued and unpaid interest (including any Revolving Advance Prepayment Additional Interest, Revolving Commitment Lockout Period Additional Interest and Additional Interest) relating to the Revolving Advances as of such Payment Date;
to Agent, for the benefit of itself and the Class A Lenders the outstanding principal amount of the Advances in respect of the Class A Obligations until the aggregate outstanding principal amount of the Revolving Advances have been reduced to zero;
to Agent, for the benefit of itself and the Class B Lenders, all accrued and unpaid, costs, fees and expenses relating to the Term Loan as of such Payment Date;
to Agent, for the benefit of itself and the Class B Lenders (A) all accrued and unpaid interest (including any Term Loan Prepayment Additional Interest and Additional Interest) relating to the Term Loan as of such Payment Date;
to Agent, for the benefit of itself and the Class B Lenders the outstanding principal amount of the Term Loan until the aggregate outstanding principal amount of the Term Loan has been reduced to zero;
to the Borrower, any remaining Available Amounts in the Collateral Account.
Borrower absolutely and unconditionally promises to pay, when due and payable pursuant hereto, principal, interest and all other amounts and Obligations payable, hereunder or under any other Loan Document, without any right of rescission and without any deduction whatsoever, including any deduction for set-off, recoupment or counterclaim, notwithstanding any damage to, defects in or destruction of the Collateral or any other event, including obsolescence of any property or improvements. Except as expressly provided for herein, Borrower hereby waives setoff, recoupment, demand, presentment, protest, and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under this Agreement and any other Loan Document, all to the extent permitted by law. Each Revolving Advance shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date. All other amounts outstanding under the Loan and all other Obligations under the Loan shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date.
Voluntary Prepayments
Except as set forth in Section 2.5(b) below, the Loan may be prepaid only through the collections of Scheduled Payments and any other amounts with respect to the Leases.
Revolving Loan Voluntary Prepayment. Borrower may voluntarily prepay, in whole, but not in part, the principal balance of the Revolving Advances and all accrued and unpaid interest thereon at any time, so long as Borrower shall have identified the Prepayment Date and given Agent not less than thirty (30) calendar days prior written notice in advance of such proposed Prepayment Date. In connection with any prepayment of the principal balance of the Revolving Advances pursuant to this Section 2.5(b) made on or prior to May 14, 2021 (“Revolving Lockout Period Termination Date”), Borrower shall be liable for the Revolving Commitment Lockout Period Additional Interest with respect to any such prepayment of the Revolving Advances which shall be paid concurrently with such prepayment. In connection with any prepayment of the principal balance of the Revolving Advances pursuant to this Section 2.5(b) after the Revolving Lockout Period Termination Date, Borrower shall be liable for the Revolving Advance Prepayment Additional Interest which shall be paid concurrently with such prepayment. Upon the payment by the Borrower in cash in full of the Obligations with respect to the Revolving Advances (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made) pursuant to this Section 2.5(b), the Revolving Loan Commitments shall terminate.
Term Loan Voluntary Prepayment. Borrower may voluntarily prepay, in whole, but not in part, the principal balance of the Term Loan and all accrued and unpaid interest thereon (including PIK Interest) at any time so long as Borrower shall have identified the Prepayment Date and given Agent not less than thirty (30) calendar days prior written notice in advance of such proposed Prepayment Date. In connection with any prepayment of the principal balance of the Term Loan made pursuant to this Section 2.5(c) on or prior to the date that is eighteen (18) months following the Initial Term Loan Funding Date (“Class B Lockout Period Termination Date”), Borrower shall be liable for the Term Loan Lockout Period Additional Interest which shall be paid concurrently with such prepayment. In connection with any prepayment of the principal balance of the Term Loan made pursuant to this Section 2.5(c) after
the Class B Lockout Period Termination Date, Borrower shall be liable for the Term Loan Prepayment Additional Interest which shall be paid concurrently with such prepayment.
Mandatory Prepayments
If a Change of Control occurs that has not been consented to in writing by Agent prior to the consummation thereof, on or prior to the first Business Day following the date of such Change of Control, Borrower shall prepay the Loan and all other Obligations (other than, indemnity obligations that are not then due and payable or with respect to which no claim has been made) in full in cash together with accrued interest thereon to the date of such prepayment and all other amounts owing to Agent and Lenders under the Loan Documents and the Revolving Advance Prepayment Additional Interest and Term Loan Prepayment Additional Interest that would be payable on such date, and whereupon the Revolving Loan Commitments shall be terminated; provided, that if such event occurs on or prior to May 14, 2021, Borrower shall also pay Agent, for the benefit of the Lenders, an amount equal to the sum of the Revolving Commitment Lockout Period Additional Interest and the Term Loan Lockout Period Additional Interest; provided further that any such prepayment shall be in compliance with Section 6.16 hereof.
In addition to and without limiting any provision of any Loan Document, if Borrower, in any transaction or series of related transactions, (a) sells any Pledged Lease or other material assets or other properties, (b) sells or issues any equity or debt securities, Equity Interests or other ownership interests other than, in each case, to Holdings or (c) incurs any Indebtedness except for Permitted Indebtedness, then it shall deposit 100% (or such lesser amount as is required to indefeasibly pay in cash in full the Obligations (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made)) of the cash proceeds thereof (net of reasonable transaction costs and expenses and taxes) to the Collateral Account, and the Revolving Advance Prepayment Additional Interest provided for in clause (i) of the definition thereof, provided, that if such event occurs on or prior to May 14, 2021, Borrower shall also pay Agent, for the benefit of the Lenders, an amount equal to the amount of interest that would have accrued on the sum of the principal balance of the Loan plus projected further utilization of the Loan hereunder (as determined by Agent in its Permitted Discretion), from such date of prepayment to May 14, 2021, at a per annum rate equal to the Calculated Rate.
In no event shall the sum of the aggregate outstanding principal balance of the Revolving Loan Advances exceed the lesser of (i) the Borrowing Base and (ii) the Maximum Revolving Loan Amount. If at any time and for any reason, the outstanding unpaid principal balance of the Revolving Loan Advances exceed the Maximum Revolving Loan Amount, Borrower shall promptly, and in any event within five (5) Business Days, without the necessity of any notice or demand, whether or not a Default or Event of Default has occurred or is continuing, prepay the principal balance of the Loan in an amount equal to the difference between the then aggregate outstanding principal balance of the Revolving Loan Advances and the Maximum Revolving Loan Amount. If at any time and for any reason, the outstanding unpaid principal balance of the Loan exceeds the Borrowing Base (including due to any Eligible Lease thereafter failing to meet the eligibility criteria and becoming an Ineligible Lease; provided, however, that if such Lease is an Ineligible Lease solely as a result of a Regulatory Trigger Event described in clause (xxx) of the definition of “Eligible Leases” Borrower shall have forty five (45) calendar days after the earlier of its discovery or receipt of notice thereof to comply with this clause(c) of Section 2.6), then Borrower shall without the necessity of any notice or demand, whether or not a Default or Event of Default has occurred or is continuing, either (x) prepay the principal balance of the Loan in an amount equal to the difference between the then aggregate outstanding principal balance of the Loan and the Borrowing Base or (y) increase the aggregate principal balance of Eligible Leases pledged to Agent in accordance
with this Agreement so that the Borrowing Base is equal to or exceeds the then outstanding principal balance of the Loan. The pledge and delivery to Agent of additional Eligible Leases shall comply with the document delivery requirements set forth in Sections 2.9 and 4.2 of this Agreement, as applicable, and shall be accompanied by a certification from Borrower that demonstrates that after giving effect to the pledge to Agent of such additional Eligible Leases, the outstanding unpaid principal balance of the Loan is equal to or less than the Borrowing Base.
Payments by Agent; Protective Advances
Should any amount required to be paid under any Loan Document be unpaid beyond any applicable cure period, such amount may be paid by Agent, for the account of Lenders, which payment shall be deemed a request for an Advance under the Loan as of the date such payment is due, and Borrower irrevocably authorizes disbursement of any such funds to Agent, for the benefit of itself and the Lenders, by way of direct payment of the relevant amount, interest or Obligations in accordance with Section 2.4 without necessity of any demand whether or not a Default or Event of Default has occurred or is continuing. No payment or prepayment of any amount by Agent, Lenders or any other Person shall entitle any Person to be subrogated to the rights of Agent and/or Lenders under any Loan Document unless and until the Obligations are repaid in full and the Loan Agreement and the other Loan Documents have been terminated. Any sums expended or amounts paid by Agent and/or Lenders as a result of Borrower’s failure to pay, perform or comply with any Loan Document or any of its Obligations may be charged to Borrower’s account as an Advance under the Loan and added to the Obligations.
Notwithstanding any provision of any Loan Document, Agent, in its sole discretion, shall have the right, but not any obligation, at any time that Borrower fails to do so, and from time to time, without prior notice, to: (i) discharge (at the Borrower’s expense) taxes or Liens affecting any of the Collateral that have not been paid in violation of any Loan Document or that jeopardize the Agent’s Lien priority in the Collateral, including any underlying collateral securing any Lease; or (ii) make any other payment (at the Borrower’s expense) for the administration, servicing, maintenance, preservation or protection of the Collateral, or any underlying collateral securing any Lease (each such advance or payment set forth in clauses (i) and (ii), a “Protective Advance”). Agent shall be reimbursed for all Protective Advances pursuant to Section 2.4 and any Protective Advances shall bear interest at the Applicable Rate plus the Default Rate from the date the Protective Advance is paid by Agent until it is repaid. No Protective Advance by Agent shall be construed as a waiver by Agent, or any Lender of any Default, Event of Default, Default Trigger Event, First Payment Default Trigger Event or any of the rights or remedies of Agent or any Lender.
Grant of Security Interest; Collateral
To secure the payment and performance of the Obligations, Borrower hereby grants to Agent, for the benefit of itself and the other Lenders, a valid, perfected and continuing first priority Lien upon all of Borrower’s right, title, and interest, whether now owned or existing or hereafter from time to time acquired or coming into existence, in, to, and under all of Borrower’s assets (collectively, the “Collateral”), including, but not limited to Borrower’s right, title and interest, if any, in, to and under: (i) all Leases and all amounts due or to become due under the Leases, (ii) all Inventory and other personal property securing the payment of any Lease, (iii) all Portfolio Documents and all rights, remedies, powers, privileges, and claims under the Portfolio Documents, (iv) the Collateral Account and all funds and other property credited to the Collateral Account; (v) the Purchase and Sale Agreement, each Servicing Agreement, and the Backup Servicing Agreement and all rights, remedies, powers, privileges, and claims under those contracts, (vi) all Accounts, General Intangibles, Chattel Paper, Instruments, Documents, Goods, money and any rights to the payment of money or other forms of consideration of any kind, Deposit Accounts, Investment Property, letters of credit, Letter-of-Credit Rights, Contract
Rights, Contracts, Supporting Obligations, Equipment, Inventory, Fixtures, Computer Hardware, Software, securities, Permits, intellectual property, and oil, gas and other minerals; (vii) all other personal property and other types of property of Borrower (except as limited in clause (iv) above), including, but not limited to, all goods (including, but not limited to, the Inventory) owned by Borrower, whether or not such goods are the subject of a Lease and (viii) all Proceeds of all of the foregoing and all other types of property of Borrower (except as limited in clause (iv) above).
Borrower shall promptly notify Agent of any Commercial Tort Claims of the Borrower, individually or in the aggregate, involving damages of more than $500,000 related to any Collateral in which Borrower has an interest arising after the Closing Date and shall provide all necessary information concerning each such Commercial Tort Claim and take all necessary action with respect thereto to grant and perfect a first priority Lien thereon in favor of Agent for the benefit of itself and the other Lenders.
Borrower has full right and power to grant to Agent, for the benefit of itself and the other Lenders, a perfected, first priority Lien on the Collateral pursuant to this Agreement, subject to Permitted Liens. Upon the execution and delivery of this Agreement, and upon the filing of the necessary financing statements and other documents and the taking of all other necessary action, Agent will have a valid and first priority perfected Lien on the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person other than Permitted Liens. As of the Closing Date, no financing statement naming Borrower as debtor and describing any of the Collateral is on file in any public office except those naming Agent as secured party and those related to the Permitted Liens. As of the Closing Date, Borrower is not party to any agreement, document or instrument that conflicts with this Section 2.8.
Borrower hereby authorizes Agent to prepare and file financing statements provided for by the UCC with all appropriate jurisdictions to perfect or protect the Lenders’ security interest or rights hereunder, and to take such other action as may be required, in Agent’s Permitted Discretion, in order to perfect and to continue the perfection of Agent’s Lien on the Collateral, for the benefit of itself and the other Lenders, including a notice that any disposition of the Collateral, by either the Borrower or any other Person, shall be deemed to violate the rights of the Lender under the UCC. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in the Agent’s sole discretion.
For the avoidance of doubt, no Collateral shall be released (except as specifically set forth herein) until payment in full of all of the Obligations.
Agent, Lenders and Borrower hereby agree that upon funding of any Revolving Loan Advance, the Borrowing Base Certificate prepared by Borrower and approved by Agent shall automatically supplement and add the Leases described therein to any Leases described in any previously-delivered Borrowing Base Certificate and shall constitute Collateral for purposes of this Agreement.
Collateral Administration
All tangible Collateral (except Collateral in the possession of Backup Servicer or Agent) will at all times be kept by Borrower or Servicer at the locations set forth on Schedule 5.17B hereto, and shall not, without thirty (30) calendar days prior written notice to Agent, be moved therefrom other than to another such location, and in any case shall not be moved outside the continental United States. Borrower hereby agrees to deliver to the Agent and Backup Servicer or, upon the request of the Agent, to the Servicer, on or prior to the date of each
Revolving Advance, the Verification Deliverables for each Lease that is to be added to the Collateral in connection with such Revolving Advance. From and after the funding of each Advance hereunder, the originals of all Leases constituting Collateral in respect of such Advance shall, regardless of their location, be deemed to be under Agent’s dominion and control and deemed to be in Agent’s possession. Any of Agent’s officers, employees, representatives or agents, including, without limitation, Backup Servicer, shall have the right upon reasonable notice, at any time during normal business hours, in the name of Agent or any designee of Agent or Borrower, to verify the validity, amount or any other matter relating to the Collateral. Borrower shall cooperate fully with Agent in an effort to facilitate and promptly conclude such verification process. In addition to any provision of any Loan Document, Agent shall have the right at all times after the occurrence and during the continuance of an Event of Default to notify Account Lessees party to Leases held by Borrower that their Leases have been assigned to Agent and to collect such Leases directly in Agent’s own name, for the benefit of itself and the Lenders, and to charge collection costs and expenses, including attorney’s fees, to Borrower.
As and when determined by Agent in its sole discretion, Agent will perform the searches described in clauses (i) and (ii) below against Borrower, Servicer and Holdings: (i) UCC searches with the Secretary of State and local filing offices of each jurisdiction where Borrower, Servicer or Holdings is organized; and (ii) judgment, bankruptcy, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction where Borrower, Servicer or Holdings maintains their executive offices, a place of business or any assets.
Borrower shall keep accurate and complete records of the Collateral and all payments and collections thereon and shall submit such records to Agent on such periodic basis as Agent may request in its Permitted Discretion.
In respect of the portion of the Collateral consisting of any Lease which is evidenced by an electronic record that is not a transferable record under Applicable Law, Borrower shall deliver to Agent or, at the request of Agent, Servicer (i) the original Portfolio Documents; and (ii) originals or true copies of the truth-in-lending disclosure statements and, if required by Agent, lease applications, any related Account Lessee’s acknowledgments and understandings, and other receipts and payment authorization agreements, which shall be delivered, at Borrower’s expense, to Agent at its address set forth herein or as otherwise specified by Agent and, except as otherwise expressly provided herein to the contrary, held in Agent’s custody or, if Agent has so requested, Servicer’s or Backup Servicer’s custody until all of the Obligations have been fully satisfied or Agent expressly agrees to release such custody of such documents. In respect of the portion of the Collateral consisting of any Lease which is evidenced by an electronic record that is a transferable record under applicable law, Borrower shall deliver to Agent the control of such transferable electronic record in accordance with Applicable Law (to ensure, among other things, that Agent has a first priority perfected Lien in such Collateral), which shall be delivered, at Borrower’s expense, to Agent at its address as set forth herein or as otherwise specified by Agent and, except as otherwise expressly provided herein to the contrary, held in Agent’s possession, custody, and control until all of the Obligations have been fully satisfied or Agent expressly agrees to release such documents. Alternatively, Agent, in its sole discretion, may elect for the Servicer or Backup Servicer or any other agent to accept delivery of and maintain possession, custody, and control of all such documents and any instruments on behalf of Agent during such period of time. Borrower shall identify (or cause any applicable servicing agent to identify) on the related electronic record the pledge of such Lease by Borrower to Agent.
Borrower hereby agrees to, and to cause Servicer to, take the following protective actions to prevent destruction of records pertaining to the Collateral: create an electronic file of the computerized information regarding the Collateral and provide Agent and Backup Servicer monthly with a copy of such file (A) no later than fifteen (15) days following the Closing Date
and (B) no later than fifteen (15) days following the end of each calendar month following the Closing Date. Subject to the limitations set forth in Section 6.7 of this Agreement, Agent at all times during regular business hours (provided, that any electronic materials available on a website or through other remote electronic means for which Agent has been given access shall be available to Agent at all times) shall have the right to access and review any and all Portfolio Documents in Borrower’s or Servicer’s possession and any and all data and other information relating to Portfolio Documents as may from time to time be input to or stored within Borrower’s or Servicer’s computers and/or computer records including, without limitation, diskettes, tapes and other computer software and computer systems.
Power of Attorney
Borrower hereby acknowledges and agrees that Agent is hereby irrevocably made, constituted and appointed the true and lawful attorney for Borrower (without requiring Agent to act as such) with full power of substitution to do the following upon the occurrence and during the continuation of an Event of Default: (i) endorse the name of Borrower upon any and all checks, drafts, money orders and other instruments for the payment of money that are payable to Borrower and constitute collections on the Pledged Leases; (ii) execute and/or file in the name of Borrower any financing statements, amendments to financing statements, schedules to financing statements, releases or terminations thereof, assignments, instruments or documents that it is obligated to execute and/or file under any of the Loan Documents (to the extent Borrower fails to so execute and/or file any of the foregoing within two (2) Business Days of Agent’s request or the time when Borrower is otherwise obligated to do so); (iii) execute and/or file in the name of Borrower assignments, instruments, documents, schedules and statements that it is obligated to give Agent under any of the Loan Documents (to the extent Borrower fails to so execute and/or file any of the foregoing within two (2) Business Days of Agent’s request or the time when Borrower is otherwise obligated to do so); (iv) execute and/or file such documents as may be necessary to register and/or otherwise perfect Agent’s Lien on Borrower’s owned goods, including, but not limited to, the Inventory, and (v) do such other and further acts and deeds in the name of Borrower that Agent may deem necessary to enforce, make, create, maintain, continue, enforce or perfect Lender’s security interest, Lien or rights in any Collateral.
Deposit of Release Price or Substitution of Eligible Lease
.
(a) Subject to Section 2.11(b), at any time, upon discovery by Borrower or upon notice from Holdings, Servicer or Agent that (i) any Lease is a Defaulted Lease, Borrower may, within ten (10) calendar days after the earlier of its discovery or receipt of notice thereof deposit the Release Price for such Lease in the Collateral Account. Notwithstanding the foregoing, Borrower may exercise its rights pursuant to this Section 2.11 solely with respect to the repurchase of Pledged Leases in a pool of Eligible Leases having an aggregate Current Lease Balance (measured as of the date of such repurchase) that is less than or equal to five percent (5%) of the sum of the funded Revolving Advances and the total unfunded Revolving Loan Commitment held by the Lenders with respect to such pool of Eligible Leases. Borrower shall deliver, or cause Servicer to deliver, a schedule of any Defaulted Leases so removed to Agent in connection with the Monthly Servicing Report and shall update all other reports and schedules accordingly.
(b) Release of Ineligible Lease. If the Release Price for any Defaulted Lease is deposited in the Collateral Account then, (a) the Agent’s Lien on such Defaulted Lease and all related Collateral is automatically released without any further action and (b) Agent shall, and
shall cause Backup Servicer to, at Borrower’s sole cost and expense, deliver the related Portfolio Documents to Borrower or its designee and shall execute such documents, releases and instruments of transfer, prepared by Borrower at its sole cost and expense, or assignment and take such other actions as shall reasonably be requested by the Borrower to effect the release of such Defaulted Lease and the related Collateral.
Collateral Account
Collateral Account. Deposits made into the Collateral Account shall be limited to amounts deposited therein by, or at the direction of, Borrower or Servicer in accordance with this Agreement or the Purchase and Sale Agreement, as applicable, and Available Amounts.
Withdrawals. Other than as set forth in clause (c) below, Agent shall have the sole and exclusive right to withdraw or order a transfer of funds from the Collateral Account, in all events in accordance with the terms and provisions of the Collateral Account Control Agreement, the Monthly Servicing Report and this Agreement. In addition, notwithstanding anything in the foregoing to the contrary, the Servicer may request, but Agent is obligated to comply only if an Event of Default has not occurred and is then continuing with such request, withdrawals or order transfers of funds from the Collateral Account, to the extent such funds either (i) have been mistakenly deposited into the Collateral Account or (ii) related to items subsequently returned for insufficient funds or as a result of stop payments. In the case of any withdrawal or transfer pursuant to the foregoing sentence, the Servicer shall provide Agent with notice of such request of withdrawal or transfer, together with reasonable supporting details, on the next Monthly Servicing Report to be delivered by the Servicer following the date of such withdrawal or transfer (or in such earlier written notice as may be required by Agent from the Servicer from time to time). Borrower shall cause the Servicer to deposit all proceeds of the Collateral processed by the Servicer to the Collateral Account within two (2) Business Days of receipt. On each Payment Date, amounts in the Collateral Account shall be applied to make the payments and disbursements described in Section 2.4 and this Section 2.12. Agent agrees to use its best efforts to provide Borrower and Servicer, at all times other than during the continuance of an Event of Default, with on-line access to view account related activity (such as deposits to and withdrawals from) the Collateral Account to view account related activity such as deposits to and withdrawals from the Collateral Account. On the date that is two (2) Business Days prior to each Payment Date, Agent shall deliver to Borrower a notice setting forth the allocation of funds in the Collateral Account to be made on such Payment Date in accordance with Section 2.4 hereto (each such notice, an “Allocation Notice”), provided, that the failure of Agent to deliver an Allocation Notice to Borrower with respect to any Payment Date shall not affect any of the rights of Agent or any Lender or any obligation of Borrower under this Agreement or any other Loan Document. Except with respect to any manifest error in any Allocation Notice, the application of funds pursuant to Section 2.4 for the following Payment Date shall be made in accordance with such Allocation Notice.
Irrevocable Deposit. Any deposit made into the Collateral Account hereunder shall, except as otherwise provided herein, be irrevocable, and the amount of such deposit and any money, instruments, investment property or other property on deposit in, carried in or credited to such Collateral Account hereunder and all interest thereon shall be held in trust by the Agent and applied solely as provided herein.
Maximum Revolving Loan Amount; Exclusive Right to Finance.
At any time that the outstanding principal amount of the Revolving Loan Advances is equal to 80% or more of the then-existing Maximum Revolving Loan Amount,
Agent and the Lenders that are Affiliates of the Agent may, in their sole discretion, elect to provide Borrower one or more increases to the Maximum Revolving Loan Amount up to an aggregate amount after giving effect to all such increases equal to $250,000,000 with additional Revolving Loan Commitments from Lenders that are Affiliates of the Agent or new Revolving Loan Commitments from Persons acceptable to Agent, provided, that: (A) unless waived by Agent, in its sole discretion, at the time of any such increase, no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing; (B) unless waived by each Lender, in its sole discretion, no Lender shall be obligated to participate in any such increase by increasing the amount of its own Revolving Loan Commitment, which decision shall be in the sole discretion of each Lender whose Revolving Loan Commitment is being increased; (C) no such increase shall exceed $25,000,000; (D) Agent and Lenders shall have received any reasonable and documented fees or other amounts required by Agent and Lenders (including, without limitation, the payment (or net funding) of the applicable Increase OID) and (E) all documents reasonably required by Agent to evidence any such increase shall be executed and delivered to Agent on or before the effective date of such increase, including, without limitation, one or more new or replacement Notes.
Reserved.
Except as expressly provided in clause (d) below, Agent and Lenders shall have the exclusive right to finance on a first lien basis all Leases originated, acquired or held by Borrower, Holdings, the Parent Entity (if any) and/or their respective Subsidiaries (it being understood that sales of Defaulted Leases otherwise permitted under this Agreement and the other Loan Documents shall not be treated as a financing), which Leases are serviced (or sub-serviced) by (x) Borrower, Holdings or any of their respective Subsidiaries (or any Person who performs servicing with respect to such Leases using the employees, facilities, equipment, systems or any other property that is owned by (or was previously owned by) Borrower, Holdings or their respective Subsidiaries) or (y) any third party servicer that is not an Affiliate of Borrower or Holdings on the same terms and conditions set forth in this Agreement. Borrower and Holdings covenant and agree not to form, or consent to or otherwise acquiesce in the formation of, any Affiliate or Subsidiary, or otherwise use any Affiliate or Subsidiary, or participate in any reorganization of or transfer of assets between Borrower or Holdings and any Affiliate or Subsidiary in an effort to circumvent the intent of the covenants, agreements and obligations set forth in this Section 2.13(c).
Subject to Section 6.16 (Right of First Refusal) and notwithstanding clause (c) above, in the event that prior to the Public Company Transition Date (i) the outstanding principal amount of the Revolving Advances is equal to and remains 95% or more of the Maximum Revolving Loan Amount and (ii) the Agent and the Lenders have elected not to increase such Maximum Revolving Loan Amount pursuant to clause (a) above, Borrower, Holdings, Parent Entity and/or any of their Subsidiaries shall be permitted to finance on a non-recourse basis (other than the pledge by a Subsidiary described in the final sentence of this clause (d) of its assets and/or the pledge by Borrower or Holdings of the equity interest in any such Subsidiary), Leases (excluding the Leases pledged as Collateral hereunder) originated, acquired or held by Borrower, Holdings, the Parent Entity and/or their respective Subsidiaries, whether serviced (or sub-serviced) by (x) Borrower, Holdings or any of their respective Subsidiaries or (y) any third party servicer that is not an Affiliate of Borrower or Holdings. In connection with any such financing, Borrower and Holdings may form, or consent to or otherwise acquiesce in the formation of, a Subsidiary, or otherwise use a Subsidiary in connection with any such financing.
FEES AND OTHER CHARGES
Computation of Fees; Lawful Limits
All fees hereunder shall be computed on the basis of a 360-day year consisting of twelve 30-day months. In no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Agent, for the benefit of itself and the other Lenders, for the use, forbearance or detention of money hereunder exceed the Maximum Rate permissible under Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Agent or Lenders shall have received interest or any other charges of any kind which might be deemed to be interest under Applicable Law in excess of the Maximum Rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrower hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance, Agent and Lenders shall promptly refund such excess amount to Borrower and the provisions hereof shall be deemed amended to provide for such permissible rate. The terms and provisions of this Section 3.1 shall control to the extent any other provision of any Loan Document is inconsistent herewith.
Default Rate of Interest
Upon the occurrence and during the continuation of a Default or an Event of Default, the Applicable Rate of interest then in effect at such time with respect to the Obligations shall be increased by three percent (3.0%) per annum (subject to the Maximum Rate) (the “Default Rate”). Interest at the Default Rate shall accrue from the initial date of such Default or Event of Default until such Default or Event of Default is waived or ceases to continue, and shall be payable upon demand.
Increased Costs; Capital Adequacy
If any Change in Law shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (other than a Non-Funding Lender) and the result of any of the foregoing shall be to increase the cost (other than for Indemnified Taxes, Excluded Taxes or Other Taxes) to such Lender of making or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then Borrower will pay to such Lender on demand (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent) such additional amount or amounts as will compensate Lender for such additional costs incurred or reduction suffered.
If any Lender (other than a Non-Funding Lender) determines that any Change in Law regarding capital requirements (other than in respect of Taxes) has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level materially below that which such Lender or such Lender’s holding company, as applicable, could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company, as applicable, with respect to capital adequacy), then from time to time Borrower will pay to such Lender on demand (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent) such
additional amount or amounts as will compensate such Lender’s or such Lender’s holding company, as applicable, for any such reduction suffered.
A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or such Lender’s holding company, as the case may be, as specified in Sections 3.3(a) and (b), shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender on demand the amount shown as due on any such certificate pursuant to Section 2.4 of this Agreement.
Failure or delay on the part of any Lender to demand compensation pursuant to this Section 3.3 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Borrower shall not be required to compensate a Lender pursuant to this Section 3.3 for any increased costs or reductions incurred more than 180 days prior to the date such Lender notifies Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
Each Lender shall promptly notify Borrower and Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender's sole judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by Borrower to pay any amount pursuant to Sections 3.3(a) or (b) or (ii) the occurrence of any circumstances described in Sections 3.3(a) or (b) (and, if any Lender has given notice of any such event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify Borrower and Agent).
Administration Fee
Borrower hereby agrees to pay to Agent, solely for the account of Agent, an administration fee (the “Administration Fee”) in the sum of Twelve Thousand Five Hundred and No/100 Dollars ($12,500), which fee shall be payable on the Closing Date and on the first Payment Date of each calendar quarter thereafter, in advance, for such calendar quarter.
Original Issue Discount
In connection with the initial Revolving Loan Advance, Borrower agrees that the funded amount of such initial Revolving Loan Advance shall be reduced by an original issue discount of $250,000.00 (the “Closing Date OID”), which Closing Date OID shall be retained by the Agent, for the benefit of the Lenders, provided, that for the avoidance of doubt, Borrower agrees that, notwithstanding such deduction from the funded amount of the initial Revolving Loan Advance, Borrower remains liable to pay (a) the full principal amount of such Revolving Loan Advance (inclusive of such Closing Date OID), without giving effect to such deduction, which shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date and (b) accrued interest shall be payable on the full outstanding principal amount of such Revolving Loan Advance (inclusive of such Closing Date OID), without giving effect to such deduction.
In connection with each Revolving Loan Advance made after the initial Revolving Loan Advance hereunder, until the sum of the Closing Date OID and Post-Closing OID (as defined below) equals $500,000.00, Borrower agrees that the funded amount of such Revolving Loan Advance shall be reduced by an original issue discount equal to the product of (x) 1.50% and (y) the amount of such Revolving Loan Advance (the “Post-Closing OID”), which OID shall be retained by the Agent, for the benefit of the Lenders, provided, that for the
avoidance of doubt, Borrower agrees that, notwithstanding such deduction from the funded amount of the initial Revolving Loan Advance, Borrower remains liable to pay (a) the full principal amount of such Revolving Loan Advance (inclusive of such Post-Closing OID), without giving effect to such deduction, which shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date and (b) accrued interest shall be payable on the full outstanding principal amount of such Revolving Loan Advance (inclusive of such Post-Closing OID), without giving effect to such deduction. For the avoidance of doubt, if the sum of the Closing Date OID and the Post-Closing OID does not equal $500,000.00 by the date that is eighteen (18) months following the Closing Date, the difference shall be immediately earned by Agent, for the benefit of Lenders, and shall be withheld from the first Advance made to or on account of the Borrower following such date.
In connection with each increase of the Maximum Revolving Loan Amount pursuant to Section 2.13(a)(i) hereof, Borrower agrees that the funded amount of the initial Revolving Loan Advance after giving effect to each such increase shall be reduced by an original issue discount equal to one percent (1.00%) of the aggregate Revolving Loan Commitments being added on such date (the “Increase OID”), which Increase OID shall be retained by the Agent, for the benefit of the Lenders, provided, that for the avoidance of doubt, Borrower agrees that, notwithstanding such deduction from the funded amount of any such Revolving Loan Advance, Borrower remains liable to pay (a) the full principal amount of such Revolving Loan Advance (inclusive of such Increase OID), without giving effect to such deduction, which shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date and (b) accrued interest shall be payable on the full outstanding principal amount of such Revolving Loan Advance (inclusive of such Increase OID), without giving effect to such deduction.
On the Initial Term Loan Funding Date, Borrower agrees that the funded amount of the Term Loan shall be reduced by an original issue discount of $800,000.00 (the “Term Loan OID”), which Term Loan OID shall be retained by the Agent, for the benefit of the Class B Lenders, provided, that for the avoidance of doubt, Borrower agrees that, notwithstanding such deduction from the funded amount of the Term Loan, Borrower remains liable to pay (a) the full principal amount of such Term Loan (inclusive of such Term Loan OID), without giving effect to such deduction, which shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date and (b) accrued interest shall be payable on the full outstanding principal amount of such Term Loan (inclusive of such Term Loan OID), without giving effect to such deduction.
The parties hereto agree to treat such Closing Date OID, Post-Closing OID and Increase OID as original issue discount under the Code and to account for the annual income and expense for such original issue discount consistently and as required by the Code.
Additional Interest.
On each Payment Date prior to the last day of the Revolving Credit Period, as well as on the Payment Date immediately following the expiration of the Revolving Credit Period, Borrower shall pay to Agent, for the benefit of Lenders, with respect to the Due Period occurring since the immediately prior Payment Date (or, with respect to the first Payment Date, for the Due Period occurring since the Closing Date and, with respect to the Payment Date immediately following the expiration of the Revolving Credit Period, for the Due Period up to and including the last day of the Revolving Credit Period, as additional interest (the “Unused Additional Interest”) an amount equal to the product of (A) one-half of one percent (0.50%) multiplied by (B) the difference between the then-applicable Maximum Revolving Loan Amount and the average daily principal balance of the Obligations for such period multiplied by (C) the number of days in the applicable Due Period, divided by (d) 360.
In addition to the above, if, as of any Payment Date prior to the last day of the Revolving Credit Period, as well as on the Payment Date immediately following the expiration of the Revolving Credit Period, the Utilization Ratio is less than the Minimum Utilization Ratio for the correlative time period, Borrower shall pay to Agent, for the benefit of Lenders, with respect to the Due Period occurring since the immediately prior Payment Date (or, with respect to the first Payment Date, for the Due Period occurring since the Closing Date and, with respect to the Payment Date immediately following the expiration of the Revolving Credit Period, for the Due Period up to and including the last day of the Revolving Credit Period, as additional interest an amount equal to (a) the Revolving Calculated Rate multiplied by (b) the total amount of additional principal balance of the Revolving Advances that would have needed to be outstanding in order to cause the Utilization Ratio to be equal to Minimum Utilization Ratio for the correlative time period (the “Minimum Utilization Additional Interest” and together with the Unused Additional Interest, collectively, the “Additional Interest”). For the avoidance of doubt, if the Minimum Utilization Additional Interest is paid on any Payment Date, the Borrower shall not be required to pay any Unused Additional Interest solely with respect to the total amount of additional principal balance of the Loan that would have needed to be outstanding in order to cause the Utilization Ratio to be equal to Minimum Utilization Ratio for the correlative time period.
CONDITIONS PRECEDENT
Conditions to Closing
The obligations of Agent and Lenders to consummate the transactions contemplated herein and the obligations of Lenders to make the initial Revolving Advance under the Loan are subject to the satisfaction (or waiver), in the sole judgment and discretion of Agent, of the following:
Borrower shall have delivered to Agent (i) a Note payable to each Lender in an aggregate amount up to such Lender’s Revolving Loan Commitment, (ii) the other Loan Documents to which it or any Guarantor is a party, each duly executed by a Responsible Officer of Borrower and the Guarantors parties thereto, and (iii) a Borrowing Base Certificate for the initial Revolving Advances, executed by a Responsible Officer of Borrower;
all in form and substance satisfactory to Agent in its Permitted Discretion, Agent shall have received (i) a report of UCC financing statement, bankruptcy, tax and judgment lien searches performed with respect to Borrower and each Guarantor in each jurisdiction determined by Agent in its Permitted Discretion, and such report shall show no Liens on the Collateral (other than Permitted Liens), (ii) each document (including, without limitation, any UCC financing statement) required by any Loan Document or under law or requested by Agent to be filed, registered or recorded to create, in favor of Agent, for the benefit of itself and the other Lenders, a first priority and perfected security interest upon the Collateral, and (iii) evidence of each such filing, registration or recordation and of the payment by Borrower of any necessary fee, tax or expense relating thereto;
Agent shall have received (i) the Charter and Good Standing Documents of Borrower and each Guarantor (to the extent applicable), all in form and substance acceptable to Agent in its Permitted Discretion, (ii) a certificate of the secretary or assistant secretary of Borrower and each Guarantor in his or her capacity as such and not in his or her individual capacity dated the Closing Date, as to the incumbency and signature of the Persons executing the Loan Documents on behalf of such Person in form and substance acceptable to Agent in its Permitted Discretion, and (iii) a certificate executed by an authorized officer of Borrower, which shall constitute a representation and warranty by Borrower as of the Closing Date that the conditions contained in this Agreement have been satisfied;
Agent shall have received the written (i) legal opinion of Borrower’s outside legal counsel regarding certain customary closing matters, (ii) true-sale opinion of Borrower’s outside counsel and (iii) non-consolidation opinion of Borrower’s outside counsel, each in form and substance satisfactory to Agent;
Agent shall have received a certificate of the chief financial officer (or, in the absence of a chief financial officer, the chief executive officer) of Borrower, in his or her capacity as such and not in his or her individual capacity, in form and substance satisfactory to Agent in its Permitted Discretion (each, a “Solvency Certificate”), certifying the solvency of Borrower, after giving effect to the transactions and the Indebtedness contemplated by the Loan Documents;
Agent shall have completed examinations, the results of which shall be satisfactory in form and substance to Agent, in its Permitted Discretion, of Borrower and each Guarantor, including, without limitation, (i) an examination of background checks with respect to the chief executive officer, chief financial officer and chief operating officer of Holdings and (ii) an examination of the Collateral and the Underwriting Guidelines, and Borrower shall have demonstrated to Agent’s satisfaction, in its Permitted Discretion, that (x) the forms of Portfolio Documents used by Borrower and Holdings comply, in all respects deemed material by Agent, in its Permitted Discretion, with all Applicable Law and (y) no operations of Borrower or Holdings are the subject of any governmental investigation, evaluation or any remedial action which would be reasonably expected to result in it being unable to perform its obligations in connection with these transactions, and (z) Borrower has no liabilities or obligations (whether contingent or otherwise), other than the Obligations, that are deemed material by Agent, in its Permitted Discretion;
Agent shall have received (or is satisfied that it will receive simultaneously with the funding of the initial Revolving Advance) all fees, charges and expenses due and payable to Agent and Lenders on or prior to the Closing Date pursuant to the Loan Documents;
all in form and substance satisfactory to Agent, in its Permitted Discretion, Agent shall have received such consents, approvals and agreements from such third parties as set forth on Schedule 4.1 hereto;
all corporate and other proceedings, documents, instruments and other legal matters of Borrower and any Guarantor (to the extent applicable) in connection with the transactions contemplated by the Loan Documents (including, but not limited to, those relating to corporate and capital structures of the Borrower) shall be satisfactory to Agent in its Permitted Discretion;
the making of the Loans shall not contravene in any material respects any Applicable Laws and there shall exist no Material Adverse Effect;
each Lender shall have received all required internal approvals;
Agent shall have received duly executed copies of the Ivy Management Loan Agreement and the documents, agreements, instruments and certificates executed in connection therewith, which shall evidence a minimum principal commitment amount of no less than $12,000,000;
Agent shall have received a duly executed copy of the Convertible Note;
Agent shall have received evidence that the VPC Bridge Notes have been extended to at least December 31, 2021;
Agent shall have received evidence of release and termination of, or Agent’s authority to release and terminate, any and all Liens and/or UCC financing statements in, on, against or with respect to any of the Collateral (other than Permitted Liens);
Backup Servicer shall have received the Verification Deliverables with respect to each Pledged Lease, and shall have issued and delivered to Agent the initial Verification Certificate (without any exceptions noted thereon unless otherwise waived by Agent) provided for in the Backup Servicing Agreement, all in form and substance acceptable to Agent;
Agent shall have received evidence to the effect that Borrower, and Servicer have caused the portions of the computer files relating to the Pledged Leases and other Collateral pledged to the Agent on the Closing Date to be clearly and unambiguously marked to indicate that such Leases constitute part of the Collateral pledged by the Borrower in accordance with the terms of the Loan Documents;
Agent shall have received a copy of the Purchase and Sale Agreement, together with a certificate of the Secretary of Borrower certifying such document as being a true, correct and complete copy thereof;
Parent Entity shall have received not less than $5,000,000 from the issuance of Series C stock on terms substantially similar to those set forth in the Series C Convertible Preferred Stock Purchase Agreement attached hereto as Exhibit K; and
Agent shall have received evidence that Borrower has deposited an amount of not less than $75,000 into the Interest Reserve Account.
Conditions to Initial Revolving Advances and Subsequent Revolving Advances
The obligations of Lenders to make any Revolving Advance under the Loan are subject to the satisfaction (or waiver), in the sole judgment and discretion of Agent, of the following:
Borrower shall have delivered to Agent, not later than 12:59 p.m. (Eastern Standard Time) two (2) Business Days prior to the proposed date for such requested Revolving Advance, a request for advance in the form of Exhibit F hereto (a “Request for Revolving Advance”), and a Borrowing Base Certificate for such Revolving Advance with necessary supporting documentation executed by a Responsible Officer of Borrower, which shall constitute a representation and warranty by Borrower as of the date of such Revolving Advance that the conditions contained in this Section 4.2 have been satisfied;
Borrower shall own or, after payment of the purchase price pursuant to the Purchase and Sale Agreement, will have the unconditional right to purchase from Holdings, the Leases to be financed by such Revolving Advance and the Inventory related to such Leases free and clear of any Liens, encumbrances or other rights of third parties, with respect to any of the Leases or other Collateral sold to Borrower pursuant to the Purchase and Sale Agreement, and Agent shall have received evidence satisfactory to Agent that all such Liens have been released and UCC Financing Statements terminated or partially released and filed;
each of the representations and warranties made by Borrower or any Affiliate of the Borrower in or pursuant to the Loan Documents shall be accurate in all material respects before and after giving effect to the making of such Revolving Advance (except for those representations and warranties made as of a specific date) and no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to the requested Revolving Advance on such date;
immediately after giving effect to the requested Revolving Advance, the aggregate outstanding principal amount of Advances under the Loan shall not exceed the lesser of (i) the Maximum Revolving Loan Amount and (ii) the Borrowing Base;
Agent shall have received all fees, charges and expenses to the extent due and payable to Agent and Lenders on or prior to such date pursuant to the Loan Documents;
there shall not have occurred any Material Adverse Effect; and
Backup Servicer shall have received the Verification Deliverables with respect to each Lease to be pledged pursuant to such Revolving Advance, and shall have issued and delivered to Agent a Verification Certificate (without any exceptions noted thereon unless otherwise waived by Agent) provided for in the Backup Servicing Agreement, all in form and substance acceptable to Agent at its Permitted Discretion.
Conditions to Initial Term Loan Funding Date
The obligations of Lenders to make the Term Loan under the Loan are subject to the satisfaction (or waiver), in the sole judgment and discretion of Agent, of the following:
Borrower shall have delivered to Agent (i) if requested by a Lender, a Note payable to such Lender in an aggregate amount up to such Lender’s Term Loan Commitment and (ii) the other Loan Documents to which it or any Guarantor is a party, including, without limitation, the Payment Guaranty, each duly executed by a Responsible Officer of Borrower and the Guarantors parties thereto;
all in form and substance satisfactory to Agent in its Permitted Discretion, Agent shall have received (i) a report of UCC financing statement, bankruptcy, tax and judgment lien searches performed with respect to Borrower and each Guarantor in each jurisdiction determined by Agent in its Permitted Discretion, and such report shall show no Liens on the Collateral (other than Permitted Liens), (ii) each document (including, without limitation, any UCC financing statement) required by any Loan Document or under law or requested by Agent to be filed, registered or recorded to create, in favor of Agent, for the benefit of itself and the other Lenders, a first priority and perfected security interest upon the Collateral, and (iii) evidence of each such filing, registration or recordation and of the payment by Borrower of any necessary fee, tax or expense relating thereto;
Agent shall have received (i) the Charter and Good Standing Documents of Borrower and each Guarantor (to the extent applicable), all in form and substance acceptable to Agent in its Permitted Discretion, (ii) a certificate of the secretary or assistant secretary of Borrower and each Guarantor in his or her capacity as such and not in his or her individual capacity dated the Closing Date, as to the incumbency and signature of the Persons executing the Loan Documents on behalf of such Person in form and substance acceptable to Agent in its Permitted Discretion, and (iii) a certificate executed by an authorized officer of Borrower, which shall constitute a representation and warranty by Borrower as of the Initial Term Loan Funding Date that the conditions contained in this Agreement have been satisfied and the Credit Parties are in compliance with the covenants set forth herein;
Agent shall have received the written legal opinion of Borrower’s outside legal counsel regarding certain customary closing matters;
Agent shall have received (or is satisfied that it will receive simultaneously with the funding of the Term Loan) all fees, charges and expenses due and payable to Agent and Lenders on or prior to the Initial Term Loan Funding Date pursuant to the Loan Documents;
all in form and substance satisfactory to Agent, in its Permitted Discretion, Agent shall have received such consents, approvals and agreements from such third parties as set forth on Schedule 4.1 hereto;
all corporate and other proceedings, documents, instruments and other legal matters of Borrower and any Guarantor (to the extent applicable) in connection with the transactions contemplated by the Loan Documents (including, but not limited to, those relating to corporate and capital structures of the Borrower) shall be satisfactory to Agent in its Permitted Discretion;
the making of the Term Loan shall not contravene in any material respects any Applicable Laws and there shall exist no Material Adverse Effect;
Agent shall have received evidence of release and termination of, or Agent’s authority to release and terminate, any and all Liens and/or UCC financing statements in, on, against or with respect to any of the Collateral (other than Permitted Liens);
each of the representations and warranties made by any Credit Party or any Affiliate of such Credit Party in or pursuant to the Loan Documents shall be accurate in all material respects before and after giving effect to the making of such Term Loan (except for those representations and warranties made as of a specific date) and no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to the Term Loan on such date;
except as disclosed and consented to by Agent in its sole discretion, no Credit Party shall have any Indebtedness other than the Obligations hereunder and under the other Loan Documents;
the Warrants shall have been issued and delivered on the Ninth Amendment Effective Date;
the date that the Term Loan is funded hereunder shall not be later than December 4, 2020; and
Agent shall have received (a) a certificate of the chief financial officer (or, in the absence of a chief financial officer, the chief executive officer) of Borrower, in his or her capacity as such and not in his or her individual capacity, in form and substance satisfactory to Agent in its Permitted Discretion (each, a “Closing Certificate”), certifying that after giving effect to the transactions and the Term Loan the requirements of clause (j) above have been met and attaching a true, correct and complete calculation of the financial covenants set forth in Section 6.19 evidencing pro forma compliance therewith and (b) a Borrowing Base Certificate, executed by a Responsible Officer of Borrower.
REPRESENTATIONS AND WARRANTIES
Borrower and, from and after the Initial Term Loan Funding Date, each other Credit Party represents and warrants, as of the Closing Date and as of the date of any Request for Revolving Advance and the making of each Advance, as follows:
Organization and Authority
Borrower is a limited liability company, duly organized, validly existing and in good standing under the laws of its state of organization. Each Guarantor is a corporation, duly organized, validly existing and in good standing under the laws of its state of organization. Each
Credit Party (a) has all requisite power and authority to own its properties and assets (including, without limitation, the Collateral) and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (b) is duly qualified to do business in each jurisdiction in which failure to so qualify could reasonably be likely to have or result in a Material Adverse Effect. Each Credit Party has all requisite power and authority (i) to execute, deliver and perform the Loan Documents to which it is a party, (ii) with respect to Borrower, to acquire the Pledged Leases and other Collateral under the Purchase and Sale Agreement, (iii) to consummate the transactions contemplated under the Loan Documents to which it is a party, and (iv) to grant the Liens with regard to the Collateral pursuant to the Security Documents to which it is a party. Borrower has all requisite power and authority to borrow hereunder. No Credit Party is an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, nor controlled by such an “investment company.” No transaction contemplated in this Agreement or the other Loan Documents requires compliance with any bulk sales act or similar law.
Loan Documents
The execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party, and the consummation by such parties of the transactions contemplated thereby, (a) have been duly authorized by all requisite action of such parties and have been duly executed and delivered by such parties; (b) do not violate any provisions of (i) any Applicable Law, (ii) any order of any Governmental Authority binding on any such party or any of their respective properties, or (iii) the limited liability company agreement (or any other equivalent governing agreement or document) of any such party, or any agreement between any such party and its equity owners or among any such equity owners; (c) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which any such party is a party, or by which the properties or assets of such party are bound, the effect of which could reasonably be expected to be, have or result in a Material Adverse Effect; (d) except as set forth herein or therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of such party, and (e) except for filings in connection with the perfection of Agent’s Liens, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person that has not been obtained. When executed and delivered, each of the Loan Documents will constitute the legal, valid and binding obligation of each party signatory thereto (other than Agent and the Lenders), enforceable against such parties in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors’ rights generally and to the effect of general principles of equity (whether in a proceeding at law or in equity). The Purchase and Sale Agreement is the only agreement pursuant to which the Borrower purchases the Pledged Leases and the related Collateral. The Borrower has furnished to the Agent a true, correct and complete copy of the Purchase and Sale Agreement. The purchase by the Borrower under the Purchase and Sale Agreement constitutes a true sale at a fair market valuation enforceable against creditors of Holdings and is not merely a financing or extension of credit.
Subsidiaries, Capitalization and Ownership Interests
Borrower has no Subsidiaries as of the Closing Date. 100% of the outstanding Equity Interest in the Borrower is directly owned (both beneficially and of record) by Holdings. The outstanding ownership or voting interests of Borrower have been duly authorized and validly issued. Schedule 5.3 lists the managers or managing members or directors of each Credit Party as of the Ninth Amendment Effective Date. Borrower does not (i) own any Investment Property or (ii) own any interest or participate or engage in any joint venture, partnership or similar
arrangements with any Person. Borrower will only purchase Leases and other Collateral pursuant to the Purchase and Sale Agreement with Holdings.
Properties
Borrower is the lawful owner of, and has good title to, each Pledged Lease, free and clear of any Liens (other than the Lien of this Agreement and any Permitted Liens).
Other Agreements
No Credit Party is (a) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would have a Material Adverse Effect its ability to execute and deliver, or perform under, any Loan Document or to pay the Obligations or (b) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period, could reasonably be expected to be, have or result in a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to be, have or result in a Material Adverse Effect.
Litigation
(a) No Credit Party is a party to any material pending or, to the knowledge of Borrower or Holdings, threatened action, suit, proceeding or investigation related to its respective business that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (b) there is no pending or, to the knowledge of any Credit Party, threatened action, suit, proceeding or investigation against any such Credit Party that could reasonably be expected to prevent or materially delay the consummation by such Credit Party of the transactions contemplated herein, (c) no Credit Party is a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority and (d) there is no action, suit, proceeding or investigation initiated by any Credit Party currently pending that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Tax Returns; Taxes
Each Credit Party has timely filed or caused to be timely filed all federal, state, local and foreign tax returns which are required to be filed by such Credit Party, has paid or caused to be paid all taxes shown thereon to be due and owing by it, and Borrower has paid or caused to be paid all property taxes due and owing by it with respect to any Inventory related to Pledged Leases except for (i) any taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings timely instituted and diligently pursued and with respect to which such Credit Party has set aside adequate reserves on its books in accordance with GAAP and which proceedings have not given rise to any Lien or (ii) any taxes or assessments which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Financial Statements and Reports
All financial statements and financial information relating to Borrower, Holdings or Parent Entity that have been or may hereafter be delivered to Agent by Borrower, Holdings or Parent Entity (a) are consistent with the books of account and records of Borrower, Holdings or Parent Entity, (b) have been prepared in accordance with GAAP, on a consistent basis
throughout the indicated periods, except that the unaudited financial statements contain no footnotes or year-end adjustments, and (c) present fairly in all material respects the financial condition, assets and liabilities and results of operations of Borrower, Holdings and Parent Entity at the dates and for the relevant periods indicated in accordance with GAAP on a basis consistently applied. Neither Borrower, Holdings nor Parent Entity has any material obligations or liabilities of any kind required to be disclosed therein that are not disclosed in such financial statements, and since the date of the most recent financial statements submitted to Agent pursuant to Section 6.1, there has not occurred any Material Adverse Effect.
Compliance with Law
Each Credit Party (a) is in compliance with all Applicable Laws, and (b) is not in violation of any order of any Governmental Authority or other board or tribunal, except, in the case of both (a) and (b), where noncompliance or violation could not reasonably be expected to be, have or result in a Material Adverse Effect. No Credit Party has received any written notice that such Credit Party is not in material compliance in any respect with any of the requirements of any of the foregoing. No Credit Party has established or maintains or contributes (or has an obligation to contribute) to, or otherwise has any liability (including any liability as an ERISA Affiliate of another entity) with respect to any “employee benefit plan” that is covered by Title IV of ERISA or Section 412 of the Code. Each Credit Party has maintained in all material respects all records required to be maintained by any applicable Governmental Authority, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. Since its formation, Borrower has not engaged, directly or indirectly, in any business other than the activities set forth herein and in the Purchase and Sale Agreement and the Loan Documents.
Intellectual Property
Other than as provided on Schedule 5.10, as of the Ninth Amendment Affective Date, no Credit Party owns any patents or trademarks that are registered with the United States Patent and Trademark Office or any copyrights that are registered with the United States Copyright Office. No Credit Party is in breach of or default under the provisions of any license agreement, domain name registration or other agreement related to intellectual property, nor is there any event, fact, condition or circumstance which breach or default would reasonably be expected to be, have or result in a Material Adverse Effect.
Licenses and Permits; Labor
Each Credit Party is in compliance with and have all Permits necessary or required by Applicable Law or any Governmental Authority for the operation of their respective businesses as presently conducted and as proposed to be conducted except where noncompliance, violation or lack thereof could not reasonably be expected to be, have or result in a Material Adverse Effect. All Permits necessary or required by Applicable Law or Governmental Authority for the operation of each Credit Party’s businesses are in full force and effect and not in known conflict with the rights of others, except where such conflict or lack of being in full force and effect could not reasonably be expected to be, have or result in a Material Adverse Effect. No Credit Party has been involved in any labor dispute, strike, walkout or union organization which could reasonably be expected to be, have or result in a Material Adverse Effect.
No Default; Solvency
There does not exist any Default or Event of Default. Each Credit Party is and, after giving effect to the transactions and the Indebtedness contemplated by the Loan Documents, will be solvent and able to meet its obligations and liabilities as they become due, and the assets of the each Credit Party, at a Fair Valuation, exceed the total liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities) of such Credit Party, and no unreasonably small capital base exists with respect to such Credit Party.
Disclosure
No Loan Document nor any other agreement, document, certificate, or statement furnished to Agent and Lenders and prepared by or on behalf of any Credit Party in connection with the transactions contemplated by the Loan Documents, nor any representation or warranty made by any Credit Party in any Loan Document, contains any untrue statement of material fact or omits to state any fact necessary to make the factual statements therein taken as a whole not materially misleading in light of the circumstances under which it was furnished. There is no fact known to any Credit Party which has not been disclosed to Agent in writing which could reasonably be expected to be, have or result in a Material Adverse Effect.
Existing Indebtedness; Investments, Guarantees and Certain Contracts
No Credit Party (a) has any outstanding Indebtedness, except Indebtedness under the Loan Documents or (b) owns or holds any equity or long-term debt investments in, or have any outstanding advances to or any outstanding guarantees for, the obligations of, or any outstanding borrowings from, any other Person, except as permitted under Section 7.3.
Affiliated Agreements
Except for the Loan Documents, the Charter and Good Standing Documents of the Borrower and those set forth on Schedule 5.15, (i) there are no existing or proposed agreements, arrangements, understandings or transactions between Borrower, on the one hand, and Borrower’s members, managers, managing members, investors, officers, directors, stockholders, other equity holders, employees, or Affiliates or any members of their respective families, on the other hand, and (ii) to Borrower’s knowledge, none of the employees or officers of the Parent Entity or its Subsidiaries are directly or indirectly, indebted to or have any direct or indirect ownership or voting interest in any Person with which Borrower has a business relationship or which competes with Borrower (except that any such Person may own Equity Interests in any publicly traded company that may compete with Borrower.
Insurance
As of the Closing Date, Borrower has in full force and effect such insurance policies as are listed on Schedule 5.16.
Names; Location of Offices, Records and Collateral; Deposit Accounts and Investment Property
No Credit Party nor any of its predecessors has conducted business under or used any name (whether corporate, partnership or assumed) other than as shown on Schedule 5.17A. Each Credit Party is (or such Credit Party’s predecessors were) the sole owner(s) of all of its names listed on Schedule 5.17A, and any and all business done and invoices issued in such names are such Credit Party’s (or any such predecessors’) sales, business and invoices. Each Credit Party maintains its respective places of business and chief executive offices only at the locations set forth on Schedule 5.17B or, after the Closing Date, as additionally disclosed to Agent in writing, and all Leases of Borrower arise, originate and are located, and all of the Collateral and all books and records in connection therewith or in any way relating thereto or evidencing the Collateral are located and shall be only, in and at such locations (other than (i) Deposit Accounts, and (ii) Collateral in the possession of Agent or the Backup Servicer). All of the Collateral is located
only in the continental United States. Schedule 5.17C lists all of Borrower’s Deposit Accounts and Investment Property as of the Closing Date.
Non-Subordination
Other than with respect to the payment priorities of the Class A Loans and the Class B Loans set forth herein, none of the Obligations are subordinated in any way to any other obligations of Borrower, any other Credit Party or to the rights of any other Person.
Leases
With respect to each Pledged Lease, Borrower continuously warrants and represents to Agent and Lenders that until the Maturity Date and so long as any of its Obligations remain unpaid: (i) as of the Closing Date and each date any Revolving Advance is made, each of the Pledged Leases set forth in the Borrowing Base Certificate delivered in connection therewith constitutes an Eligible Lease and (ii) in determining which Leases are “Eligible Leases,” Lender may rely upon all statements or representations made by Borrower.
Servicing
Borrower has entered into the each Servicing Agreement with Servicer pursuant to which Borrower has engaged each Servicer, as servicer and as Borrower’s agent, to monitor, manage, enforce and collect the Pledged Leases and disburse any collections in respect thereof as provided by the applicable Servicing Agreement, subject to this Agreement. Borrower acknowledges that each Servicer has the requisite knowledge, experience, expertise and capacity to service the Pledged Leases.
Legal Investments; Use of Proceeds
No Credit Party is engaged in the business of extending credit for the purpose of purchasing or carrying any “margin stock” or “margin security” (within the meaning of Regulations T, U or X issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Loan will be used to purchase or carry any margin stock or margin security or to extend credit to others for the purpose of purchasing or carrying any margin stock or margin security.
Broker’s or Finder’s Commissions
No broker’s, finder’s or placement fee or commission will be payable to any broker or agent engaged by Borrower or any of its officers, directors or agents with respect to the Loan or the transactions contemplated by this Agreement. Each Credit Party, jointly and severally, agree to indemnify Agent and each Lender and each of their respective Affiliates and hold Agent and each Lender and each of their respective Affiliates harmless from and against any and all claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel, but limited, in the case of legal fees and expenses, to the reasonable and documented fees, disbursements and expenses of one regulatory counsel and one other firm of outside counsel to Agent and each Lender and each of their respective Affiliates taken as a whole and, solely in the case of an actual or potential conflict of interest, one additional firm of outside counsel to each group of similarly situated Persons)), which may be imposed on, incurred by or asserted against Agent, any Lender or any of their respective Affiliates with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to broker’s, finder’s or placement fees or similar commissions, whether or not payable by such Credit Party or their respective Affiliates,
alleged to have been incurred in connection with such transactions, other than any broker’s or finder’s fees payable to Persons engaged by Agent and/or Lenders or their respective Affiliates without the knowledge of the such Credit Party. Agent and each Lender, jointly and severally, agree to indemnify Credit Parties and each of their respective Affiliates and hold Credit Parties and each of their respective Affiliates harmless from and against any and all claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel, but limited, in the case of legal fees and expenses, to the reasonable and documented fees, disbursements and expenses of one firm of outside counsel to Credit Parties and each of their respective Affiliates taken as a whole and, solely in the case of an actual or potential conflict of interest, one additional firm of outside counsel to each group of similarly situated Persons) which may be imposed on, incurred by or asserted against any Credit Party or any of their respective Affiliates with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to broker’s, finder’s or placement fees or similar commissions, whether or not payable by the Agent, any Lender or their respective Affiliates, alleged to have been incurred in connection with such transactions, other than any broker’s or finder’s fees payable to Persons engaged by any Credit Party or their respective Affiliates without the knowledge of the Agent or Lenders.
Anti-Terrorism; OFAC
(i) Neither Borrower, Holdings nor any Guarantor nor any Person controlling or controlled by Borrower, Holdings or any Guarantor, nor any Person for whom Borrower, Holdings or any Guarantor is acting as agent or nominee in connection with this transaction (“Transaction Persons”) (1) is a Person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (2) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such Person in any manner violative of Section 2 of such executive order, or (3) is a Person on the list of Specially Designated Nationals and Blocked Persons or is in violation of the limitations or prohibitions under any other OFAC regulation or executive order.
No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
Borrower acknowledges by executing this Agreement that Agent has notified Borrower and each Guarantor that, pursuant to the requirements of the Patriot Act, Agent is required to obtain, verify and record such information as may be necessary to identify Borrower and each Guarantor (including, without limitation) the name and address of Borrower and each Guarantor) in accordance with the Patriot Act.
Survival
Borrower hereby makes the representations and warranties contained herein with the knowledge and intention that Agent and Lenders are relying and will rely thereon. All such
representations and warranties will survive the execution and delivery of this Agreement, the Closing and the making of any and all Advances.
AFFIRMATIVE COVENANTS
Each Credit Party covenants and agrees that, until the indefeasible payment in full in cash, of all the Obligations (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made) and termination of this Agreement:
Financial Statements, Reports and Other Information
Financial Reports. Borrower shall furnish to Agent (i) as soon as available and in any event within thirty (30) calendar days after the end of each calendar month of Parent Entity, unaudited monthly financial statements of Parent Entity and its Subsidiaries on a consolidated basis consisting of a balance sheet and statements of income and cash flows as of the end of the immediately preceding calendar month, (ii) as soon as available and in any event within one hundred fifty (150) calendar days after the end of each fiscal year of Parent Entity, audited annual financial statements of Parent Entity on a consolidated and consolidating basis, including the notes thereto, consisting of a balance sheet at the end of such completed fiscal year and the related statements of income, retained earnings, cash flows and owners’ equity for such completed fiscal year, which financial statements shall be prepared and certified without qualification by Deloitte & Touche LLP or such other independent certified public accounting firm mutually agreeable to Agent and Borrower and accompanied by related management letters, if available and (iii) no later than thirty (30) days after the beginning of Parent Entity’s and Borrower’s fiscal years commencing with fiscal year ended December 31, 2019, a month by month projected operating budget and cash flow of Parent Entity and its Subsidiaries for such fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter). All such financial statements shall be prepared in accordance with GAAP consistently applied with prior periods (subject, as to interim statements, to lack of footnotes and year-end adjustments). With the quarterly financial statements of Parent Entity, Borrower shall also deliver a compliance certificate of a Responsible Officer of Borrower in the form satisfactory to Agent stating that (A) such person has reviewed the relevant terms of the Loan Documents and the condition of Borrower, (B) no Default or Event of Default has occurred or is continuing, or, if any of the foregoing has occurred or is continuing, specifying the nature and status and period of existence thereof and the steps taken or proposed to be taken with respect thereto and (C) no Material Adverse Effect has occurred since the last delivery of such monthly financial statements.
Servicing Reports and Information; Borrowing Base Certificates.
As soon as available, and in any event not later than the fifteenth (15th) of each calendar month or if such day is not a Business Day than on the immediately preceding Business Day (or, upon the request of Agent, at any time following the occurrence and continuance of an Event of Default), Borrower shall cause Servicer to deliver to Agent and Backup Servicer, a Monthly Servicing Report, in computer file form reasonably accessible and usable by Agent and Backup Servicer showing, as of the end of the immediately preceding calendar month, with respect to all Leases, the information contained in the form of Monthly Servicing Report attached hereto as Exhibit C (which Monthly Servicing Report shall include Servicer’s calculation of the Current Lease Balance with respect to each Pledged Lease) and such other matters as Agent may from time to time reasonably request, all prepared by Servicer and certified as to being true, correct and complete in all material respects by the Servicer. Together with the Monthly Servicing Report delivered to Agent as set forth above, Borrower shall deliver to Agent, in a form and substance acceptable to Agent, a monthly roll rate report and first
payment default report (each in form and substance and with details and reporting information acceptable to Agent), on the entire portfolio of Leases owned by Borrower.
As soon as available, and in any event not later than each Payment Date (or, upon the request of Agent, at any time following the occurrence and continuance of an Event of Default), Borrower shall cause Servicer to deliver to Backup Servicer, in computer “data tape” form, all of the loan-level data generated by the Servicer with respect to the Leases, (including, but not limited to, data related to collections, defaults, Servicer’s calculation of the Current Lease Balance with respect to each Pledged Lease, and such other matters as Agent or Backup Servicer may from time to time reasonably request), all prepared by Servicer and certified as to being true, correct and complete in all material respects by the Servicer.
As soon as available, and in any event not later than each Payment Date (or, upon the request of Agent, at any time following the occurrence and continuance of an Event of Default), Borrower shall deliver a Borrowing Base Certificate to Agent, without regard to whether any Revolving Advances have been requested in the calendar week in which such Payment Date (or request) occurs.
As soon as available, and in any event not later than the last Business Day of each month (or, upon the request of Agent, at any time following the occurrence and continuance of an Event of Default) until the Positive Net Income Trigger Date, Borrower shall deliver to Agent copies off all bank statements with respect to the Interest Reserve Account.
The Borrower shall promptly furnish or cause to be furnished to the Agent any other financial information regarding Borrower and/or the Pledged Leases reasonably requested by the Agent.
Notices. Each Credit Party shall promptly, and in any event within five (5) Business Days after the end of each calendar month notify Agent in writing of (i) any notice any Credit Party or any of their respective Subsidiaries received of any material litigation, claims, offsets, protests or disputes asserted by any Account Lessee with respect to the Pledged Leases, (ii) any pending or threatened legal action, litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative or regulatory proceeding brought or initiated or threatened in writing by or against any Credit Party or otherwise affecting or involving or relating to any Credit Party or any of its property or assets in an amount in excess of $500,000, (iii) any Default or Event of Default, which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto, (iv) any other development, event, fact, circumstance or condition that could reasonably be expected to be, have or result in a Material Adverse Effect, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (v) any matter(s) known to any Credit Party and in existence at any one time materially adversely affecting the value, enforceability or collectability of any material portion of the Collateral, (vi) receipt of any material notice, inquiry, investigation, legal action or proceeding or request from any Governmental Authority, (vii) receipt of any notice or document by any Credit Party regarding any lease of real property of Borrower (and such notice shall include a copy of the notice or document), (viii) any lease of real property entered into by any Credit Party after the Closing Date, (ix) the filing, recording or assessment of any federal, state, local or foreign tax lien against the Collateral or any Credit Party which becomes known to such Credit Party, (x) any action taken or, to Borrower’s knowledge, threatened to be taken by any Governmental Authority (or any notice of any of the foregoing) with respect to Borrower which could reasonably be expected to be, have or result in a Material Adverse Effect or with respect to any Collateral, (xi) any change in the corporate name of any Credit Party, and/or (xii) the loss, termination or expiration of any material contract to which such Credit Party is a party or by which its properties or assets are subject or bound.
Notwithstanding the foregoing, Agent may, upon written notice to Parent Entity, temporarily waive the reporting requirements of Parent Entity and its Subsidiaries under this Section 6.1 until such date as indicated by Agent in a subsequent written notice provided to Parent Entity.
Payment of Obligations
Borrower shall make full and timely indefeasible payment in cash of the principal of and interest on the Loan and all other Obligations when due and payable (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made), provided, however, that to the extent the Agent has indicated in any Allocation Notice that amounts on deposit in the Collateral Account are to be applied as of any applicable Payment Date to the amounts due and owing pursuant to Section 2.4, and such application is actually made on such Payment Date, or in the event Agent, in breach of this Agreement, fails to make such application, Borrower shall be deemed to have made all such payments as of the Payment Date.
Conduct of Business and Maintenance of Existence and Assets
Each Credit Party shall (a) maintain all of its tangible Collateral used or useful in its business in good repair, working order and condition (normal wear and tear excepted and except as may be disposed of in the ordinary course of business and in accordance with the terms of the Loan Documents), except in each case where the failure to do so individually or in the aggregate could not reasonably be expected to be, have or result in a Material Adverse Effect, (b) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and good standing in its jurisdiction of formation and each other jurisdiction in which the ownership or lease of property or the nature of its business makes such Permits or qualification necessary and in which failure to maintain such Permits or qualification could reasonably be expected to be, have or result in a Material Adverse Effect; (c) remain in good standing and maintain operations in all jurisdictions in which currently located, except where the failure to remain in good standing or maintain operations could not reasonably be expected to be, have or result in a Material Adverse Effect, and (d) maintain, comply with and keep in full force and effect its existence and all intellectual property and Permits necessary to conduct its business, except in each case where the failure to maintain, comply with or keep in full force and effect could not reasonably be expected to be, have or result in a Material Adverse Effect.
Compliance with Legal and Other Obligations
Each Credit Party shall (a) comply with all Applicable Law except where any failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (b) pay all taxes, assessments, fees, governmental charges, claims for labor, supplies, rent and all other obligations or liabilities of any kind when due and payable, except in each case liabilities being contested in good faith and against which adequate reserves have been established in accordance with GAAP consistently applied, (c) perform in accordance with its terms each contract, agreement or other arrangement to which it is a party or by which it or any of the Collateral is bound except where any failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and (d) properly file all reports required to be filed by such Credit Party with any Governmental Authority, except under clauses (a), (b), (c), and/or (d) where the failure to comply, pay, file or perform would not reasonably be expected to be, have or result in a Material Adverse Effect.
Insurance
Each Credit Party shall keep all of its insurable properties and assets adequately insured in all material respects against losses, damages and hazards as are customarily insured against by businesses of similar size engaging in similar activities or lines of business or owning similar assets or properties and at least the minimum amount required by this Agreement, Applicable Law and any agreement to which any such Person is a party or pursuant to which such Person provides any services; all such insurance policies and coverage levels shall (a) be satisfactory in form and substance to Agent in its Permitted Discretion (it being understood that the insurance policies of the Credit Parties provided to Agent shall be deemed satisfactory to the Agent until the Agent provides notice to the Credit Parties to the contrary), (b) name Agent, for the benefit of itself and the other Lenders, as a loss payee or additional insured thereunder, as applicable, and (c) expressly provide that such insurance policies and coverage levels cannot be altered, amended or modified in any manner which is adverse to Agent and/or Lenders, or canceled or terminated without thirty (30) calendar days prior written notice to Agent, and that they inure to the benefit of Agent and Lenders, notwithstanding any action or omission or negligence of or by any Credit Party, or any insured thereunder.
True Books
Each Credit Party shall (or, with respect to Borrower, at all times that Servicer is an Affiliate of Borrower, shall cause Servicer to, on its behalf) (a) keep true, complete and accurate (in accordance with GAAP, except for the omission of footnotes and year-end adjustments in interim financial statements) books of record and account in accordance with commercially reasonable business practices in which true and correct entries are made of all of its dealings and transactions in all material respects; and (b) set up and maintain on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business.
Inspection; Periodic Audits; Quarterly Review
Each Credit Party shall permit, and shall cause the Servicer to permit, the representatives of Agent and each Lender, at, in the case of Agent only, the expense of Credit Parties (which expenses must be reasonably incurred), from time to time during normal business hours upon reasonable notice, to (a) visit and inspect Servicer’s offices, Credit Parties’ offices or properties or any other place where Collateral is located to inspect the Collateral and/or to examine and/or audit all of Borrower’s and Servicer’s books of account, records, reports and other papers (provided, however, that at all times, Credit Parties shall be responsible for the costs and expenses of all such visits) (b) make copies and extracts therefrom, and (c) discuss Credit Parties’ business, operations, prospects, properties, assets, liabilities, condition and/or Pledged Leases with its officers and independent public accountants (and by this provision such officers and accountants are authorized to discuss the foregoing); provided, however, so long as an Event of Default has occurred and is continuing, no such notice shall be required; provided, further that, so long as no Event of Default has occurred and is continuing not more than four (4) such visits shall take place annually. Additionally, Borrower shall cause Servicer to permit Agent to have online access to Servicer’s internal electronic reporting system, including without limitation tracking of collections on the Pledged Leases and agings of the same, and summaries for each of the Pledged Leases. Borrower shall cause Servicer’s officers to meet with Agent at least once per quarter, if requested by Agent (which meeting may take place telephonically if requested by Agent), to review the Servicer’s operations, prospects, properties, assets, liabilities, condition and/or Pledged Leases.
Further Assurances; Post Closing
At Credit Parties’ cost and expense, each Credit Party shall (a) within five (5) Business Days (or such longer period in the case of actions involving third parties as determined by Agent in its Permitted Discretion) after Agent’s written demand, take such further actions, obtain such consents and approvals and shall duly execute and deliver such further agreements, assignments, instructions or documents as Agent may request in its Permitted Discretion in order to ensure the validity and effectiveness of this Agreement and the Loan Documents and the consummation of the transactions contemplated thereby, whether before, at or after the performance and/or consummation of the transactions contemplated hereby or the occurrence and during the continuation of a Default or Event of Default, (b) without limiting and notwithstanding any other provision of any Loan Document, execute and deliver, or cause to be executed and delivered, such agreements and documents, and take or cause to be taken such actions, and otherwise perform, observe and comply with such obligations, as are set forth on Schedule 6.8, and (c) upon the exercise by Agent, any Lender or any of its Affiliates of any power, right, privilege or remedy pursuant to any Loan Document or under Applicable Law or at equity following the occurrence and during the continuance of an Event of Default which requires any consent, approval, registration, qualification or authorization of such Person (including, without limitation, any Governmental Authority), execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that may be so required for such consent, approval, registration, qualification or authorization.
Borrower shall within thirty (30) days of the Ninth Amendment Effective Date deliver a trademark security agreement in form and substance satisfactory to Agent in its sole discretion with respect to the trademark identified on Schedule 5.10.
Borrower shall within five (5) Business Days of the Ninth Amendment Effective date deliver to Agent (i) a deposit account control agreement duly executed by Holdings, Agent and Silicon Valley Bank and (ii) a deposit account control agreement duly executed by Parent Entity, Agent and Silicon Valley Bank.
Payment of Indebtedness
Except as otherwise prescribed in the Loan Documents, each Credit Party shall pay, discharge or otherwise satisfy when due and payable (subject to applicable grace periods and, in the case of trade payables, to ordinary course of payment practices) all of its obligations and liabilities to the extent that the failure to pay, discharge or otherwise satisfy such obligations or liability could reasonably be expected have or result in a Material Adverse Effect, except when the amount or validity thereof is being contested in good faith by appropriate proceedings and such reserves shall have been made in accordance with GAAP consistently applied.
Other Liens
If Liens with respect to any Credit Party or its assets (other than Permitted Liens) exist, such Credit Party immediately shall take all actions, and execute and deliver all documents and instruments necessary to promptly release and terminate such Liens. Immediately upon discovery of any Lien other than a Permitted Lien, Borrower shall notify Agent.
Use of Proceeds
Borrower shall use the proceeds from each Advance under the Loan only for (a) the purposes set forth in the recitals to this Agreement, (b) for the purposes set forth in Section 2.4(b) or as otherwise expressly authorized herein or in the other Loan Documents, (c) to pay the Term
Loan OID on the Initial Term Loan Funding Date and (d) to pay other fees, costs and expenses approved by Agent in connection with the Ninth Amendment.
Collateral Documents; Security Interest in Collateral
On demand of Agent, Credit Parties shall (or, at all times that Servicer is an Affiliate of Borrower, shall cause Servicer to) make available to Agent copies of any and all documents, instruments, materials and other items that relate to, secure, evidence, give rise to or generate or otherwise involve Collateral, including, without limitation, the Leases to the extent Credit Parties or Servicer has access to such documents, instruments, materials and other items. Each Credit Party shall (or, at all times that Servicer is an Affiliate of Borrower, shall cause Servicer to) (i) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise requested by Agent, in its Permitted Discretion, to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect such Credit Party’s interest in the Collateral and the pledge of the Collateral to Agent’s perfected first priority (other than with respect to property or assets covered by Permitted Liens) Lien on the Collateral (and each Credit Party irrevocably grants Agent the right, at Agent’s option, to file any or all of the foregoing), (ii) maintain, or cause to be maintained, at all times, the pledge of the Collateral to Agent and Agent’s perfected first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien on the Collateral, and (iii) defend the Collateral and Agent’s first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Agent, and pay all costs and expenses (including, without limitation, in-house documentation and diligence fees and expenses and reasonable attorneys’ fees and expenses) in connection with such defense, which may, at Agent’s discretion, be added to the Obligations. Borrower acknowledges and agrees that Agent is authorized, pursuant to the power of attorney granted to Agent by Borrower pursuant to Section 2.10 of this Agreement, to perform any or all of the obligations or duties of Borrower pursuant to this Section 6.12 following the occurrence and during the continuance of an Event of Default.
Servicing Agreement; Backup Servicer
Borrower shall enter into a Backup Servicing Agreement as of the Closing Date. From and after the Closing Date, Borrower and Servicer shall be required to provide the Monthly Servicing Report in computer “data tape” form to Backup Servicer and Agent in a manner reasonably acceptable to Agent as described in Section 6.1(b) hereof. Borrower shall cause Servicer to promptly provide Agent with true and complete copies of all written notices concerning defaults, amendments, waivers notice information or other matters that are material to a Pledged Lease sent or received by any Servicer under any Servicing Agreement. Borrower shall cause Servicer to service all Pledged Leases in accordance with, in all material respects, the terms of each Servicing Agreement, Borrower shall comply, in all material respects, with the provisions, terms and conditions set forth in such Servicing Agreement and Borrower shall not terminate any Servicing Agreement without Agent’s prior written consent at its sole discretion.
Borrower agrees not to, and will cause Servicer not to, interfere with Backup Servicer’s performance of its duties under any Backup Servicing Agreement or to take any action that would be inconsistent in any way with the terms of such Backup Servicing Agreement. Borrower covenants and agrees to, and will cause Servicer to, provide any and all information and data requested by Agent (in its Permitted Discretion) to be provided promptly to Backup Servicer in the manner and form so requested by Agent. Upon the occurrence and during the continuance of any Event of Default, Agent shall have the right to immediately substitute Backup
Servicer, Agent or an Affiliate of Agent or another third party servicer acceptable to Agent for Servicer in all of Servicer’s roles and functions as contemplated by the Loan Documents and the Servicing Agreements. In connection with any substitution of Backup Servicer, Agent, Affiliate of Agent or another third party servicer for Servicer, Borrower shall (and, at all times that Servicer is an Affiliate of Borrower, shall cause Servicer to) cooperate with Agent and Backup Servicer in connection with such substitution and to take such further actions, obtain such consents and approvals, to deliver such documents and to duly execute and deliver such further agreements, assignments, instructions or documents as each of Agent or Backup Servicer may request in its Permitted Discretion in order to effectuate such substitution, in each case, at no cost or expense to Agent or any Lender.
[RESERVED]
Collections
Borrower and Servicer each agree and covenant that it shall:
Instruct or cause all Account Lessees to be instructed to either:
send all Scheduled Payments directly to the Collateral Account; or
in the alternative, make Scheduled Payments by way of pre-authorized debits from a deposit account of such Account Lessee pursuant to a PAC or from a credit card of such Account Lessee pursuant to a Credit Card Account from which Scheduled Payments shall be electronically transferred to the Collateral Account.
In the case of funds transfers pursuant to a PAC or Credit Card Account, take, or cause each of the Servicer, the Collateral Account Bank and/or the Agent to take, all necessary and appropriate action to ensure that each such pre-authorized debit or credit card payments is credited directly to the Collateral Account;
If the Borrower or Servicer shall receive any collections or other proceeds of the Collateral, hold such collections or proceeds in trust for the benefit of the Agent and deposit such collections into the Collateral Account within two (2) Business Days after such amounts so received and held by Borrower or Servicer equals or exceeds $25,000; and
Prevent the deposit into the Collateral Account of any funds other than collections from Leases or other funds to be deposited into the Collateral Account under this Agreement or the other Loan Documents (provided that, this covenant shall not be breached to the extent that such other funds are inadvertently or mistakenly deposited into the Collateral Account if Borrower or Servicer promptly requests that such funds be segregated and removed from the Collateral Account in accordance with Section 2.12(b)).
Notwithstanding anything to the contrary in this Section 6.15, Borrower hereby authorizes Agent, at any time after the occurrence of an Event of Default, to send directions to each Account Lessee to make payments directly to the Collateral Account.
Right of First Refusal
Subject to the last sentence of this paragraph, in addition to the rights granted to Agent and the Lenders pursuant to Section 2.13 hereof, Borrower, Holdings and Parent Entity hereby agree that, if at any time prior to the date that all of the Obligations (other than indemnity obligations of Borrower that are not then due and payable or with respect to which no claim has been made) have been indefeasibly paid in full in cash and the Revolving Loan Commitments
terminated, Borrower, Holdings or any Subsidiary of Borrower, Holdings or Parent Entity shall have obtained a bona fide third-party offer (the “Third-Party Offer”) (for the avoidance of doubt, a bonafide, fully negotiated and executed term sheet delivered by the applicable lender to Borrower, Holdings or any Subsidiary of Borrower, Holdings or Parent Entity, as applicable, together with a commitment letter, if any, shall qualify as a “Third-Party Offer” hereunder) for (a) senior debt financing or refinancing of the Loan or the financing, refinancing or acquisition of any Leases to be originated, acquired or otherwise held by Holdings, Borrower, Parent Entity or any Subsidiary of Borrower, Holdings or Parent Entity that is formed for the purpose of originating Leases or (b) with respect to Borrower, Holdings, Parent Entity or any Subsidiary of Borrower, Holdings or Parent Entity, for senior or junior debt financing of any type and with respect to any type of collateral or any business unit, Borrower, Holdings or Parent Entity shall, in writing within five (5) Business Days of receipt of such offer, promptly inform Agent (such writing to Agent is referred to herein as the “First Refusal Offer”) of such Third-Party Offer and the terms and conditions of such Third-Party Offer (and, if such Third-Party Offer is in writing, shall attach a copy of such Third-Party Offer to such First Refusal Offer) and, in such First Refusal Offer, shall offer to Agent a right of first refusal in respect of such financing or refinancing. Agent’s right of first refusal shall grant Agent the right to, within fifteen (15) days after the receipt of such First Refusal Offer, deliver a writing to Borrower, Holdings and Parent Entity (the “Acceptance”) stating that Agent and Lenders agree to extend such financing on Material Terms which shall be the same or more favorable (taken as a whole) to the applicable borrower than the Material Terms of financing under such Third-Party Offer (as such Material Terms were communicated to Agent by Borrower, Holdings or Parent Entity or such Affiliate), it being agreed and understood that, with respect to any such Third-Party Offer, the (i) aggregate principal amount, (ii) pricing (including, without limitation, interest rate, closing, commitment, structuring, arrangement or similar fees and original issue discount) and payment and prepayment terms and conditions, (iii) term and/or duration, (iv) financial covenants, borrowing base or availability, (v) events of default, (vi) material conditions to closing and borrowing, (vii) operational covenants, including as to debt, liens, investments, prepayments and repayments of other debt, use of proceeds, dividends and distributions, reporting, access to cash, and (viii) collateral and transaction structure (with respect to any financing, such material terms are referred to as “Material Terms”). Upon receipt of the Acceptance by Borrower, Holdings or Parent Entity, Agent and one or more of the Lenders or their respective Affiliates, on the one hand, and Borrower, Holdings, Parent Entity or the applicable Subsidiary, on the other hand, shall, in good faith negotiate an agreement for such financing on the terms set forth in such Acceptance (subject to the satisfaction of appropriate conditions in respect of due diligence, documentation and other customary and commercial conditions precedent set forth in (or incorporated by reference) in the Acceptance). If Agent shall have declined to exercise its right under such First Refusal Offer, or shall have failed to timely respond within fifteen (15) Business Days to such First Refusal Offer or shall have offered a counterproposal to Borrower, Holdings or Parent Entity in respect of such First Refusal Offer, Borrower, Holdings, Parent Entity or such applicable Subsidiary shall be free to close such Third-Party Offer within one hundred twenty (120) days of the date of such First Refusal Offer on terms substantially similar to the terms thereof set forth in such Third-Party Offer (as communicated to Agent). If Borrower, Holdings, Parent Entity or such applicable Subsidiary shall have failed to so close such financing within said one hundred twenty (120) days or if the material terms of such financing are modified from the description of such terms in the Third-Party Offer, then a new right of first refusal for the benefit of Agent with respect to such financing shall immediately arise. Borrower, Holdings and Parent Entity agree to inform any Person making a Third-Party Offer of Agent’s and Lender’s rights under this Section 6.16 in respect thereof. Notwithstanding the foregoing, the rights granted to Agent and the Lenders pursuant this Section 6.16 shall not apply following the Public Company Transition Date with respect to any Third-Party Offer for a bond issuance, public securitization or a syndicated corporate credit facility. For the avoidance of doubt, any refinancing of the Class A Obligations with a financing similar in nature to the terms of this Agreement shall be subject to a right of first refusal under this Section 6.16.
Borrower and Holdings covenant and agree not to form, or consent to or otherwise acquiesce in the formation of, any Affiliate, or otherwise use any Subsidiary existing on the Closing Date, to originate, acquire or finance any Leases in circumvention of the intent of the covenants, agreements and obligations set forth in this Section 6.16.
Interest Reserve Account.
Until the Positive Net Income Trigger Date, Holdings shall maintain the existence of the Interest Reserve Account and at all times keep on deposit the amounts required by the definition thereof.
Board of Directors; Observer Rights.
Effective as of the Closing Date until the Public Company Transition Date, Agent (or its designee) shall have the right to designate two (2) representatives (each, a “Designee”) to: (a) receive prior written notice of all meetings (both regular and special) of Parent Entity’s or Holdings’ board of directors and each committee thereof (such notice to be delivered or mailed as specified in Section 12.5 at the same time as notice is given to the members of such board and/or committee) held or to be held prior to the Public Company Transition Date; (b) be entitled to attend (or, at the option of such representatives, monitor by telephone) all such meetings at the Designee’s sole cost and expense; (c) until the Public Company Transition Date, receive all notices, information and reports which are furnished or made available to the members of such board (solely in their capacity as a “board member”) and/or committee at the same time and in the same manner as the same is furnished or made available to such members; (d) until the Public Company Transition Date, be entitled to participate in all discussions conducted at such meetings; and (e) until the Public Company Transition Date, receive (to the extent and when so provided to the members of any such board) copies of the minutes of all such meetings. If any action is proposed to be taken after the Closing Date until the Public Company Transition Date by such board and/or committee by written consent in lieu of a meeting, Parent Entity or Holdings, as applicable, will provide a copy of such consent to such Designees, which shall be delivered or mailed as specified in Section 12.5 at the same time as notice is given to the members of such board and/or committee. Until the Public Company Transition Date, Parent Entity or Holdings, as applicable, will furnish or cause to be furnished such Designees with a copy of each such written consent promptly after it has become effective. Such Designees shall not constitute a member of such board and/or committee and shall not be entitled to vote on any matters presented at meetings of such board and/or committee or to consent to any matter as to which the consent of any such board and/or committee shall have been requested. The parties hereto agree that the Designees shall have no fiduciary duties or any other duties or responsibilities to Borrower, Parent Entity, Holdings or any of their respective Affiliates.
Financial Covenants.
Tangible Net Worth of Parent Entity. As of the end of each fiscal month, the Tangible Net Worth of Parent Entity and its Subsidiaries, on a consolidated basis, shall be greater than or equal to the sum of (i) $(18,500,000) plus (ii) the greater of (A) zero dollars and (B) fifty percent (50%) of all aggregate Parent Consolidated Net Income since April 30, 2019 (as determined in accordance with GAAP).
Liquidity. As of any date of determination, Parent Entity agrees that it shall not permit Liquidity to be less than $500,000 if the outstanding principal amount of the Loan is less than $25,000,000 and to be less than $1,000,000 if the outstanding principal amount of the Loan is greater than or equal to $25,000,000.
Total Advance Rate. As of the end of each fiscal month and as of the making of each Advance hereunder (before and after giving effect to such Advance), the Total Advance Rate shall not exceed (i) from the Initial Term Loan Funding Date to and including the first anniversary thereof, 130%, (ii) from the first anniversary of the Initial Term Loan Funding Date to and including the second anniversary thereof, 115% and (iii) at all times thereafter, 110%.
TTM Adjusted EBITDA. As of the end of each fiscal month, TTM Adjusted EBITDA, shall not be less than: (i) until the date that is six (6) months after the Initial Term Loan Funding Date, $20,000,000, (ii) during the period on and after the date that is six (6) months from the Initial Term Loan Funding Date and until (but excluding) the date that is twelve (12) months from the Initial Term Loan Funding Date, $25,000,000, (iii) during the period on and after the date that is twelve (12) months from the Initial Term Loan Funding Date and until (but excluding) the date that is eighteen (18) months from the Initial Term Loan Funding Date, $30,000,000, (iv) during the period on and after the date that is eighteen (18) months from the Initial Term Loan Funding Date and until (but excluding) the date that is twenty four (24) months from the Initial Term Loan Funding Date, $35,000,000 and (v) at all times thereafter, $40,000,000.
Preemptive Rights.
At any time prior to a Public Company Transition Date, except in connection with any initial public offering, a SPAC Transaction or any transaction that would result in a Change of Control or as otherwise expressly contemplated by this Agreement, Parent Entity and Holdings shall not issue any Equity Interests unless such issuance is in compliance with the following procedures:
Prior to the date of a proposed issuance of any Equity Interests, Parent Entity or Holdings shall deliver notice of such proposed issuance (an “Issuance Notice”) to Agent. The Issuance Notice shall specify (i) the number of Equity Interests and class of Equity Interests which Parent Entity or Holdings proposes to issue, the consideration to be received therefor and the date on which such consideration for such Equity Interests shall be paid (which date shall be no less than thirty (30) days from the date of delivery of the Issuance Notice); (ii) all of the material terms and conditions, including the terms and conditions of payment, upon which Parent Entity or Holdings proposes to issue such Equity Interests; (iii) the proportionate number of such Equity Interests that Agent shall have the option to purchase under this Section 6.20, which proportionate number shall be no less than ten percent (10%) of the number of Equity Interests which Parent Entity or Holdings proposes to issue (such proportionate number for Agent, its “Pro-Rata-Share”); and (iv) where the proposed purchasers of such Equity Interests are known, the identities of such proposed purchasers.
Upon delivery of an Issuance Notice, Agent shall have the right (exercisable by delivery to Parent Entity or Holdings, as applicable, of written notice within the thirty (30) day period following the date of delivery of the Issuance Notice), to purchase its Pro-Rata-Share of the offering at the price and on the terms and conditions contained therein. The foregoing preemptive rights shall be deemed waived by Agent if it does not exercise its preemptive right and pay for the Equity Interests within the period of time prescribed by the Issuance Notice in accordance with this Section 6.20.
Notwithstanding anything to the contrary contained in this Section 6.20, if the consideration to be received by Parent Entity or Holdings, as applicable, with respect to the issuance of Equity Interests specified in the Issuance Notice is other than cash to be paid upon the issuance of the Equity Interests (that is, if the consideration would constitute so-called “in-kind” property, such as membership interests or other Equity Interests), or if security is to be provided to secure the payment of any deferred portion of the purchase price, then Agent may
purchase such Equity Interests by making a cash payment at the time of the closing specified in the offer, in the amount of the reasonably equivalent value of the “in-kind” property specified in the Issuance Notice and/or may provide reasonably equivalent security to that provided in the Issuance Notice.
Federal Securities Laws. Each Credit Party shall promptly notify Agent in writing if any such Credit Party or any of their Subsidiaries (i) is required to file periodic reports under the Exchange Act, (ii) registers any securities under the Exchange Act or (iii) files a registration statement under the Securities Act.
Government Receivables. Take all steps necessary to protect Agent’s interest in the Collateral under the Federal Assignment of Claims Act, the Uniform Commercial Code and all other applicable state or local statutes or ordinances and deliver to Agent appropriately endorsed, any instrument or tangible chattel paper connected with any receivable arising out of any contract between any Credit Party and the United States, any state or any department, agency or instrumentality of any of them.
NEGATIVE COVENANTS
Each Credit Party covenants and agrees that, until the indefeasible payment in full in cash, of all the Obligations under the Loan Documents (other than indemnity obligations under the Loan Documents that are not then due and payable or with respect to which no claim has been made) and termination of this Agreement:
Indebtedness
No Credit Party shall create, incur, assume or suffer to exist any Indebtedness, except Permitted Indebtedness.
Liens
No Credit Party shall create, incur, assume or suffer to exist any Lien upon, in or against, or pledge of, any of the Collateral, whether now owned or hereafter acquired, except the following (collectively, “Permitted Liens”): (a) Liens under the Loan Documents or otherwise arising in favor of Agent, for the benefit of itself and the other Lenders and (b) any Lien or right of set-off granted in favor of any financial institution in respect of Deposit Accounts opened and maintained in the ordinary course of business or pursuant to the requirements of this Agreement covering fees, expenses and overdrafts with respect to such Deposit Accounts; provided, that with respect to any such Deposit Account, other than an Excluded Deposit Account, Agent has a perfected Lien thereon and control thereof, in form, scope and substance satisfactory to Agent in its Permitted Discretion.
Investments; Investment Property; New Facilities or Collateral; Subsidiaries
No Credit Party shall, directly or indirectly, (a) merge with, purchase, own, hold, invest in or otherwise acquire any obligations or Equity Interests or securities of, or any other interest in, all or substantially all of the assets of, any Person or any joint venture other than Permitted Investments (as defined below), (b) purchase, own, hold, invest in or otherwise acquire any Investment Property (except (i) those set forth on Schedule 5.17C as of the Closing Date), (ii) Permitted Loans and any other investments in a Subsidiary formed by any Credit Party, (iii) investments constituting Permitted Indebtedness, (iv) Deposit Accounts with financial institutions in the ordinary course of business or as required by this Agreement; provided, that with respect to any such Deposit Accounts (other than an Excluded Account), Agent has a perfected Lien thereon and control thereof, in form, scope and substance satisfactory to Agent in
its Permitted Discretion, (v) investments in Cash Equivalents, (vi) accounts payable, (vi) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and (vii) a SPAC Transaction (the investments described in clauses (i) through (vii) being “Permitted Investments”) or (c) make or permit to exist any loan, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person other than Permitted Investments. No Credit Party shall purchase, lease, own, operate, hold, invest in or otherwise acquire any property or asset or any Collateral that is located outside of the continental United States. Borrower shall not have any Subsidiaries.
Other than as contemplated by Section 2.13(d), no Credit Party shall form any Subsidiary unless (i) such Subsidiary, (x) expressly joins in this Agreement as a borrower and becomes jointly and severally liable for the obligations of Borrower hereunder and under any other agreement between Borrower and Lenders, or (y) becomes a Guarantor with respect to the Obligations and executes a guaranty and security agreement in favor of Agent, and (ii) Agent shall have received all documents, including without limitation, legal opinions and appraisals it may reasonably require to establish compliance with each of the foregoing conditions in connection therewith.
Dividends; Redemptions; Equity
Notwithstanding any provision of any Loan Document, Parent entity shall not (i) declare, pay or make any dividend or distribution on any Equity Interests or other securities or ownership interests, (ii) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any Equity Interests or other securities or interests or of any options to purchase or acquire any of the foregoing, (iii) otherwise make any payments, dividends or distributions to any member, manager, managing member, stockholder, director or other equity owner in such Person’s capacity as such, (iv) make any payment of any management, service or related or similar fee to any Affiliate or holder of Equity Interests of Borrower unless, in each case and before and after giving effect thereto, (x) the Tangible Net Worth to Term Loan Ratio is greater than 1.00 to 1.00 and (y) no Default or Event of Default shall have occurred and be continuing and the cumulative amount of distributions under this Section 7.4 (other than with respect to clauses (A) and (B) below) has not exceed the Distributable Amounts Limit; provided, however, notwithstanding the foregoing, Holdings and Parent Entity shall be permitted to (A) subject to Section 2.6(a), exchange any shares in connection with an initial public offering of the shares of the Parent Entity or a SPAC Transaction and (B) repurchase shares pursuant to Article VI of the bylaws of Parent Entity as in effect on the Ninth Amendment Effective Date in connection with the rights of first refusal of Parent Entity provided therein, Section 2.2 of the Parent Entity Co-Sale Agreement as in effect on the Ninth Amendment Effective Date in connection with the rights of first refusal of Parent Entity provided therein or in connection with Section 6.16 hereof (all such share repurchases being collectively referred to as “ROFR Share Repurchases”) or otherwise (collectively in an aggregate amount not to exceed $10,000,000 during the term hereof), in each case, so long as no Default or Event of Default has occurred and is continuing.
Transactions with Affiliates
No Credit Party shall enter into or consummate any transaction of any kind with any of its Affiliates other than (i) the transactions contemplated hereby and by the other Loan Documents and (ii) to the extent not otherwise prohibited under this Agreement, other transactions upon fair and reasonable terms materially no less favorable to such Credit Party than would be obtained in a comparable arms-length transaction with a Person not an Affiliate.
Charter Documents; Fiscal Year; Dissolution; Use of Proceeds; Insurance Policies; Disposition of Collateral; Trade Names
No Credit Party shall (a) except in connection with a SPAC Transaction or to permit the Parent Entity to issue additional shares following the Public Company Transition Date, amend, modify, restate or change its certificate of formation, limited liability company agreement or similar charter or governance documents in a manner that would adversely affect the rights of the Agent or Lenders under the Loan Documents, (b) change its state of formation or change its name without thirty (30) calendar days prior written notice to Agent, (c) change its fiscal year, (d) amend, alter, suspend, terminate or make provisional in any material way, any Permit, the suspension, amendment, alteration or termination of which would reasonably be expected to be, have or result in a Material Adverse Effect without the prior written consent of Agent, (e) other than a SPAC Transaction, wind up, liquidate or dissolve (voluntarily or involuntarily), effectuate any Division or commence or suffer any proceedings seeking or that would result in any of the foregoing, (f) use any proceeds of any Loan for “purchasing” or “carrying” “margin stock” as defined in Regulations T, U or X of the Board of Governors of the Federal Reserve System for any use not contemplated or permitted by this Agreement, (g) amend, modify, restate or change any insurance policy in a manner adverse to Agent or Lenders in any material respect, (h) engage, directly or indirectly, in any business other than as set forth herein, (i) establish new or additional trade names without providing not less than thirty (30) days advance written notice to Agent or (j) certificate, or cause to have certificated, any equity ownership interest in Borrower that is not evidenced by a certificate as of the Closing Date that is Collateral subject to this Agreement, without Agent’s prior written consent.
Transfer of Collateral; Amendment of Pledged Leases
No Credit Party shall sell, lease, transfer, pledge, encumber, assign or otherwise dispose (a “Disposition”) of any Collateral, except:
the repurchase of Leases by Holdings as otherwise provided in Section 2.11,
the Disposition of surplus, obsolete or worn out property in the ordinary course of business;
disbursements of cash not otherwise prohibited under this Agreement or any other Loan Document;
any Disposition by such Person to another Credit Party;
any Disposition permitted under Sections 7.2, 7.3, 7.4 and 7.5;
any sale of inventory (other than Leases) in the ordinary course of business;
any sale, trade-in or other Disposition of used equipment for value in the ordinary course of business;
licenses of technology in the ordinary course of business;
the surrender, modification, release or waiver of contract rights to the extent not otherwise prohibited under this Agreement.
Except for the purpose of granting payment discounts to Account Lessees in the ordinary course of business consistent in all material respects with the Underwriting Guidelines and Servicing Policy or in connection with the payment in full of such Pledged Lease, Borrower shall not extend, amend, waive or otherwise modify the terms of any Pledged Lease or permit the rescission or cancellation of any Pledged Lease, whether for any reason relating to a negative change in the related Account Lessee’s creditworthiness or inability to make any payment under the Pledged Lease or otherwise, except in accordance with the Underwriting Guidelines and the Servicing Policy.
Except in connection with the payment in full of such Pledged Lease or settlements of a Defaulted Lease in accordance with the Servicing Policy, Borrower shall not terminate or reject any Pledged Lease prior to the end of the term of such Lease, whether such rejection or early termination is made pursuant to an Applicable Law, unless prior to such termination or rejection, such Pledged Lease and any related Collateral have been released from the Lien created by this Agreement.
Contingent Obligations and Risks
Except for the Loan Documents, the Purchase and Sale Agreement and as otherwise expressly permitted by this Agreement, no Credit Party shall enter into any Contingent Obligations with respect to Indebtedness for borrowed money or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any Indebtedness for borrowed money of any Person other than another Credit Party (other than indemnities to officers and directors of such Person to the extent permitted by Applicable Law) or indemnity guarantees in connection with Indebtedness permitted under Section 2.13(d); provided, however, that nothing contained in this Section 7.8 shall prohibit any Credit Party from endorsing checks in the ordinary course of its business.
Truth of Statements
No Credit Party shall furnish to Agent any certificate or other document prepared by or on behalf of such Credit Party with respect to which the representations and warranties set forth in Section 5.13 would not be true if made at the time such certificate or other document were so furnished to Agent.
Modifications of Agreements
No Credit Party shall make, or agree to make, any modification, amendment or waiver of any of the terms or provisions of any Material Agreement, without the prior written consent of Agent. Borrower shall not make, or agree to make, any Material Modification with respect to any Lease, without the prior written consent of Agent.
Anti-Terrorism; OFAC
No Credit Party shall, nor shall any Credit Party permit any of its Subsidiaries to, (a) be or become a Person whose property or interests in property are blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism (66 Fed. Reg. 49079 (2001)), (b) engage in any dealings or transactions prohibited by Section 2 of such executive order, or otherwise be associated with any such Person in any manner violative of Section 2 of such executive order, or (c) otherwise become a Person on the list of Specially Designated Nationals and Blocked Persons in violation of the limitations or prohibitions under any other OFAC regulation or executive order.
Deposit Accounts and Payment Instructions
No Credit Party shall open a Deposit Account (other than those listed on Schedule 5.17C as amended from time to time) without the prior written consent of Agent.
Borrower shall not make any change in the instructions to any Servicer with respect to the deposits of collections regarding Leases to the Collateral Account in accordance with this Agreement and the applicable Servicing Agreement.
Borrower shall not, and shall cause Servicer to not, make any change in the instructions to any Account Lessee on any Lease with respect to any instructions to such Account Lessees regarding payment to be made to the Collateral Account or any Servicer Physical Payment Address.
Servicing Agreement
Borrower shall not:
amend, modify or terminate (or permit or cause Servicer to amend, modify or terminate) any Servicing Agreement without the prior written consent of Agent (which consent may be provided in Agent’s Permitted Discretion), provided, that with respect to termination of any Servicing Agreement or material amendments thereto, Agent’s consent may be granted in Agent’s sole discretion;
except in connection with (i) the replacement of the Servicer by the Backup Servicer or third party servicer acceptable to Agent after the occurrence and during the continuance of an Event of Default and/or (ii) the delegation by the Servicer of certain duties to any of the Persons set forth on Schedule 7.13(b) the delegation by the Servicer to third-party collection agencies the enforcement of Defaulted Leases or the delegation of certain duties to such other Persons, in each case, consistent with the Servicing Policy, if any, as Agent may approve from time to time (which approval may be provided in Agent’s Permitted Discretion), transfer or delegate (or allow Servicer to transfer or delegate) any of its duties or functions under any Servicing Agreement to any Person, or otherwise engage any such Person to perform any such duties or functions for or on behalf of the Servicer or Borrower, provided, that any delegation of duties under any Servicing Agreement by Servicer pursuant to clause (ii) of this Section 7.13(b) shall (x) be terminable without the payment of any fee or penalty upon not more than thirty (30) calendar days prior notice and (y) not relieve Servicer of any of its rights, duties or obligations under the applicable Servicing Agreement and Servicer agrees that it shall remain liable to Agent and the Lenders for any breach in the performance of the same, whether such breach is by the Servicer or its delegate; or
except in connection with the replacement of the Servicer by the Backup Servicer, Agent, an Affiliate of Agent or a third party servicer acceptable to Agent after an Event of Default, transfer or delegate (or allow the Servicer to transfer or delegate) the duties and functions of the Servicer under any Servicing Agreement to any other Persons.
ERISA.
No Credit Party shall sponsor, maintain or contribute to any “employee benefit plan” that is covered by Title IV of ERISA or Section 412 of the Code.
Restrictive Agreements.
No Credit Party will directly or indirectly, enter into, incur or permit to exist any agreement (other than its Charter and Good Standing Documents or, in the case of the Parent Entity, any agreements with its shareholders) that prohibits, restricts or imposes any condition upon (a) the ability of such Credit Party or any such Subsidiary to create, incur or permit any Lien upon any of its assets or properties, whether now owned or hereafter acquired, or (b) the ability of any of the Subsidiaries to pay dividends or other distributions with respect to capital stock, to make or repay loans or advances to such Credit Party or any other Subsidiary or to transfer any of its property or assets to such Credit Party or any other Subsidiary thereof.
Sale and Leaseback Transactions. No Credit Party will, and no Credit Party will permit any Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereinafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred.
Hedging Transactions. No Credit Party will, and no Credit Party will permit any Subsidiary to, enter into any Hedging Transaction, other than Hedging Transactions entered into in the ordinary course of business to hedge or mitigate risks to which the Credit Parties or any of their Subsidiaries is exposed in the conduct of its business or the management of its liabilities. Solely for the avoidance of doubt, the Credit Parties acknowledge that a Hedging Transaction entered into for speculative purposes or of a speculative nature (which shall be deemed to include any Hedging Transaction under which any Credit Party or any Subsidiary of a Credit Party is or may become obliged to make any payment (a) in connection with the purchase by any third party of any capital stock or any Indebtedness or (b) as a result of changes in the market value of any capital stock or any Indebtedness) is not a Hedging Transaction entered into in the ordinary course of business to hedge or mitigate risks.
Loans. No Credit Party shall make advances, loans or extensions of credit to any Person (other than another Credit Party). For the avoidance of doubt, this Section 7.18 shall not be construed to prohibit the Leases.
Borrower Purpose. Borrower shall not engage in any business or activity other than the acquisition, ownership, operation and maintenance of the Leases and the other Collateral, and activities incidental thereto.
EVENTS OF DEFAULT
The occurrence of any one or more of the following shall constitute an “Event of Default”:
Any Credit Party shall fail to pay any amount on the Obligations or provided for in any Loan Document when due (in all cases, whether on any payment date, at maturity, by reason of acceleration, by notice of intention to prepay, by required prepayment or otherwise) and such failure shall continue or not be cured within a period of two (2) Business Days;
any representation, statement or warranty made by any Credit Party in any Loan Document or in any other certificate, document, report or opinion delivered in conjunction with
any Loan Document to which it is a party, shall not be true and correct in all material respects (except to the extent already qualified by materiality, in which case it shall be true and correct in all respects) except those made as of a specific date;
Borrower, any Guarantor or any other party hereto, other than Agent or any Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in this Agreement and such violation, breach or failure (only if reasonably susceptible to being cured) shall not be cured within a period of thirty (30) days after such violation, breach or default or such other applicable period set forth in this Agreement (other than any violation, breach or default in the covenants set forth in Section 6.17 or Article VII of this Agreement or in Article VIII(a) above or the misappropriation of any funds to be delivered to the Collateral Account pursuant to Section 2.3 and applied pursuant to Section 2.4 of this Agreement, for which there shall be no cure period or Section 6.20;
Borrower, any Guarantor or any other party thereto, other than Agent, Backup Servicer or any Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in, or any event of default occurs under, any Loan Document other than this Agreement and such violation, breach, default, event of default or failure shall not be cured within the applicable period set forth in the applicable Loan Document and such violation, breach or failure (only if reasonably capable of being cured) shall not be cured within a period of thirty (30) days after such;
(i) any of the Loan Documents ceases to be in full force and effect (other than in accordance with its terms), or (ii) any Lien created under any Loan Document ceases to constitute a valid first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien on the Collateral in accordance with the terms thereof, except with respect to Collateral that is released from the Lien of Agent as permitted under the Loan Documents or the Security Documents;
one or more judgments or decrees is rendered against any of Borrower or any Guarantor in an amount in excess of $1,000,000 individually or $1,000,000 in the aggregate (excluding judgments to the extent covered by insurance of such Person), which is/are not satisfied, stayed, vacated or discharged of record within sixty (60) calendar days of being rendered;
(i) any default or breach occurs, which is not cured within any applicable grace period or waived in writing to the satisfaction of Agent, in the payment of any amount with respect to any Indebtedness (other than the Obligations) of any of Borrower, Parent Entity or Holdings in excess of $1,000,000 individually or $1,000,000 in the aggregate, or (ii) any Indebtedness of Borrower, Parent Entity or Holdings in excess of $1,000,000 individually or $1,000,000 in the aggregate is declared to be due and payable and that has been accelerated by the holder of such Indebtedness or is required to be prepaid (other than by a regularly scheduled payment or a payment due on the voluntary termination of a capital lease) prior to the stated maturity thereof;
any of Borrower or any Guarantor shall (i) be unable to pay its debts generally as they become due, (ii) file a petition under any insolvency statute, (iii) make a general assignment for the benefit of its creditors, (iv) commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property or shall otherwise be dissolved or liquidated, or (v) file a petition seeking reorganization or liquidation or similar relief under any Debtor Relief Law or any other Applicable Law or statute;
(i) a court of competent jurisdiction shall (A) enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of any of Borrower or any Guarantor or the whole or any substantial part of any of Borrower’s or such Guarantor’s properties, which shall continue unstayed and in effect for a period of sixty (60) calendar days, (B) shall approve a petition filed against any of Borrower or any Guarantor seeking reorganization, liquidation or similar relief under the any Debtor Relief Law or any other Applicable Law or statute, which is not dismissed within sixty (60) calendar days or, (C) under the provisions of any Debtor Relief Law or other Applicable Law or statute, assume custody or control of any of Borrower or any Guarantor or of the whole or any substantial part of Borrower’s or any Guarantor’s properties, which is not irrevocably relinquished within sixty (60) calendar days, or (ii) there is commenced against any of Borrower or any Guarantor any proceeding or petition seeking reorganization, liquidation or similar relief under any Debtor Relief Law or any other Applicable Law or statute, which (A) is not unconditionally dismissed within sixty (60) calendar days after the date of commencement, or (B) is with respect to which any of Borrower or any Guarantor takes any action to indicate its approval of or consent;
(i) any Material Adverse Effect occurs or (ii) Borrower or any Guarantor ceases any material portion of its business operations as conducted at the Closing Date, in the case of clause (ii), without the prior written consent of Agent;
Servicer shall fail at any time to use Advensus as a sub-servicer with respect to at least twenty-five percent (25%) of the Pledged Leases defined by the percentage of inbound calls;
Reserved;
the occurrence and continuance of one or more Default Trigger Events;
the occurrence of a First Payment Default Trigger Event:
the occurrence of one or more Level Two Regulatory Trigger Events;
the occurrence of a Specified Regulatory Change;
the occurrence of a Servicer Default;
the occurrence of a Key Man Trigger Event; or
any formal enforcement order or criminal complaint relating to financial crimes or major felonies is brought by a Governmental Authority against any Credit Party, which has not been dismissed or satisfied or of which the applicable Credit Party has not been found not guilty within sixty (60) days of the filing of such order or complaint, provided, however, that no Event of Default under this clause (s) shall be deemed to be continuing if at any time the applicable Credit Party is found not guilty under such order or complaint.
In the case of any such Event of Default, notwithstanding any other provision of any Loan Document, (I) Agent may (and, at the request of Requisite Lenders (x) with respect to any Event of Default occurring under Article VIII(m), may and (y) with respect to any other Event of Default described in this Article VIII, shall), by notice to Borrower (i) terminate the commitment to make Advances hereunder, whereupon the same shall immediately terminate, (ii) substitute immediately Backup Servicer or any other third party servicer acceptable to Agent, in its sole discretion, for Servicer in all of Servicer’s roles and functions as contemplated by the Loan Documents and the Servicing Agreements and any fees, costs and expenses of, for or payable to Backup Servicer or other third party servicer acceptable to Agent, in its sole discretion, shall be
at Borrower’s sole cost and expense, (iii) with respect to the Collateral, (A) terminate any Servicing Agreement and service the Collateral, including the right to institute collection, foreclosure and other enforcement actions against the Collateral; (B) enter into modification agreements and make extension agreements with respect to payments and other performances; (C) release Account Lessees and other Persons liable for performance; (D) settle and compromise disputes with respect to payments and performances claimed due, all without notice to Borrower or Guarantors, and all in Agent’s sole discretion and without relieving Borrower or Guarantors from performance of the obligations hereunder; (E) receive, collect, open and read all mail of Borrower, Servicer or Guarantors for the purpose of obtaining all items pertaining to the Collateral and any collateral described in any Loan Document; (F) collect all Scheduled Payments (both voluntary and mandatory), and other amounts of any and every description payable by or on behalf of any Account Lessee pursuant to any Pledged Lease, the related Portfolio Documents, or any other related documents or instruments directly from such Account Lessee; and (G) apply all amounts in or subsequently deposited in the Collateral Account to the payment of the unpaid Obligations or otherwise as Agent in its sole discretion shall determine; and (iv) declare all or any of the Loan and/or Notes, all interest thereon and all other Obligations to be due and payable immediately (except in the case of an Event of Default under clauses (h) or (i) of this Article VIII in which event all of the foregoing shall automatically and without further act by Agent or Lenders be due and payable and Agent’s or Lenders’ obligations hereunder shall terminate, in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower and (II) effective immediately upon receipt of notice from Agent (unless specifically prohibited and provided for in Article VII, in which case effective immediately upon an Event of Default without any action of Agent or any Lender), no action permitted to be taken under Article VII hereof may be taken.
RIGHTS AND REMEDIES AFTER DEFAULT
Rights and Remedies
In addition to the acceleration provisions set forth in Article VIII above, upon the occurrence and during the continuation of an Event of Default, Agent shall have the right to (and at the request of Requisite Lenders, shall) exercise any and all rights, options and remedies provided for in any Loan Document, under the UCC or at law or in equity, including, without limitation, the right to (i) apply any property of Borrower held by Agent to reduce the Obligations, (ii) foreclose the Liens created under the Loan Documents, (iii) realize upon, take possession of and/or sell any Collateral, with or without judicial process, (iv) exercise all rights and powers with respect to the Collateral as Borrower might exercise, (v) collect and send notices regarding the Collateral, with or without judicial process, (vi) by its own means or with judicial assistance, enter any premises at which Collateral are located, or render any of the foregoing unusable or dispose of the Collateral on such premises without any liability for rent, storage, utilities, or other sums, and Borrower shall not resist or interfere with such action, (vii) at Borrower’s expense, require that all or any part of the Collateral be assembled and made available to Agent at any place designated by Agent in its sole discretion, (viii) reduce or otherwise change the Maximum Revolving Loan Amount and/or any component of the Maximum Revolving Loan Amount and/or (ix) relinquish or abandon any Collateral or securities pledged or any Lien thereon. Notwithstanding any provision of any Loan Document, Agent, in its sole discretion, shall have the right, at any time that Borrower fails to do so, after an Event of Default, without prior notice, to: (A) obtain insurance covering any of the Collateral to the extent required hereunder; (B) pay for the performance of any of the Obligations; (C) discharge taxes, levies and/or Liens on any of the Collateral that are in violation of any Loan Document; and (D) pay for the maintenance, repair and/or preservation of the Collateral. Such expenses and advances shall be deemed Advances hereunder and shall be added to the Obligations until reimbursed to Agent, for its own account and for the benefit of the other Lenders, and shall be secured by the Collateral, and such payments by Agent, for its own account and for the benefit of
the other Lenders, shall not be construed as a waiver by Agent or Lenders of any Event of Default or any other rights or remedies of Agent or Lenders.
Borrower and Holdings each agree that notice received at least ten (10) calendar days before the time of any intended public sale, or the time after which any private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by Applicable Law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Lender without prior notice to Borrower or Holdings. At any sale or disposition of Collateral or securities pledged, Agent may (to the extent permitted by Applicable Law) purchase all or any part thereof free from any right of redemption by Borrower which right is hereby waived and released. Borrower and Holdings each covenant and agree not to interfere with or impose any obstacle to Agent’s exercise of its rights and remedies with respect to the Collateral. In dealing with or disposing of the Collateral or any part thereof, Agent shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any Collateral with judicial process.
Application of Proceeds
Notwithstanding any other provision of this Agreement (including, without limitation, Section 2.4 hereof), in addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, all lease payments, dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder upon the occurrence and continuation of an Event of Default shall be applied in accordance with the provisions of Section 2.4 hereof; provided, that Borrower shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations (other than indemnity obligations that are not then due and payable or with respect to which no claim has been made).
Rights to Appoint Receiver
Without limiting and in addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, upon the occurrence and continuation of an Event of Default, Agent shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Agent and/or any Lender to enforce its rights and remedies in order to manage, protect and preserve the Collateral and continue the operation of the business of Borrower and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated.
Attorney-in-Fact
Borrower hereby irrevocably appoints Agent as its attorney-in-fact for the limited purpose of taking any action permitted under the Loan Documents that Agent deems necessary or desirable (in Agent’s sole discretion) upon the occurrence and continuation of an Event of Default to protect, foreclose, enforce and realize upon Agent’s Lien in the Collateral, including the execution and delivery of any and all documents or instruments related to the Collateral in Borrower’s name, and said appointment shall create in Agent a power coupled with an interest.
Rights and Remedies not Exclusive
Agent shall have the right in its sole discretion to determine which rights, Liens and/or remedies Agent and Lenders may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way waive, compromise, modify or affect any of Agent’s or Lenders’ rights, Liens or remedies under any Loan Document, Applicable Law or equity. The enumeration of any rights and remedies in any Loan Document is not intended to be exhaustive, and all rights and remedies of Agent and Lenders described in any Loan Document are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent and Lenders otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy.
WAIVERS AND JUDICIAL PROCEEDINGS
Waivers
Except as expressly provided for herein, Borrower hereby waives set off, counterclaim, demand, presentment, protest, all defenses with respect to any and all instruments and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under any Loan Document. Borrower hereby waives any and all defenses and counterclaims it may have or could interpose in any action or procedure brought by Agent to obtain an order of court recognizing the assignment of, or Lien of Agent in and to, any Collateral.
Delay; No Waiver of Defaults
No course of action or dealing, renewal, release or extension of any provision of any Loan Document, or single or partial exercise of any such provision, or delay, failure or omission on Agent’s part in enforcing any such provision shall affect the liability of Borrower or operate as a waiver of such provision or preclude any other or further exercise of such provision. No waiver by any party to any Loan Document of any one or more defaults by any other party in the performance of any of the provisions of any Loan Document shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision of any Loan Document, by completing the Closing under this Agreement and/or by making Advances, neither the Agent nor any Lender waives any breach of any representation or warranty of under any Loan Document, and all of Agent’s or any Lender’s claims and rights resulting from any such breach or misrepresentation are specifically reserved.
Jury Waiver
(A) EACH PARTY HEREBY (i) EXPRESSLY, KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND (ii) AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.
(B) IN THE EVENT ANY SUCH CLAIM OR CAUSE OF ACTION IS BROUGHT OR FILED IN ANY UNITED STATES FEDERAL COURT SITTING IN THE STATE OF CALIFORNIA OR IN ANY STATE COURT OF THE STATE OF CALIFORNIA, AND THE WAIVER OF JURY TRIAL SET FORTH IN SECTION 10.3(A) IS DETERMINED OR HELD TO BE INEFFECTIVE OR UNENFORCEABLE, THE PARTIES AGREE THAT ALL CLAIMS AND CAUSES OF ACTION SHALL BE RESOLVED BY REFERENCE TO A PRIVATE JUDGE SITTING WITHOUT A JURY, PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638, BEFORE A MUTUALLY ACCEPTABLE REFEREE OR, IF THE PARTIES CANNOT AGREE, A REFEREE SELECTED BY THE PRESIDING JUDGE OF THE SANTA CLARA COUNTY, CALIFORNIA. SUCH PROCEEDING SHALL BE CONDUCTED IN SANTA CLARA COUNTY, CALIFORNIA, WITH CALIFORNIA RULES OF EVIDENCE AND DISCOVERY APPLICABLE TO SUCH PROCEEDING. IN THE EVENT CLAIMS OR CAUSES OF ACTION ARE TO BE RESOLVED BY JUDICIAL REFERENCE, ANY PARTY MAY SEEK FROM ANY COURT HAVING JURISDICTION THEREOVER ANY PREJUDGMENT ORDER, WRIT OR OTHER RELIEF AND HAVE SUCH PREJUDGMENT ORDER, WRIT OR OTHER RELIEF ENFORCED TO THE FULLEST EXTENT PERMITTED BY LAW NOTWITHSTANDING THAT ALL CLAIMS AND CAUSES OF ACTION ARE OTHERWISE SUBJECT TO RESOLUTION BY JUDICIAL REFERENCE.
Amendment and Waivers
No waiver of any provision of this Agreement or consent to any departure by Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of an Advance shall not be construed as a waiver of any Default or Event of Default, regardless of whether Agent or any Lender may have had notice or knowledge of such Default or Event of Default at the time.
Neither this Agreement nor any provision hereof may be waived, amended or modified (except pursuant to an agreement or agreements in writing entered into by Borrower and the Agent), except for an amendment to increase the Maximum Revolving Loan Amount in accordance with Section 2.14 hereof, such amendment to require the consent of Agent and such Lenders so increasing their Revolving Loan Commitment, or by Borrower and Agent with the consent of the Requisite Lenders, without taking into account the Loans held by Non-Funding Lenders; provided that no such agreement shall:
increase the Revolving Loan Commitment or Term Loan Commitment of any Lender without the written consent of such Lender;
reduce the principal amount of any Loan or reduce the rate of interest thereon (other than a waiver of post-default interest), or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby;
postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Revolving Loan Commitment or Term Loan Commitment, without the written consent of each Lender directly affected thereby,
change any of the provisions of this Section or the definition of “Requisite Lenders” or any other provision hereof specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
release any Guarantor from its obligations under a Guaranty without the written consent of each Lender; or
except as otherwise specifically provided in this Agreement, release all or substantially all of the Collateral, without the written consent of each Lender;
provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of Agent hereunder without the prior written consent of Agent.
Notwithstanding the foregoing, this Agreement and any other Loan Document may be amended (or amended and restated) with the written consent of the Requisite Lenders, Agent and Borrower (x) to add one or more credit facilities to this Agreement and to permit extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Loan and the accrued interest and fees in respect thereof and (y) to include appropriately the Lenders holding such credit facilities in any determination of the Requisite Lenders and Lenders.
If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender directly affected thereby,” the consent of the necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “Non-Consenting Lender”), then Agent or Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided, that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to Agent shall agree, as of such date, to purchase for cash the principal balance of the Loans due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (a) of Section 12.2, and (ii) Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by Borrower hereunder to and including the date of termination, including without limitation any indemnity payments due to such Non-Consenting Lender hereunder for which the amount is known.
Notwithstanding anything to the contrary herein Agent may, with the consent of Borrower only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency.
EFFECTIVE DATE AND TERMINATION
Effectiveness and Termination
Subject to Agent’s right to accelerate the Loan and terminate the Revolving Loan Commitments and cease making and funding Advances upon the occurrence and during the continuation of any Event of Default, this Agreement shall continue in full force and effect until the earlier of the Maturity Date and the date on which the Revolving Loan Commitments are terminated pursuant to Section 2.5(b). All of the Obligations shall be immediately due and payable upon the earlier of (i) the Maturity Date, (ii) the date on which Agent accelerates the Loan following the occurrence and during the continuance of an Event of Default or (iii) the Prepayment Date stated in the notice of prepayment delivered by Borrower pursuant to Section 2.5(b), as applicable (the “Termination Date”). Notwithstanding any other provision of any
Loan Document, no termination of this Agreement shall affect Agent’s or any Lender’s rights or any of the Obligations under the Loan Documents existing as of the effective date of such termination, and the provisions of the Loan Documents shall continue to be fully operative until the Obligations under the Loan Documents (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or with respect to which no claim has been made) have been indefeasibly paid in cash in full. The Liens granted to Agent, under the Security Documents and the financing statements filed pursuant thereto and the rights and powers of Agent shall continue in full force and effect until all of the Obligations (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or with respect to which no claim has been made) have been fully performed and indefeasibly paid in full in cash.
Survival
Unless expressly provided herein, all obligations, covenants, agreements, representations, warranties, waivers and indemnities made by Borrower in any Loan Document shall survive the execution and delivery of the Loan Documents, the Closing, the making and funding of the Loan and any termination of this Agreement until all Obligations under the Loan Documents (other than indemnity obligations under the Loan Documents that are not then due and payable or with respect to which no claim has been made) are indefeasibly paid in full in cash. The obligations and provisions of Sections 3.1, 3.2, 3.3, 3.4, 3.5, 10.1, 10.3, 11.1, 11.2, 12.1, 12.3, 12.4, 12.7, 12.9, 12.10, 12.11, 12.13 and 13.8 shall survive termination of the Loan Documents and any payment, in full or in part, of the Obligations.
MISCELLANEOUS
Governing Law; Jurisdiction; Service of Process; Venue
(A) THE LOAN DOCUMENTS, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF A DIFFERENT JURISDICTION.
(B) BY EXECUTION AND DELIVERY OF EACH LOAN DOCUMENT TO WHICH IT IS A PARTY, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(C) BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN PARAGRAPH (A) OF THIS SECTION 12.1. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(D) EACH OF THE PARTIES HERETO WAIVES PERSONAL SERVICE OF PROCESS AND AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 12.5. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Successors and Assigns; Assignments and Participations
Subject to Sections 12.2(c) and (d), a Lender may at any time assign all or a portion of its rights and delegate all or a portion of its obligations under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loan) to one or more Persons other than the Borrower or any Affiliate of the Borrower (subject to the following proviso, each, a “Transferee”), provided, that unless an Event of Default has occurred and is continuing (in which event no such restriction shall apply), no natural person, Non-Funding Lender or Affiliate of a Non-Funding Lender, direct competitor of Borrower or Holdings or any Person who is directly engaged in consumer lease financing to big box retail, or is controlled by a Person which is a direct competitor of Borrower or who is directly engaged in consumer lease financing to big box retail, shall constitute a Transferee hereunder and Borrower shall have a right to consent to any Transferee that is not an Approved Fund of a Lender (each such Person that is precluded from being a Transferee pursuant to this proviso, an “Ineligible Transferee”). Notwithstanding anything to the contrary in this Agreement, other than restrictions set forth in the definition of “Transferee”, there shall be no limitation or restriction on any Lender’s ability to assign, pledge or otherwise transfer any Note or other Obligation. The Transferee and such Lender shall execute and deliver for acceptance and recording in the Register, a Lender Addition Agreement, which shall be in form and substance reasonably acceptable to Agent in its Permitted Discretion (“Lender Addition Agreement”). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Lender Addition Agreement, (i) the Transferee thereunder shall be a party hereto and, to the extent provided in such Lender Addition Agreement, have the same rights, benefits and obligations as it would if it were a Lender hereunder, (ii) the assigning Lender shall be relieved of its obligations hereunder with respect to its Advances or assigned portion thereof, as the case may be, to the extent that such obligations shall have been expressly assumed by the Transferee pursuant to such Lender Addition Agreement (and, in the case of a Lender Addition Agreement covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto but, with respect to matters occurring before such assignment, shall nevertheless continue to be entitled to the benefits of Sections 12.4 and 12.7). Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to the Transferee and that the Transferee shall be considered to be a “Lender” hereunder. Borrower may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of its Obligations, or any portion thereof, including Borrower’s rights, title, interests, remedies, powers, and duties hereunder or thereunder.
Each Lender may at any time sell participations in all or any part of its rights and obligations under this Agreement and the other Loan Documents (including all its rights and
obligations with respect to the Loan) to one or more Persons acceptable to Agent that is not a non direct competitor of Borrower or Holdings or any Person who is directly engaged in consumer lease financing to big box retail, or is controlled by a Person which is a direct competitor of Borrower or who is directly engaged in consumer lease financing to big box retail (each, a “Participant” and each Person that is precluded from being a Participant pursuant to this sentence, an “Ineligible Participant”). In the event of any such sale by a Lender of a participation to a Participant, (i) such Lender’s obligations under this Agreement to the other parties to this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible for the performance thereof, (iii) such Lender shall remain the holder of any such Loan (and any Note evidencing such Loan) for all purposes under this Agreement and the other Loan Documents, (iv) Borrower and Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the other Loan Documents, and (v) all amounts payable pursuant to Section 6.2 by Borrower hereunder shall be determined as if such Lender had not sold such participation. Any agreement pursuant to which any Lender shall sell any such participation shall provide that such Lender shall retain the sole right and responsibility to exercise such Lender’s rights and enforce Borrower’s obligations hereunder, including the right to consent to any amendment, supplement, modification or waiver of any provision of this Agreement or any of the other Loan Documents; provided, that such participation agreement may provide that such Lender will not agree, without the consent of the Participant, to any amendment, supplement, modification or waiver relating to: (A) any reduction in the principal amount, interest rate or fees or premium payments payable to Lenders with respect to any Loan in which such holder participates; (B) any extension of the Maturity Date or of the scheduled date of expiration of any Revolving Loan Commitment or any reinstatement of any terminated Revolving Loan Commitment; (C) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement or the Loan Documents); (D) any amendment or modification to the priority of payments or pro rata treatment of payments in connection with the application of any amounts due in respect of the Loan (including, without limitation, as set forth in Section 2.4 hereof), (E) discharging any Credit Party from its respective payment obligations in respect of the Loan except as otherwise may be provided in the Loan and Security Agreement or the other Loan Documents, (F) increasing any fees payable to Agent under this Agreement, (G) waiving any Event of Default arising as a result of a Change of Control or Servicer Default or (H) amending or modifying any of Section 7.4 or 7.13 of this Agreement. Borrower hereby acknowledges and agrees that the Participant under each participation shall, solely for the purposes of Sections 12.4 and 12.7 of this Agreement be considered to be a “Lender” hereunder. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except (x) to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations and (y) that each Lender must notify the Agent of the date and the amount of such participation. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Agent (in its capacity as Agent) shall have no responsibility for maintaining a Participant Register.
Agent shall maintain at its address referred to in Section 12.5 a copy of each Lender Addition Agreement delivered to it and a written or electronic register (the “Register”) for the recordation of the names and addresses of the Lenders and the Advances made by, and
the principal amount of the Loan owing to, and the Notes evidencing such Loan owned by, each Lender from time to time. Notwithstanding anything in this Agreement to the contrary, Borrower and the Agent shall treat each Person whose name is recorded in the Register as the owner of the Loan, the Notes and the Advances recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
Notwithstanding anything in this Agreement to the contrary, no assignment under Section 12.2(a) of any rights or obligations under or in respect of the Loan or the Notes evidencing such Loan shall be effective unless and until Agent shall have recorded the assignment pursuant to Section 12.2(c). Upon its receipt of a Lender Addition Agreement executed by an assigning Lender and a Transferee, Agent shall (i) promptly accept such Lender Addition Agreement and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give prompt notice of such acceptance and recordation to the Lender and Borrower. On or prior to such effective date, the assigning Lender shall surrender any outstanding Notes held by it, all or a portion of which are being assigned, and Borrower, at its own expense, shall, upon the request of Agent by the assigning Lender or the Transferee, as applicable, execute and deliver to Agent, within five (5) Business Days of any request, new Notes to reflect the interest held by the assigning Lender and its Transferee.
Except as otherwise provided in this Section 12.2 Agent shall not, as between Borrower and Agent, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loan or other Obligations owed to Agent and Lenders. Agent may furnish any information concerning Borrower in the possession of Agent from time to time to assignees and participants (including prospective assignees and participants), subject to confidentiality requirements hereunder.
Notwithstanding any other provision set forth in this Agreement, Agent and each Lender may at any time create a security interest in all or any portion of its rights under this Agreement, including, without limitation, the Loan owing to it and the Notes held by it and (solely with respect to the Agent) the other Loan Documents and Collateral.
Borrower agrees to use commercially reasonable efforts to assist Agent and each Lender in assigning or selling participations in all or any part of any Loan made by any Lender to another Person identified by such Lender.
Notwithstanding anything in the Loan Documents to the contrary, (i) Agent and its Affiliates shall not be required to execute and deliver a Lender Addition Agreement in connection with any transfer, assignment or participation transaction involving its Affiliates or lenders, in each case, who, unless an Event of Default has occurred and is continuing, are not Ineligible Transferees, (ii) no lender to or funding or financing source of Agent or its Affiliates shall be considered a Transferee, (iii) there shall be no limitation or restriction on Agent’s ability to assign (except to any Ineligible Transferee at such time as no Event of Default has occurred and is continuing), participate or otherwise transfer any Loan Document to any such Affiliate or lender or funding or financing source, (iv) there shall be no limitation or restriction on such Affiliates’ or lenders’ or financing or funding sources’ ability to assign, participate or otherwise transfer any Loan Document, Loan, Note or Obligation (or any of its rights thereunder or interest therein) and (v) no notice shall be required to be delivered to Borrower in connection with any assignment, participation or other transfer described in this Section 12.2(g); provided, however, Agent shall continue to be liable as a “Lender” under the Loan Documents unless such Affiliate or lender or funding or financing source executes a Lender Addition Agreement and thereby becomes a “Lender.”
The Loan Documents shall inure to the benefit of Agent, Lenders, Transferee, Participant (to the extent expressly provided herein only) and all future holders of the Notes, the Obligations and/or any of the Collateral, and each of their respective successors and permitted assigns. Each Loan Document shall be binding upon the Persons other than Agent that are parties thereto and their respective successors and assigns, and no such Person may assign, delegate or transfer any Loan Document or any of its rights or obligations thereunder without the prior written consent of Agent. No rights are intended to be created under any Loan Document for the benefit of any third party donee, creditor or incidental beneficiary of Borrower. Nothing contained in any Loan Document shall be construed as a delegation to Agent of any other Person’s duty of performance. BORROWER ACKNOWLEDGES AND AGREES THAT AGENT AT ANY TIME AND FROM TIME TO TIME MAY (I) DIVIDE AND REISSUE (WITHOUT SUBSTANTIVE CHANGES OTHER THAN THOSE RESULTING FROM SUCH DIVISION) THE NOTES, AND/OR (II) SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY LOAN DOCUMENT, NOTE, THE OBLIGATIONS AND/OR THE COLLATERAL TO OTHER PERSONS, IN EACH CASE ON THE TERMS AND CONDITIONS PROVIDED HEREIN. Each Transferee and Participant shall have all of the rights, obligations and benefits with respect to the Obligations, Notes, Collateral and/or Loan Documents held by it as fully as if the original holder thereof; provided, that, notwithstanding anything to the contrary in any Loan Document, Borrower shall not be obligated to pay under this Agreement to any Transferee or Participant any sum in excess of the sum which it would have been obligated to pay to Agent had such participation not been effected. Agent may disclose to any Transferee or Participant all information, reports, financial statements, certificates and documents obtained under any provision of any Loan Document; provided, that Transferees and Participants shall be subject to the confidentiality provisions contained herein that are applicable to Agent.
Any Lender may assign or pledge all or any portion of the Loans or Notes held by it to any Federal Reserve Bank or the United States Treasury as collateral security to secure obligations of such Lender, including without limitation, any assignment or pledge pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided, that any payment in respect of such assigned Loans or Notes made by Borrower to or for the account of the assigning or pledging Lender in accordance with the terms of this Agreement shall satisfy Borrower’s obligations hereunder in respect to such assigned Loans or Notes to the extent of such payment. No such assignment shall release the assigning Lender from its obligations hereunder.
Application of Payments
To the extent that any payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Agent. Any payments with respect to the Obligations received shall be credited and applied in accordance with Section 2.4.
Indemnity
Borrower shall indemnify Agent, each Lender, each Transferee, each Participant, their respective Affiliates, managers, members, officers, employees, agents, representatives, successors, assigns, accountants and attorneys (collectively, the “Indemnified Persons”) from
and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel, but limited, in the case of legal fees and expenses, to the reasonable and documented fees, disbursements and expenses of one regulatory counsel to such Indemnified Person and one other firm of outside counsel to such Indemnified Person taken as a whole and, solely in the case of an actual or potential conflict of interest, one additional firm of outside counsel to each group of similarly situated Indemnified Person) which are incurred or actually paid by any Indemnified Person with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to any aspect of, or any transaction contemplated by, or any matter related to, any act of or omission by Borrower or any of its Affiliates, officers, directors and agents relating to the Loan, this Agreement or any other Loan Document, except to the extent resulting or arising from the applicable Indemnified Person’s own gross negligence or willful misconduct. Agent agrees to give Borrower reasonable notice of any event of which Agent becomes aware for which indemnification may be required under this Section 12.4 (provided, that the failure of Agent to give such notice shall not affect the obligation of Borrower or any other Person pursuant to this Section 12.4 unless materially prejudiced thereby) and Agent may elect (but is not obligated) to direct the defense thereof; provided, that the selection of counsel shall be subject to Borrower’s consent, which consent shall not be unreasonably withheld or delayed, and Borrower shall be entitled to participate in the defense of any matter for which indemnification may be required under this Section 12.4 and to employ counsel at its own expense to assist in the handling of such matter. Any Indemnified Person may, in its reasonable discretion, take such actions as it deems necessary and appropriate to investigate, defend or settle any event or take other remedial or corrective actions with respect thereto as may be necessary for the protection of such Indemnified Person or the Collateral, subject to Borrower’s prior approval of any settlement, which shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, if any insurer agrees to undertake the defense of an event (an “Insured Event”), Agent agrees not to exercise its right to select counsel to defend the event if that would cause Borrower’s insurer to deny coverage; provided, however, that Lender reserves the right to retain counsel to represent any Indemnified Person with respect to an Insured Event at its sole cost and expense. To the extent that Agent obtains recovery from a third party other than an Indemnified Person of any of the amounts that Borrower has paid to Lender pursuant to the indemnity set forth in this Section 12.4, then Agent shall promptly pay to Borrower the amount of such recovery. Without limiting any of the foregoing, (a) Borrower indemnifies the Indemnified Persons for all claims for brokerage fees or commissions (other than claims of a broker with whom such Indemnified Person has directly contracted in writing) and (b) Agent indemnifies the Borrower for all claims for brokerage fees or commissions (other than the claims of a broker with whom Borrower or any of its Affiliates has directly contracted in writing), in each case, which may be made in connection with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any Loan Document or any agreement, document or transaction contemplated thereby.
Notice
Any notice or request under any Loan Document shall be given to the applicable party to this Agreement at such party’s address set forth beneath its signature on the signature page to this Agreement, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 12.5. Any notice or request hereunder shall be given only by, and shall be deemed to have been received upon (each, a “Receipt”): (i) registered or certified mail, return receipt requested, on the date on which such received as indicated in such return receipt, (ii) delivery by a nationally recognized overnight courier, one (1) Business Day after deposit with such courier, or (iii) facsimile or electronic transmission, in each case upon telephone or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable.
Severability; Captions; Counterparts; Facsimile Signatures
If any provision of any Loan Document is adjudicated to be invalid under Applicable Laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of the Loan Documents which shall be given effect so far as possible. The captions in the Loan Documents are intended for convenience and reference only and shall not affect the meaning or interpretation of the Loan Documents. The Loan Documents may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission, which facsimile signatures shall be considered original executed counterparts. Each party to this Agreement agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party.
Expenses
Borrower shall pay, whether or not the Closing occurs, all out-of-pocket fees, costs and expenses incurred or actually paid by Agent, any Lender, and/or its Affiliates, including, without limitation, documentation and diligence fees and expenses prior to and following the Closing, all search, audit, appraisal, recording, professional and filing fees and expenses and all other charges and expenses (including, without limitation, UCC and judgment and tax lien searches and UCC filings and fees for post-Closing UCC and judgment and tax lien searches and wire transfer fees and audit expenses), and reasonable external attorneys’ fees and expenses (including, without limitation, reasonable fees and disbursements of counsel, but limited, in the case of legal fees and expenses, to the reasonable and documented fees, disbursements and expenses of one regulatory counsel to such Indemnified Person and one other firm of outside counsel to such Indemnified Person taken as a whole and, solely in the case of an actual or potential conflict of interest, one additional firm of outside counsel to each group of similarly situated Indemnified Person), (i) in any effort to enforce, protect or collect payment of any Obligation or to enforce any Loan Document or any related agreement, document or instrument, (ii) in connection with entering into, negotiating, preparing, reviewing and executing the Loan Documents and/or any related agreements, documents or instruments, (iii) arising in any way out of administration of the Obligations or the taking or refraining from taking by Agent of any action requested by Borrower, (iv) in connection with instituting, maintaining, preserving, enforcing and/or foreclosing on Agent’s Liens in any of the Collateral or securities pledged under the Loan Documents, whether through judicial proceedings or otherwise, (v) in defending or prosecuting any actions, claims or proceedings arising out of or relating to Agent’s or any Lender’s transactions with Borrower, (vi) in seeking, obtaining or receiving any advice with respect to its rights and obligations under any Loan Document and any related agreement, document or instrument, (vii) arising out of or relating to any Default or Event of Default or occurring thereafter or as a result thereof, (viii) in connection with all actions, visits, audits and inspections undertaken by Agent or its Affiliates pursuant to the Loan Documents, and/or (ix) in connection with any modification, restatement, supplement, amendment, waiver or extension of any Loan Document and/or any related agreement, document or instrument. All of the foregoing shall be charged to Borrower’s account and shall be part of the Obligations. Without limiting the forgoing, Borrower shall pay all Taxes (other than Taxes based upon or measured by Agent’s income or revenues or any personal property tax), if any, in connection with the issuance of any Note and the filing and/or recording of any documents and/or financing statements.
Entire Agreement
This Agreement and the other Loan Documents to which Borrower is a party constitute the entire agreement between Borrower, Agent and Lenders with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings (including but not limited to the term sheet dated on or about January 29, 2019), if any, relating to the subject
matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Borrower, Agent and Requisite Lenders, as appropriate. Except as set forth in and subject to Section 10.4, no provision of any Loan Document may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Borrower, Agent and Requisite Lenders, provided, that no consent or agreement by Borrower shall be required to amend, modify, change, restate, waive, supplement, discharge, cancel or terminate any provision of Article XIII, so long as no additional duties are required to be assumed by Borrower and there is no adverse effect on Borrower or its rights or duties under this Agreement or any other Loan Document. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. The schedules attached hereto may be amended or supplemented by Borrower upon delivery to Agent of such amendments or supplements and, except as expressly provided otherwise in this Agreement, the written approval thereof by Agent.
Approvals and Duties
Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Agent with respect to any matter that is subject of any Loan Document may be granted or withheld by Agent, as applicable, in its sole and absolute discretion. Agent shall have no responsibility for or obligation or duty with respect to any of the Collateral or any matter or proceeding arising out of or relating thereto, including, without limitation, any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights pertaining thereto.
Publicity
Borrower agrees, and agrees to cause each of its Affiliates, (i) not to transmit or disclose provision of any Loan Document to any Person (other than to the advisors, managers, directors, officers and employees of the Borrower, Holdings and Parent Entity on a need-to-know basis) without Agent’s prior written consent, (ii) to inform all Persons of the confidential nature of the Loan Documents and to direct them not to disclose the same to any other Person and to require each such Person (other than to the advisors, managers, directors, officers and employees of the Borrower, Holdings and Parent Entity) of them to be bound by these provisions. Borrower agrees to submit to Agent and Agent reserves the right to review and approve all materials that Borrower or any of its Affiliates prepares to Persons other than Borrower, Holdings and Parent Entity and their Affiliates and their respective advisors, managers, directors, officers and employees) that contain Agent’s or any Lender’s name or describe or refer to any Loan Document, any of the terms thereof or any of the transactions contemplated thereby; provided, that Borrower and its Affiliates shall have the right to disclose the Loan Documents to:
Agent, Lenders and their respective Affiliates;
such Person’s investors and prospective investors, rating agencies and their respective directors, officers, trustees, partners, members, managers, employees, agents, advisors, representatives, attorneys, equity owners, professional consultants, portfolio management services and rating agencies (in each case, provided that such Person agrees to be bound by this Section 12.10);
any Governmental Authority to which the Borrower, Holdings or Parent Entity is subject at the request or pursuant to any requirement of such Governmental Authority, or in connection with an examination of Borrower, Holdings or Parent Entity by any such Governmental Authority; and
any Person (A) to the extent required by applicable law, (B) in response to any subpoena or other legal process or informal investigative demand, (C) in connection with any litigation, or (D) in connection with the actual or potential exercise or enforcement of any right or remedy under any Loan Document.
The obligations of Borrower, Holdings or Parent Entity and their respective Affiliates under this Section 12.10 shall supersede and replace any other confidentiality obligations to the Agent and Lenders with respect to the Loan Documents agreed to by Borrower, Holdings or Parent Entity or any of their respective Affiliates.
Borrower shall not, and shall not permit any of its Affiliates to, use Agent’s or any Lender’s name (or the name of any of Agent’s or any Lender’s Affiliates) in connection with any of its business operations, including without limitation, advertising, marketing or press releases or such other similar purposes, without Agent’s prior written consent. Nothing contained in any Loan Document is intended to permit or authorize Borrower or any of its Affiliates to contract on behalf of Agent or any Lender.
Borrower hereby agrees that Agent or any Affiliate of Agent may (i) disclose a general description of transactions arising under the Loan Documents for advertising, marketing or other similar purposes and (ii) use Borrower’s or any Borrower Party’s name, logo or other indicia germane to such party in connection with such advertising, marketing or other similar purposes.
Lenders and Agent shall exercise commercially reasonable efforts to maintain in confidence, in accordance with its customary procedures for handling confidential information, all written non-public information of a Borrower Party that any Borrower Party furnishes on a confidential basis (“Confidential Information”), other than any such Confidential Information that becomes generally available to the public or becomes available to Lender or Agent from a source other than Borrower, Holdings, Parent Entity or any of their respective Affiliates (collectively, the “Borrower Parties”)that is not known to such recipient to be subject to confidentiality obligations; provided, that each Lender and Agent and their respective Affiliates shall have the right to disclose Confidential Information, in each case, provided that such Person agrees to be bound by this Section 12.10, to:
Borrower or its Affiliates;
such Person’s Affiliates;
such Person’s or such Person’s Affiliates’ lenders, funding or financing sources;
such Person’s or such Person’s Affiliates’ directors, officers, trustees, partners, members, managers, employees, agents, advisors, representatives, attorneys, equity owners, professional consultants, portfolio management services and rating agencies;
any Person to whom Agent or a Lender offers or proposes to offer to sell, assign or transfer the Loan or any part thereof or any interest or participation therein (other than an Ineligible Transferee) ;
any Person that provides statistical analysis and/or information services to a Lender or Agent or any of their respective Affiliates;
any Governmental Authority to which any Lender or Agent is subject at the request or pursuant to any requirement of such Governmental Authority, or in connection with an examination of any Lender or Agent by any such Governmental Authority; and
any Person (A) to the extent required by applicable law, (B) in response to any subpoena or other legal process or informal investigative demand, (C) in connection with any litigation, or (D) in connection with the actual or potential exercise or enforcement of any right or remedy under any Loan Document.
In addition, each of the Lenders and Agent agrees at all times upon and following the Public Company Transition Date (i) to use commercially reasonable efforts to insure that no material non-public information provided to it by or on behalf of any Borrower Party will be utilized by such Lender or the Agent or any of their respective affiliates, agents, advisors or representatives to trade any securities of the Parent Entity (or its successors) and (ii) not to use, or cause any of its respective affiliates, agents, advisors or representatives to use, any material non-public information provided to it by or on behalf of any Borrower Party to trade any securities of the Parent Entity (or its successors).
The obligations of Lenders and Agent and their respective Affiliates under this Section 12.10 shall supersede and replace any other confidentiality obligations agreed to by any Lender or Agent or any of their respective Affiliates.
Notwithstanding anything herein to the contrary, each party to this Agreement may disclose without limitation the tax treatment and tax structure of the transactions contemplated by this Agreement.
Any disclosure by Agent or Lenders of any of a Borrower Parties’ Confidential Information pursuant to applicable federal, state or local law, regulation or a valid order issued by a court or governmental agency of competent jurisdiction (a “Legal Order”) shall be subject to the terms of this paragraph. Prior to making any such disclosure, Agent or Lenders shall make commercially reasonable efforts to provide the Borrower Parties with prompt written notice of such compelled disclosure so that the Borrower Parties may seek a protective order or other remedy and reasonable assistance in opposing such disclosure or seeking a protective order or other limitations on disclosure. If, after providing such notice and assistance as required herein, Agent or Lenders remain subject to a Legal Order to disclose any Confidential Information, Agent or such Lender shall disclose, and, if applicable, shall require its representatives or other persons to whom such Legal Order is directed to disclose, no more than that portion of the Confidential Information which, on the advice of Agent’s or such Lender’s legal counsel, such Legal Order specifically compels and shall use commercially reasonable efforts to obtain assurances from the applicable court or agency that such Confidential Information will be afforded confidential treatment.
Release of Collateral
So long as no Default or Event of Default has occurred and is continuing, upon request of Borrower, Agent shall release any Lien granted to or held by Agent upon any Collateral being sold or disposed of in compliance with the provisions of the Loan Documents, as determined by Agent in its sole discretion. Subject to Section 12.3, promptly following indefeasible payment in full in cash of all Obligations (other than indemnity obligations under the Loan Documents that are not then due and payable or with respect to which no claim has been made) and the termination of this Agreement, the Liens created hereby shall terminate and Agent shall execute and deliver such documents, at Borrower’s expense, as are necessary to release Agent’s Liens in the Collateral and shall return or cause the return of or consent to the return of the Collateral to
Borrower; provided, however, that the parties agree that, notwithstanding any such termination or release or the execution, delivery or filing of any such documents or the return of any Collateral, if and to the extent that any such payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Agent. Agent shall not be deemed to have made any representation or warranty with respect to any Collateral so delivered except that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts. Section 12.9 shall not be applicable to any actions required to be taken by the Agent under this Section.
Treatment of Fees
The parties hereto agree that all fees due and payable by the Borrower under this Agreement, including, without limitation, pursuant to Article III hereof, shall be deemed to be and shall be treated as interest in respect of the outstanding principal amount of the Loan; provided, however, that nothing in this Section 12.12 shall in any way modify or reduce the obligations of the Borrower under Sections 2.2 or 3.2 of this Agreement.
Release; Cooperation
Borrower hereby acknowledges and agrees that as of the date hereof it has no defense, counterclaim, offset, cross-complaint, claim or demand of any kind or nature whatsoever that can be asserted to reduce or eliminate all or any part of its liability to repay the obligations or to seek affirmative relief or damages of any kind or nature from Agent or any Lender. To the extent permitted by applicable law, Borrower hereby voluntarily and knowingly releases and forever discharges Agent and each Lender and each of their respective predecessors, agents, employees, affiliates, attorneys, successors and assigns (collectively, the “Released Parties”) from all Claims whatsoever, whether known or unknown, anticipated or unanticipated, suspected or unsuspected, fixed, contingent or conditional, or at law or in equity, in any case to the extent originating on or before the date this Agreement is executed that Borrower may now or hereafter have against the Released Parties, if any, irrespective of whether any such claims arise out of contract, tort, violation of law or regulations, or otherwise, and that arise from any of the Loans, the exercise of any rights and remedies under this Agreement or any of the other Loan Documents, and/or the negotiation for and execution of this Agreement, including, without limitation, any contracting for, charging, taking, reserving, collecting or receiving interest in excess of the highest lawful rate applicable. Borrower acknowledges that the foregoing release is a material inducement to each Lender’s decision to extend to Borrower the financial accommodations hereunder and has been relied upon by such Lender in agreeing to make the Loan. Borrower hereby further specifically waives any rights that it may have under Section 1542 of the California Civil Code (to the extent applicable), which provides as follows: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR,” and further waives any similar rights under applicable laws.
In any litigation, arbitration or other dispute resolution proceeding relating to any Loan Document, Borrower waives any and all defenses, objections and counterclaims it may have or could interpose with respect to (i) any of its directors, officers, employees or agents
being deemed to be employees or managing agents of Borrower for purposes of all applicable law or court rules regarding the production of witnesses by notice for testimony (whether in a deposition, at trial or otherwise), (ii) Agent’s or any other Lender’s counsel examining any such individuals as if under cross-examination and using any discovery deposition of any of them as if it were an evidence deposition, and (iii) using all commercially reasonable efforts to produce in any such dispute resolution proceeding, at the time and in the manner requested by Agent or such other Lender, all Persons, documents (whether in tangible, electronic or other form) and other things under its control and relating to the dispute.
AGENT PROVISIONS; SETTLEMENT
Agent
Appointment. Each Lender hereby designates and appoints Midtown Madison Management LLC as the administrative agent, payment agent and collateral agent under this Agreement and the other Loan Documents, and each Lender hereby irrevocably authorizes Midtown Madison Management LLC, as Agent for such Lender, to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent agrees to act as such on the conditions contained in this Article XIII. The provisions of this Article XIII are solely for the benefit of Agent and Lenders, and Borrower shall have no rights as third-party beneficiaries of any of the provisions of this Article XIII other than the second sentence of Section 13.1(h)(iii). Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents, employees or sub-agents.
Nature of Duties. In performing its functions and duties under this Agreement, Agent is acting solely on behalf of Lenders, and its duties are administrative in nature, and does not assume and shall not be deemed to have assumed, any obligation toward or relationship of agency or trust with or for Lenders, other than as expressly set forth herein and in the other Loan Documents, or Borrower. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Each Lender shall make its own independent investigation of the financial condition and affairs of Borrower in connection with the extension of credit hereunder and shall make its own appraisal of the creditworthiness of Borrower. Except for information, notices, reports and other documents expressly required to be furnished to Lenders by Agent hereunder or given to Agent for the account of or with copies for Lenders, Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of any Lenders to the taking or refraining from taking any action hereunder, then Agent shall send prior written notice thereof to each Lender. Agent shall promptly notify each Lender in writing any time that the applicable percentage of Lenders have instructed Agent to act or refrain from acting pursuant hereto.
Rights, Exculpation, Etc. Neither Agent nor any of its officers, directors, managers, members, equity owners, employees, attorneys or agents shall be liable to any Lender for any action lawfully taken or omitted by them hereunder or under any of the other Loan Documents, or in connection herewith or therewith; provided that the foregoing shall not prevent Agent from being be liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction on a final and nonappealable basis. Notwithstanding the foregoing, Agent shall be obligated on the terms set forth herein for performance of its express duties and obligations hereunder. Agent shall not be liable for any
apportionment or distribution of payments made by it in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made shall be to recover from the other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree promptly to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing with loans for its own account. Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties made by Borrower herein or for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of Borrower. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions, or conditions of this Agreement or any of the Loan Documents or the financial condition of Borrower, or the existence or possible existence of any Default or Event of Default. Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from taking any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the applicable percentage of Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the applicable percentage of Lenders and, notwithstanding the instructions of Lenders, Agent shall have no obligation to take any action if it, in good faith, believes that such action exposes Agent or any of its officers, directors, managers, members, equity owners, employees, attorneys or agents to any personal liability unless Agent receives an indemnification satisfactory to it from Lenders with respect to such action.
Reliance. Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, telex, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel, independent accountants and other experts selected by Agent in its sole discretion.
Indemnification. Each Lender, severally and not (i) jointly or (ii) jointly and severally, agrees to reimburse and indemnify and hold harmless Agent and its officers, directors, managers, members, equity owners, employees, attorneys and agents (to the extent not reimbursed by Borrower), ratably according to their respective Pro Rata Share in effect on the date on which indemnification is sought under this subsection of the total outstanding Obligations under the Loan Documents (or, if indemnification is sought after the date upon which the Loans shall have been paid in full, ratably in accordance with their Pro Rata Share immediately prior to such date of the total outstanding Obligations), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent or any of its officers, directors, managers, members, equity owners, employees, attorneys or agents in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by Agent under this Agreement or any of the other Loan Documents; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements to the extent resulting from Agent’s gross negligence or willful misconduct as determined by a court of competent jurisdiction on a final
and non-appealable basis. The obligations of Lenders under this Article XIII shall survive the payment in full of the Obligations and the termination of this Agreement.
Agent in its Individual Capacity. With respect to the Loans made by it, if any, Midtown Madison Management LLC and its successors as the Agent shall have, and may exercise, the same rights and powers under the Loan Documents, and is subject to the same obligations and liabilities, as and to the extent set forth in the Loan Documents, as any other Lender. The terms “Lenders” or “Requisite Lenders” or any similar terms shall include Agent in its individual capacity as a Lender. Agent and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of lending, banking, trust, financial advisory or other business with, Borrower or any Subsidiary or Affiliate of Borrower as if it were not acting as Agent pursuant hereto.
Successor Agent.
Resignation. Agent may resign from the performance of all or part of its functions and duties hereunder at any time by giving at least thirty (30) calendar days’ prior written notice to Borrower and Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clause (ii) below or as otherwise provided below.
Appointment of Successor. Upon any such notice of resignation pursuant to clause (g)(i) of this Section 13.1, Requisite Lenders shall appoint a successor Agent which is not an Ineligible Transferee. If a successor Agent shall not have been so appointed within said thirty (30) calendar day period referenced in clause (g)(i) above, the retiring Agent, upon notice to Borrower, may, on behalf of Lenders, appoint a successor Agent which is not an Ineligible Transferee, who shall serve as Agent until such time as Requisite Lenders appoint a successor Agent as provided above. If no successor Agent has been appointed pursuant to the foregoing within said thirty (30) calendar day period, the resignation shall become effective and Requisite Lenders thereafter shall perform all the duties of Agent hereunder, until such time, if any, as Requisite Lenders appoint a successor Agent as provided above.
Successor Agent. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent which is not an Ineligible Transferee, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and, upon the earlier of such acceptance or the effective date of the retiring Agent’s resignation, the retiring Agent shall be discharged from its duties and obligations under the Loan Documents, provided that any indemnity rights or other rights in favor of such retiring Agent shall continue after and survive such resignation and succession. After any retiring Agent’s resignation as Agent under the Loan Documents, the provisions of this Article XIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents.
Collateral Matters.
Collateral. Each Lender agrees that any action taken by Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater number of Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents relating to the Collateral, and the exercise by Agent or the Requisite Lenders (or, where so required, such greater number of Lenders) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of Lenders and Agent. Without limiting the
generality of the foregoing, Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection herewith and with the Loan Documents in connection with the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by the Borrower or any Guarantor; (iii) act as collateral agent for Lenders for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Loan Documents relating to the Collateral; and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Loan Document, exercise all right and remedies given to such Agent and Lenders with respect to the Collateral under the Loan Documents relating thereto, Applicable Law or otherwise.
Release of Collateral. Lenders hereby irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent, for the benefit the of Lenders, upon any Collateral covered by the Loan Documents (A) upon termination of this Agreement and the indefeasible payment in full in cash of all Obligations under the Loan Documents (other than contingent indemnification Obligations to the extent no claim giving rise thereto has been asserted); (B) constituting Collateral being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with the provisions of the Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry); or (C) constituting Collateral leased to Borrower under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by Borrower to be, renewed or extended.
Confirmation of Authority; Execution of Releases. Without in any manner limiting Agent’s authority to act without any specific or further authorization or consent by Lenders (as set forth in Section 13.1(h)(i) and (ii)), each Lender agrees to confirm in writing, upon request by Borrower, the authority to release any property covered by this Agreement or the Loan Documents conferred upon Agent under Section 13.1(h)(ii). So long as no Event of Default exists, upon receipt by Agent of confirmation from the requisite percentage of Lenders of its authority to release any particular item or types of Collateral covered by this Agreement or the other Loan Documents, and upon at least five (5) Business Days’ prior written request by Borrower, Agent shall (and hereby is irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to Agent, for the benefit itself and the Lenders, herein or pursuant hereto upon such Collateral; provided, however, that (A) Agent shall not be required to execute any such document on terms which, in Agent’s opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty (other than that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts), and (B) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of Borrower or any Subsidiary of Borrower in respect of) all interests retained by Borrower or any Subsidiary of Borrower, including, without limitation, the proceeds of any sale, all of which shall continue to constitute part of the Collateral covered by this Agreement or the Loan Documents.
Absence of Duty. Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the Collateral covered by this Agreement or the other Loan Documents exists or is owned by Borrower or is cared for, protected or
insured or has been encumbered or that the Liens granted to Agent, on behalf of the Lenders, herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected, enforced or maintained or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Section 13.1(h) or in any of the Loan Documents; it being understood and agreed that in respect of the Collateral covered by this Agreement or the other Loan Documents, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its discretion, given Agent’s own interest in Collateral covered by this Agreement or the Loan Documents as one of Lenders and Agent shall have no duty or liability whatsoever to any of the other Lenders; provided, that Agent shall exercise the same care which it would in dealing with loans for its own account.
Agency for Perfection. Each Lender hereby appoints Agent as agent for the purpose of perfecting Lenders’ security interest in Collateral which, in accordance with Article 9 of the UCC in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall hold such Collateral for purposes of perfecting a security interest therein for the benefit of the Lenders, notify Agent thereof and, promptly upon Agent’s request therefor, deliver such Collateral to Agent or otherwise act in respect thereof in accordance with Agent’s instructions.
Exercise of Remedies. Except as set forth in Section 13.4, each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any other Loan Document or to realize upon any Collateral security for the Loans or other Obligations; it being understood and agreed that such rights and remedies may be exercised only by Agent in accordance with the terms of the Loan Documents.
Lender Consent
In the event Agent requests the consent of a Lender and does not receive a written denial thereof within five (5) Business Days after such Lender's receipt of such request, then such Lender will be deemed to have given such consent so long as such request contained a notice stating that such failure to respond within five (5) Business Days would be deemed to be a consent by such Lender.
In the event Agent requests the consent of a Lender in a situation where such Lender's consent would be required and such consent is denied, then Agent may, at its option, require such Lender to assign its interest in the Loans to Agent for a price equal to the then outstanding principal amount thereof due such Lender plus accrued and unpaid interest and fees due such Lender, which principal, interest and fees will be paid to the Lender when collected from Borrower. In the event that Agent elects to require any Lender to assign its interest to Agent pursuant to this Section 13.2 Agent will so notify such Lender in writing within forty-five (45) days following such Lender's denial, and such Lender will assign its interest to Agent no later than five (5) calendar days following receipt of such notice.
Set-off and Sharing of Payments
In addition to any rights and remedies now or hereafter granted under Applicable Law and not by way of limitation of any such rights, upon the occurrence and during the continuation of any Event of Default, each Lender is hereby authorized by Borrower at any time or from time to time, to the fullest extent permitted by law, with the prior written consent of Agent and without notice to Borrower or any other Person other than Agent (such notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances (general or
special, time or demand, provisional or final) held by such Lender at any of its offices for the account of Borrower (regardless of whether such balances are then due to Borrower ), and (b) other Collateral at any time held or owing by such Lender to or for the credit or for the account of Borrower, against and on account of any of the Obligations which are not paid when due; provided, that no Lender or any such holder shall exercise any such right without prior written notice to Agent. Any Lender that has exercised its right to set-off or otherwise has received any payment on account of the Obligations shall, to the extent the amount of any such set off or payment exceeds its Pro Rata Share of payments obtained by all of the Lenders on account of such Obligations, purchase for cash (and the other Lenders or holders of the Loans shall sell) participations in each such other Lender’s or holder’s Pro Rata Share of Obligations as would be necessary to cause such Lender to share such excess with each other Lenders or holders in accordance with their respective Pro Rata Shares; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such purchasing Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery. Borrower agrees, to the fullest extent permitted by law, that (y) any Lender or holder may exercise its right to set-off with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such excess to other Lenders and holders, and (z) any Lender so purchasing a participation in the Loans made or other Obligations held by other Lenders may exercise all rights of set-off, bankers’ lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans and other Obligations in the amount of such participation.
Disbursement of Funds
Agent may, on behalf of Lenders, disburse funds to Borrower for the Revolving Advance requested or any other Advance. Each Lender shall reimburse Agent on demand for its Pro Rata Share of all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender shall remit to Agent its Pro Rata Share of any Advance before Agent disburses such Advance to or on account of Borrower. If Agent so elects to require that funds be made available prior to disbursement to Borrower, Agent shall advise each Lender by telephone, telex or telecopy of the amount of such Lender’s Pro Rata Share of such Advance no later than one (1) Business Day prior to the funding date applicable thereto, and each such Lender shall pay Agent such Lender’s Pro Rata Share of such requested Loan, in same day funds, by wire transfer to Agent’s account not later than 2:00 p.m. (New York City time). If Agent shall have disbursed funds to Borrower on behalf of any Lender and such Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent’s demand, Agent shall promptly notify Borrower, and Borrower shall immediately repay such amount to Agent. Any repayment by Borrower required pursuant to this Section 13.4 shall be without premium or penalty. Nothing in this Section 13.4 or elsewhere in this Agreement or the other Loan Documents, including, without limitation, the provisions of Section 13.5, shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder.
As a matter of administrative convenience, as requested from time to time by a Lender, Agent may, either directly, or through one or more of its Affiliates, on behalf of one or more Lenders, disburse funds to Borrower for an Advance that is otherwise required to be funded pursuant to Section 2.1(a) by such Lender by advancing the amount thereof on behalf of such Lender (on terms to be agreed upon between Agent and such Lender (each such advance, an “Agent Advance”)). With respect to each Agent Advance, Agent or its Affiliate(s) shall have, subject to the agreed upon terms related to such Agent Advance, the right to set off against the amounts of any payments or distributions to be made to such Lender hereunder, the entire amount of such Agent Advance, together with any agreed upon interest or fees thereon, until such Agent Advance is paid in full. For the avoidance of doubt, nothing in this Section 13.4, or
elsewhere in this Agreement or the other Loan Documents, including, without limitation, the provisions of this Section 13.4, shall be deemed to require Agent or its Affiliates to advance funds on behalf of any Lender, whether in the form of an Agent Advance, or otherwise, or to relieve any Lender from such Lender’s obligation to fulfill its commitments hereunder, or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder.
Settlements; Payments; and Information
Advances; Payments; Interest and Fee Payments.
The amount of the outstanding Loan may fluctuate from day to day through Agent’s disbursement of funds to or on account of, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and each Lender, notwithstanding terms to the contrary set forth in Section 13.4, Advances and repayments thereof may be settled according to the procedures described in Sections 13.5(a)(ii) and 13.5(a)(iii). Notwithstanding these procedures, each Lender’s obligation to fund its Pro Rata Share of any Advances made by Agent to or on account of Borrower will commence on the date such Advances are made by Agent. Nothing contained in this Agreement shall obligate a Lender to make an Advance at any time any Default or Event of Default exists. All such payments will be made by such Lender without set-off, counterclaim or deduction of any kind.
Once each week, or more frequently (including daily), if Agent so elects (each such day being a “Settlement Date”), Agent will advise each Lender by 1:00 p.m. (New York City time) on a Business Day by telephone, telex or telecopy of the amount of each such Lender’s Pro Rata Share of the outstanding Advances. In the event payments are necessary to adjust the amount of such Lender’s share of the Advances to such Lender’s Pro Rata Share of the Advances, the party from which such payment is due will pay the other party, in same day funds, by wire transfer to the other’s account not later than 2:00 p.m. (New York City time) on the Business Day following the Settlement Date.
On the fifteenth (15th) calendar day of each month (or, if such day shall not be a Business Day, on the next Business Day following such day) (the “Interest Settlement Date”), Agent will advise each Lender by telephone or facsimile of the amount of interest and fees charged to and collected from Borrower from and including the prior Interest Settlement Date (but excluding such current Interest Settlement Date) in respect of the Loans. Provided that such Lender has made all payments required to be made by it under this Agreement and provided that Lender has not received its Pro Rata Share of interest and fees directly from Borrower, Agent will pay to such Lender, by wire transfer to such Lender’s account (as specified by such Lender on Schedule A of this Agreement as amended by such Lender from time to time after the date hereof pursuant to the notice provisions contained herein or in the applicable Lender Addition Agreement) not later than 2:00 p.m. (New York City time) on the next Business Day following the Interest Settlement Date, such Lender’s share of such interest and fees.”
Availability of Lenders’ Pro Rata Share.
Unless Agent has been notified by a Lender prior to any proposed funding date of such Lender’s intention not to fund its Pro Rata Share of an Advance, Agent may assume that such Lender will make such amount available to Agent on the proposed funding date or the Business Day following the next Settlement Date, as applicable; provided, however, nothing contained in this Agreement shall obligate a Lender to make an Advance at any time any Default or Event of Default exists. If such amount is not, in
fact, made available to Agent by such Lender when due, Agent will be entitled to recover such amount on demand from such Lender without set-off, counterclaim or deduction of any kind.
Nothing contained in this Section 13.5(b) will be deemed to relieve a Lender of its obligation to fulfill its commitments or to prejudice any rights Agent or Borrower may have against such Lender as a result of any default by such Lender under this Agreement.
Return of Payments.
If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind.
If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any Debtor Relief Law or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without set-off, counterclaim or deduction of any kind.
Dissemination of Information
Upon request by a Lender, Agent will distribute promptly to such Lender, unless previously provided by Borrower to such Lender, copies of all notices, schedules, reports, projections, financial statements, agreements and other material and information, including, without limitation, financial and reporting information received from Borrower or generated by a third party (and excluding only internal information generated by Midtown Madison Management LLC for its own use as a Lender or as Agent and any attorney-client privileged communications or work product), as provided for in this Agreement and the other Loan Documents as received by Agent. Agent shall not be liable to any of the Lenders for any failure to comply with its obligations under this Section 13.6, except to the extent that such failure is attributed to Agent’s gross negligence or willful misconduct and results in demonstrable damages to such Lender as determined, in each case, by a court of competent jurisdiction on a final and non-appealable basis.
Non-Funding Lender
The failure of any Lender to make any Advance (the “Non-Funding Lender”) on the date specified therefor shall not relieve any other Lender (each such other Lender, an “Other Lender”) of its obligations to make such Advance, but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make an Advance or make any other payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a “Lender” for any voting or consent rights under or with respect to any Loan Document. In the event that any Lender (other than a Non-Funding Lender) shall fund such Non-Funding Lender’s Pro Rata Share of such Advance, in accordance with such Lender’s Pro Rata Share (any such funding Lender, a “Funding Lender”), then such Non-Funding Lender agrees immediately to pay to each Funding Lender the amount so funded by such Funding Lender, with interest thereon, for each day from and including the date such amount was funded
by such Funding Lender to, but excluding, the date of payment to each such Funding Lender, at the rate per annum equal to the LIBOR Rate plus three percent (3.0%). If, at a later date, such Non-Funding Lender pays the amount of its failed Pro Rata Share of the applicable Advance to the Funding Lenders, together with interest as provided above, then such amount attributable to principal shall constitute such Non-Funding Lender’s funding of its Pro Rata Share of the applicable Advance. The failure of any Lender to fund its Pro Rata Share of any Advance shall not relieve any other Lender of its obligation to fund its Pro Rata Share of such Advance.
Non-Funding Lender Commitment Assignment. An Other Lender who is not then an Affiliate of an Non-Funding Lender shall have the right, but not the obligation, to acquire and assume its Pro Rata Share of an Non-Funding Lender’s then remaining Revolving Loan Commitment. Immediately upon receiving written notice from such Other Lender that it desires to acquire its Pro Rata Share of such Non-Funding Lender’s then remaining Revolving Loan Commitment, the Non-Funding Lender shall assign, in accordance with this Agreement, all or part, as the case may be, of its Revolving Loan Commitment and other rights and obligations under this Agreement and all other Loan Documents to such Other Lender.
If no Other Lender elects to acquire and assume its Pro Rata Share of such Non-Funding Lender’s then remaining Revolving Loan Commitment as set forth in the immediately preceding paragraph within thirty (30) calendar days of such Non-Funding Lender becoming an Non-Funding Lender, then the Borrower may, by notice (a “Replacement Notice”) in writing to the Agent and the Non-Funding Lender, (i) request such Non-Funding Lender to cooperate with the Borrower in obtaining a Replacement Lender for such Non-Funding Lender (each a “Replacement Lender”); or (ii) propose a Replacement Lender. If a Replacement Lender shall be accepted by the Agent who, at the time of determination, is neither an Non-Funding Lender nor an Affiliate of an Non-Funding Lender or an Ineligible Transferee, then such Non-Funding Lender shall assign its then remaining Revolving Loan Commitment and other rights and obligations related to unfunded Revolving Loan Commitments under this Agreement and all other Loan Documents to such Replacement Lender.
In either case, following the consummation of the assignment and assumption of the Non-Funding Lender’s remaining Revolving Loan Commitment pursuant to one of the two immediately preceding paragraphs in this Section 13.7, any remaining Revolving Loan Commitment of such Non-Funding Lender shall not terminate, but shall be reduced proportionately to reflect any such assignments and assumptions, and such Non-Funding Lender shall continue to be a “Lender” hereunder with its Revolving Loan Commitment and Pro Rata Share eliminated to reflect such assignments and assumptions. Upon the effective date of such assignment(s) and assumption(s) such Replacement Lender shall, if not already a Lender, become a “Lender” for all purposes under this Agreement and the other Loan Documents. The assignment and assumption contemplated by this paragraph shall modify the ownership of obligations related to unfunded Revolving Loan Commitments only and shall not modify the Non-Funding Lender’s rights and obligations, including, without limitation, all indemnity obligations hereunder, with respect to Advances previously funded.
Taxes
Subject to Section 13.8(g), any and all payments by or on account of any obligations of Borrower to each Lender or Agent under this Agreement or any other Loan Document shall be made free and clear of, and without deduction or withholding for, any and all Taxes, excluding, in the case of each Lender and Agent, (i) such Taxes (including income taxes or franchise taxes) as are imposed on or measured by the net income (however denominated), overall receipts or total capital of such Lender or Agent, respectively, by the jurisdiction in which such Lender or Agent, as the case may be, is organized or maintains a Lending Office or any political subdivision thereof, (ii) such Taxes that are branch profits Taxes imposed by the United
States of America, (iii) such Taxes as are imposed by reason of Agent’s or such Lender’s place of organization or lending office or other present or former connection between Agent or such Lender and the jurisdiction imposing such Tax (other than such connections arising from Agent or such Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document) (such connections described in this clause (iii), other than those connections set forth in the parenthetical, being referred to herein as “Unrelated Connections”) and (iv) such Taxes expressly described in clauses (i)-(iv) of Section 13.8(g) hereof (all such excluded Taxes described in the foregoing clauses (i)-(iv) above being referred to as “Excluded Taxes” and such Taxes, levies, imposts, deductions, charges, withholdings and liabilities described above in this Section 13.8(a) other than Excluded Taxes being referred to as “Indemnified Taxes” for the purposes of this Agreement).
In addition, Borrower shall pay to the relevant Governmental Authority any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document, except any such Taxes that are imposed as a result of Unrelated Connections and with respect to an assignment(hereinafter referred to as “Other Taxes”).
Borrower shall indemnify and hold harmless each Lender and Agent for the full amount of any and all Indemnified Taxes or Other Taxes (including any Indemnified Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 13.8) paid or payable by such Lender or Agent and any liability (other than any penalties, interest, additions, and expenses that accrue both after the 120th day after the receipt by Agent or such Lender of written notice of the assertion of such Indemnified Taxes or Other Taxes and before the date that Agent or such Lender provides Borrower with a certificate relating thereto pursuant to Section 13.8(l)) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. Payments under this indemnification shall be made within 10 days from the date any Lender or Agent makes written demand therefor.
If Borrower shall be required by Applicable Law to deduct or withhold any Indemnified Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or Agent, then:
the sum payable shall be increased to the extent necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 13.8), such Lender or Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made;
Borrower shall make such deductions; and
Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with Applicable Law.
Borrower shall furnish to Agent (and the applicable Lender) a receipt evidencing payment by Borrower of Indemnified Taxes or Other Taxes to a Governmental Authority promptly, but in any event within ten (10) Business Days, after obtaining such receipt, or other evidence of payment satisfactory to Agent (and the applicable Lender) within ten (10) Business Days after the date of any payment by Borrower of Indemnified Taxes or Other Taxes to a Governmental Authority.
Each Lender that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States (or any jurisdiction thereof), or any estate or trust that is subject to United States federal income taxation regardless of the source of its income or is otherwise a “foreign person” within the meaning of Treasury Regulation Section 1.1441-1(c) (a “Non-U.S. Lender”) shall deliver to Borrower and Agent (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2, solely to the assigning Lender and Agent and not to Borrower) two (2) copies of each applicable U.S. Internal Revenue Service Form W-8BEN, Form W-8BEN-E, Form W-8IMY or Form W-8ECI, or any subsequent versions thereof or successors thereto or other forms prescribed by Applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from United States federal withholding Tax on all payments by Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement. In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. In addition to properly completing and duly executing Forms W-8BEN, W-8BEN-E or W-8IMY (or any subsequent versions thereof or successor thereto), if such Non-U.S. Lender is claiming an exemption from withholding of United States Federal income tax under Section 871(h) or 881(c) of the Code, such Lender hereby represents and warrants that (A) it is not a “bank” within the meaning of Section 881(c) of the Code, (B) it is not subject to regulatory or other legal requirements as a bank in any jurisdiction, (C) it has not been treated as a bank for purposes of any Tax, securities law or other filing or submission made to any governmental securities law or other legal requirements, (D) it is not a “10 percent shareholder” within the meaning of Section 871(h)(3)(B) of the Code of Borrower, (E) it is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code and (F) none of the interest arising from this Agreement constitutes contingent interest within the meaning of Section 871(h)(4) or Section 881(c)(4) of the Code and such Non-U.S. Lender agrees that it shall provide Agent, and Agent shall provide to Borrower (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2, solely to the assigning Lender and Agent and not to Borrower), with prompt notice at any time after becoming a Lender hereunder that it can no longer make the foregoing representations and warranties. If a payment made to a Non-U.S. Lender under any Loan Document would be subject to United States federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA, such Lender shall deliver to the Borrower and Agent at the time or times prescribed by Applicable Law and at such time or times reasonably requested by the Borrower or the Agent such documentation prescribed by Applicable Law and such additional documentation reasonably requested by the Borrower or the Agent as may be necessary for the Borrower and the Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. (Solely for purposes of the foregoing sentence, FACTA shall include all amendments to FACTA after the date of this Agreement.) Each Non-U.S. Lender shall promptly notify Borrower (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2, solely to the assigning Lender and Agent and not to Borrower) at any time it determines that it is no longer in a position to provide any previously delivered form or certificate (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this section, a Non-U.S. Lender shall not be required to deliver any form pursuant to this subsection (other than Form W-8BEN, Form W-8BEN-E, Form W-8IMY or Form W-8ECI, or any subsequent versions thereof or successors thereto, as applicable) if, in the Lender’s reasonable judgment, such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender. Each Lender who makes an assignment pursuant to Section 12.2 shall indemnify and agree to
hold Agent, Borrower and the other Lenders harmless from and against any United States federal withholding Tax, interest and penalties that would not have been imposed but for (i) the failure of the Affiliate that received such assignment under Section 12.2 to comply with this Section 13.8(f) or (ii) the failure of such Lender to withhold and pay such tax at the proper rate in the event such Affiliate does not comply with this Section 13.8(f) (or complies with Section 13.8(f) but delivers forms indicating it is entitled to a reduced rate of such tax). Any Lender that is a U.S. Lender shall deliver to Borrower and Agent (i) a properly prepared and duly executed U.S. Internal Revenue Service Form W-9, or any subsequent versions thereof or successors thereto, certifying that such Lender is entitled to receive any and all payments under this Agreement and each other Loan Document free and clear from withholding of United States federal income taxes and (ii) upon Borrower’s reasonable request, such other reasonable documentation as will enable Borrower and/or Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Each Person that shall become a Participant pursuant to Section 12.2 shall, on or before the date of the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this Section 13.8(f) and Section 13.8(h), and shall make the representations and warranties set forth in clauses (A) – (F) above, provided that the obligations of such Participant, pursuant to this Section 13.8(f) and Section 13.8(h), shall be determined as if such Participant were a Lender except that such Participant shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased.
Borrower will not be required to pay any additional amounts in respect of United States federal withholding or income Tax pursuant to Section 13.8(d) to any Lender or Agent or to indemnify any Lender or Agent pursuant to Section 13.8(c) to the extent that (i) the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to comply with its obligations under Section 13.8(f) for any reason; (ii) with respect to a Lender, the obligation to withhold amounts with respect to the United States federal withholding Tax existed on the date such Lender became a party to this Agreement or, with respect to payments to a lending office newly designated by a Lender (a “New Lending Office”), the date such Lender designated such New Lending Office with respect to the applicable Loan; provided that this clause (ii) shall not apply to the extent the additional amounts any Lender (or Transferee) through a New Lending Office, would be entitled to receive (without regard to this clause (ii)) do not exceed the additional amounts that the Person making the transfer, or Lender (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such transfer or designation; (iii) such Lender is claiming an exemption from withholding of United States Federal income Tax under Sections 871(h) or 881(c) of the Code but is unable at any time to make the representations and warranties set forth in clauses (A) – (F) of Section 13.8(f) or (iv) any withholding Taxes imposed under FATCA.
Each Non-U.S. Lender agrees to provide Borrower and the Agent, upon the reasonable request of Borrower, such other forms or documents as may be reasonably required under Applicable Law in order to establish an exemption from or eligibility for a reduction in the rate or imposition of Taxes or Other Taxes. If, at any time, Borrower requests any Lender to deliver any such additional forms or other documentation, then Borrower shall, on demand of such Lender through Agent, reimburse such Lender for any out-of-pocket costs and expenses (including reasonable attorneys’ fees and expenses) reasonably incurred by such Lender in the preparation or delivery of such forms or other documentation.
If Borrower is required to pay additional amounts to or for the account of any Lender or Agent pursuant to this Section 13.8, then such Lender or Agent shall use its reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested by Borrower or to designate a Lending Office from a different jurisdiction (if such a Lending Office exists) so as to eliminate or reduce any such additional payments by Borrower which may accrue in the future if such filing or changes in the reasonable judgment of
such Lender or Agent, would not require such Lender to disclose information such Lender deems confidential and is not otherwise disadvantageous to such Lender or Agent.
If Agent or a Lender, in its reasonable judgment, receives a refund of any Taxes or Other Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has paid additional amounts pursuant to this Section 13.8, it shall promptly pay to Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrower under this Section 13.8 with respect to the Taxes or Other Taxes giving rise to such refund) and any interest paid by the relevant Governmental Authority with respect to such refund, provided, that Borrower, upon the request of Agent or such Lender, shall repay the amount paid over to Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Agent or such Lender in the event Agent or such Lender is required to repay the applicable refund to such Governmental Authority.
Notwithstanding anything herein to the contrary, if Agent is required by law to deduct or withhold any Taxes or Other Taxes or any other Taxes from or in respect of any sum payable to any Lender by Borrower or Agent, the Agent shall not be required to make any gross-up payment to or in respect of such Lender, except to the extent that a corresponding gross-up payment is actually received by Agent from Borrower.
Any Lender claiming reimbursement or compensation pursuant to this Section 13.8 shall deliver to Borrower (with a copy to Agent) a certificate setting forth in reasonable detail the amount payable to such Lender hereunder and such certificate shall be conclusive and binding on Borrower in the absence of manifest error.
The agreements and obligations of Borrower in this Section 13.8 shall survive the payment of all other Obligations.
Patriot Act
Each Lender that is subject to the requirements of the Patriot Act and Agent (for itself and not on behalf of any Lender) hereby notifies Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Agent and each Lender to identify Borrower in accordance with the Patriot Act. Borrower shall, promptly following a request by Agent or any Lender, provide all documentation and other information that Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” an anti-money laundering rules and regulations, including the Patriot Act.
[REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, each of the parties has duly executed this Loan and Security Agreement as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
KATAPULT GROUP, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
PARENT ENTITY:
KATAPULT HOLDINGS, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
Address:
One Rockefeller Plaza, 32nd Floor
New York, NY 10020
Attention: David Aidi
Telephone: 212-201-1912
Facsimile: 917-464-7350
Email: aidi@atalayacap.com
With a copy to:
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Matthew Fontane
Phone: 214-964-9454
Email: matthew.fontane@hklaw.com
CLASS A LENDER(S):
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
CLASS B LENDER(S):
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND IV LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND V LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA SPECIAL OPPORTUNITIES FUND (CAYMAN) VII LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) IV LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) V LP
By: /s/ David Aidi____________________
Name: David Aidi
Title: Authorized Signatory
Schedule A
Wiring Instructions
Wiring instructions for each Lender as of the Closing Date are on file with Agent.
Schedule B
Revolving Loan Commitments:
| | | | | |
| Lender | Revolving Loan Commitment |
| Atalaya Special Opportunities Fund VII LP | $32,680,000.00 |
| Atalaya Special Opportunities Fund (Cayman) VII LP | $17,320,000.00 |
| Atalaya Asset Income Fund IV LP | $16,880,000.00 |
| Atalaya Asset Income Fund IV (Cayman) LP | $8,120,000.00 |
| Atalaya Asset Income Fund V LP | $50,000,000.00 |
| Total Revolving Loan Commitments: | $125,000,000.00 |
Term Loan Commitments:
| | | | | |
| Lender | Term Loan Commitment |
| Atalaya Special Opportunities Fund VII LP | $13,072,000.00 |
| Atalaya Special Opportunities Fund (Cayman) VII LP | $6,928,000.00 |
| Atalaya Asset Income Fund IV LP | $6,752,000.00 |
| Atalaya Asset Income Fund (Cayman) IV LP | $3,248,000.00 |
| Atalaya Asset Income Fund V LP | $9,388,000.00 |
| Atalaya Asset Income Fund (Cayman) V LP | $10,612,000.00 |
| Total Term Loan Commitments | $50,000,000.00 |
Schedule 6.8
Post-Closing Obligations
In accordance with and in furtherance of the provisions of Section 6.8 of the Agreement, the following actions, items and deliverables will be completed, taken and/or delivered to Agent’s satisfaction in its sole discretion on or before the date specified below. The failure to take, comply with or provide any of the actions or items referred to herein on or before such date shall constitute and be deemed an Event of Default under the Agreement. Nothing in this Schedule 6.8 shall limit the effect of any provision of the Agreement or Borrower’s obligations thereunder. Capitalized terms not otherwise defined in this Schedule 6.8 shall have the same meaning as in the Agreement.
| | | | | |
| Cause Holdings, Agent and Advensus to enter into a multi-party servicing agreement acceptable to Agent in its sole discretion. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents to be amended to provide that the total of payments does not include other changes for Portfolio Documents entered into in the states of Alaska, Arizona, Delaware, Florida, Hawaii, Iowa, Idaho, Kansas, Kentucky, Oregon, South Carolina, South Dakota, Tennessee, Utah, Virginia and Washington and in the District of Columbia. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents to be amended to eliminate return shipping an restocking fees in the states of Connecticut, Georgia and Iowa. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of California to conform box disclosure to California statutory requirement. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Colorado to be amended to (i) require taxes to be paid on each payment, not only on the initial payment, (ii) revise the required state notice to read “for the leased property” instead of “for the lease property” and (iii) revise the disclosure section to set it apart in the agreement in a standalone provision that does not contain any information not directly related to the disclosures. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Connecticut to be amended to (i) disclosures to track the statutory requirement exactly and (ii) add the following language at beginning of the “Maintenance, Repairs and Warranty” section: “While we are responsible for maintaining or servicing the property”. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Indiana to be amended to (i) revise paragraph 8 to accurately reflect lessee’s reinstatement rights (120 days) under Indiana law and (ii) break out taxes separately in the itemized payment table. | Ninety (90) days. |
| | | | | |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Iowa to be amended to (i) conform the agreement with the Model Form, including to (a) add explanation that this term means the “total dollar amount of lease payments you will have to make to acquire ownership” and (b) break out taxes separately in the itemized payment table and (ii) revise paragraph 10 to state “We may terminate this Agreement if the prospect of payment, performance, or return of the property is materially impaired due to your failure to keep nay of the obligations in this Agreement.”. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Ohio to be amended to expressly add a statement that the lessee is not required to purchase insurance for the property that is the subject of the lease from the lessor or from any insurer owned or controlled by the lessor. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of Pennsylvania to be amended to include a statement that the lessee is not required to purchase insurance of liability damage waiver for the property that is the subject of the rental agreement from the lessor or any vendor owned or controlled by the lessor. | Ninety (90) days. |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of South Carolina to be amended to include a statement that at any time after the first periodic payment is made, the lessee may acquire ownership of the property by tendering 55% of the difference between the total of scheduled payments and the total amount paid on the account. | Ninety (90) days. |
As recommended by Hudson Cook, cause the Portfolio Documents in the state of Vermont to be amended to add (i) a statement that the consumer is not required to purchase any damage waiver or insurance and (ii) the additional required cost disclosures in no less than 10- point, bold-face type on the front of the agreement above the line for the consumer’s signature:
Total initial payment for rent-to own merchandise (A)$ ____ Amount & total of regular payments: $ _ /week [mo.] x __ weeks [mos.] (B) $ ____ Other charges to acquire ownership (itemize): _____________ $ ____ _____________ $ ____ Total of “other Charges” (C) $ ____ TOTAL OF PAYMENTS TO ACQUIRE OWNERSHIP (total of A, B & C) (D) $ ____ CASH PRICE (E) $ ____ COST OF RENT-TO-OWN SERVICE (D minus E) $ ____ EFFECTIVE ANNUAL PERCENTAGE RATE (applies only if you acquire ownership by making all rental payments) ____ % | Ninety (90) days. |
| | | | | |
| As recommended by Hudson Cook, cause the Portfolio Documents in the state of West Virginia to be amended to provide the required disclosures on the same page and the same side of the page that the consumer signs, grouped together and in the type that is bolder and larger than the surround type and 90% of the remainder of the printing on the contract. | Ninety (90) days. |
| Cause Servicer to develop, in consultation with Agent, a Form of Monthly Servicing Report to be attached hereto as Exhibit C. | Thirty (30) days. |
| Deliver or cause to be delivered insurance endorsements, in form and substance satisfactory to Agent, naming Agent as an additional insured and lender loss payee with respect to the insurance policies that comply with the terms of the Agreement. | Thirty (30) days. |
Exhibit H-1
| | | | | |
| Advance Rate Trigger First Payment Default Ratio (T+30) | Default Trigger First Payment Default Ratio (T+30) |
| 9.50% | 12.50% |
| | | | | |
| Advance Rate Trigger First Payment Default Ratio (Trailing 3 Months T+30) | Default Trigger First Payment Default Ratio (Trailing 3 Months T+30) |
| 8.50% | 11.50% |
Exhibit H-2
Exhibit H-3
| | | | | | | | |
| Month | Advance Rate Trigger Cumulative Cash Collection Percentage Ratio | Default Trigger Cumulative Cash Collection Percentage Ratio |
1. | 9.48% | 8.67% |
1. | 28.74% | 25.70% |
1. | 48.15% | 44.36% |
1. | 63.17% | 58.09% |
1. | 76.17% | 73.75% |
1. | 84.40% | 81.25% |
1. | 94.65% | 89.81% |
1. | 102.49% | 97.02% |
1. | 110.86% | 103.85% |
1. | 116.44% | 108.94% |
1. | 123.10% | 113.27% |
1. | 122.50% | 112.53% |
| Each Month Thereafter | 122.50% | 112.53% |
Exhibit H-4
| | | | | | | | |
| Period | Advance Rate Trigger Charge-off Percentage Ratio | Charge-off Trigger Percentage Ratio |
1. | N/A | N/A |
1. | N/A | N/A |
1. | 8.43% | 10.43% |
1. | 15.52% | 17.52% |
1. | 19.41% | 21.41% |
1. | 23.30% | 25.43% |
1. | 25.89% | 28.63% |
1. | 27.96% | 31.26% |
1. | 30.16% | 33.92% |
1. | 31.57% | 35.78% |
1. | 33.02% | 37.68% |
1. | 35.47% | 40.57% |
| Each Month Thereafter | 36.93% | 43.39% |
THIRTEENTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This Thirteenth Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 14th day of March, 2022, by and among (a) KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), (b) KATAPULT GROUP, INC., a Delaware corporation (“Holdings”), (c) KATAPULT HOLDINGS, INC., a Delaware corporation (“Parent Entity”), (d) MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, as administrative, payment and collateral agent for each of the Lenders (in such capacities, “Agent”) and (d) each of the Lenders party hereto.
RECITALS
A.Borrower, Holdings, Agent and Lenders have entered into that certain Loan and Security Agreement, dated as of May 14, 2019, as amended by that certain First Amendment to Loan and Security Agreement, dated as of June 14, 2019, as amended by that certain Second Amendment to Loan and Security Agreement, dated as of November 8, 2019, as amended by that certain Third Amendment to Loan and Security Agreement, dated as of November 20, 2019, as amended by that certain Fourth Amendment to Loan and Security Agreement, dated as of December 16, 2019, as amended by that certain Fifth Amendment to Loan and Security Agreement, dated as of April 3, 2020, as amended by that certain Sixth Amendment to Loan and Security Agreement, dated as of April 29, 2020, as amended by that certain Seventh Amendment to Loan and Security Agreement, dated as of May 6, 2020, as further amended by that certain Eighth Amendment to Loan and Security Agreement, dated as of September 28, 2020, as further amended by that certain Ninth Amendment and Joinder to Loan and Security Agreement, dated as of December 4, 2020, as further amended by that certain Tenth Amendment and Joinder to Loan and Security Agreement, dated as of January 13, 2021, as further amended by that certain Eleventh Amendment to Loan and Security Agreement, dated as of July 1, 2021, and as further amended by that certain Twelfth Amendment to Loan and Security Agreement, dated as of December 15, 2021 (as heretofore and as may be hereafter further amended, modified, restated, amended or restated from time to time the “Loan Agreement”).
B.Agent, Borrower and each Lender have agreed to execute this Amendment for the purpose of effectuating the matters set forth herein, all on the terms and conditions set forth herein.
Agreement
Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement as amended by this Amendment (the “Loan Agreement”).
2.Amendments to Loan Agreement.
2.1Effective as of the date hereof, Section 6.19(c) to the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(c) Total Advance Rate. As of the end of each fiscal month and as of the making of each Advance hereunder (before and after giving effect to such
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Advance), the Total Advance Rate shall not exceed (i) from the period on or after October 1, 2021 to and including December 31, 2022, 140%, (ii) from January 1, 2023 to and including December 31, 2023, 130%, and (iii) at all times thereafter, 120%. If at any time during which there is a Total Advance Rate Reserve Account, the Total Advance Rate exceeds the applicable rate for any of the foregoing periods, the Borrower may cure such Default by depositing funds in the Total Advance Rate Reserve Account in an amount necessary to reduce the Total Advance Rate to the maximum permitted rate for such period; provided that Borrower's right to cure a Default pursuant to this Section 6.19(c) may be exercised no more than a total of five (5) times. So long as no Default or Event of Default has occurred and is continuing or would result therefrom, Borrower may submit a written request to the Agent at least two (2) Business Days prior to the proposed distribution, requesting the Agent to approve the transmission from the Total Advance Rate Reserve Account of all or a portion of the funds therein as of such date to the Borrower, which request must be submitted with (i) a Monthly Servicing Report dated as of the date of such distribution and updated with data as of the date immediately preceding the date of such Monthly Servicing Report, which evidences on a pro forma basis that the Borrower will be in compliance with the Total Advance Rate after giving effect to such distribution and (ii) a certification that no Default or Event of Default has occurred or is continuing or will result therefrom, and Borrower shall be in compliance with the covenants set forth in this Section 6.19 both before and after such requested disbursement of funds. Upon satisfaction of such conditions, the Agent shall direct the account bank to transmit the funds from the Total Advance Rate Reserve Account as specified by the Borrower.
3.Limited Effect of Amendment.
3.1Except to the extent expressly set forth herein, this Amendment does not, and shall not be construed to, constitute a waiver of any past, present or future violation of the Loan Agreement, the other Loan Documents or any other related document, and shall not, directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Agreement, any other Loan Document or any other related document (all of which rights are hereby expressly reserved by Agent and the Lenders), (ii) amend or alter any provision of the Loan Agreement, any other Loan Document or any other related document, (iii) constitute any course of dealing or other basis for altering any obligation of Borrower, Holdings, Parent Entity or any of their respective Affiliates or any right, privilege or remedy of Agent or any Lender under the Loan Agreement, any other Loan Document or any other related document or (iv) constitute any consent (deemed or express) by Agent or any Lender to any prior, existing or future violations of the Loan Agreement, any other Loan Document or any other related document. There are no oral agreements among the parties hereto, and no prior or future discussions or representations regarding the subject matter hereof shall constitute a waiver of any past, present or future violation of the Loan Agreement, any other Loan Document or any other related document.
3.2This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement, as amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
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4.Representations and Warranties and Covenants. To induce Agent and Lenders to enter into this Amendment, Borrower, Holdings and Parent Entity, jointly and severally, hereby represent and warrant to Agent and each Lender as follows:
4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing;
4.2Each of Borrower, Holdings and Parent Entity has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement;
4.3The execution and delivery by Borrower, Holdings and Parent Entity of this Amendment and the performance by Borrower, Holdings and Parent Entity of their respective obligations under the Loan Agreement have been duly authorized by all requisite action of such parties and have been duly executed and delivered by such parties;
4.4The execution and delivery by Borrower, Holdings and Parent Entity of this Amendment and the performance by Borrower, Holdings and Parent Entity of their obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, Holdings or Parent Entity, except as already has been obtained or made; and
4.5This Amendment has been duly executed and delivered by each of Borrower, Holdings and Parent Entity and is the binding obligation of each of Borrower, Holdings and Parent Entity, enforceable against each of Borrower, Holdings and Parent Entity in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors’ rights generally and to the effect of general principles of equity (whether in a proceeding at law or in equity).
5.Conditions Precedent to Effectiveness of Amendment Against Agent and Lenders. This Amendment shall not be effective against Agent or any Lender unless and until each of the following conditions shall have been satisfied as of the date hereof, in Agent’s sole discretion:
5.1Agent shall have received this Amendment, duly executed by Borrower, Holdings and Parent Entity;
5.2Agent shall have received such additional documents, instruments and information as Agent may request;
5.3Borrower shall have paid to Agent, on behalf of itself and the Lenders, all fees, costs and expenses due and owing to Agent and the Lenders as of the date hereof; and
5.4After giving effect to this Amendment, no Regulatory Trigger Event, Default Trigger Event, First Payment Default Trigger Event, Default or Event of Default has occurred and is continuing.
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6.Integration. This Amendment and the Loan Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties and negotiations between the parties about the subject matter of this Amendment and the Loan Agreement merge into this Amendment and the Loan Agreement.
7.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages delivered by facsimile or other electronic means shall have the same effect as manually executed signature pages. The words “execution,” “executed”, “signed,” “signature,” and words of like import in this Amendment shall be deemed to include electronic signatures, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature.
8.Release. BORROWER, HOLDINGS AND PARENT ENTITY, TOGETHER WITH THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, “RELEASORS”) HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER WAIVES AND DISCHARGES AGENT AND EACH LENDER AND THEIR RESPECTIVE PARENTS, DIVISIONS, SUBSIDIARIES, AFFILIATES, MEMBERS, MANAGERS, PARTICIPANTS, PREDECESSORS, SUCCESSORS, AND ASSIGNS, AND EACH OF ITS CURRENT AND FORMER DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, ATTORNEYS, AGENTS, AND EMPLOYEES, AND EACH OF THEIR RESPECTIVE PREDECESSORS, SUCCESSORS, HEIRS, AND ASSIGNS (INDIVIDUALLY AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL POSSIBLE CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, OR AT LAW OR IN EQUITY, IN ANY CASE ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE HEREOF THAT ANY OF THE RELEASORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES (OR ANY OF THEM), IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ARISING DIRECTLY OR INDIRECTLY FROM THE LOAN AGREEMENT, THE LOAN DOCUMENTS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT OR THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE. EACH OF THE RELEASORS WAIVES THE BENEFITS OF ANY LAW, WHICH MAY PROVIDE IN SUBSTANCE: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY IT MUST HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE DEBTOR.” EACH OF THE RELEASORS UNDERSTANDS THAT THE FACTS WHICH IT BELIEVES TO BE TRUE AT THE TIME OF MAKING THE RELEASE PROVIDED FOR HEREIN MAY LATER TURN OUT TO BE DIFFERENT THAN IT NOW BELIEVES, AND THAT INFORMATION WHICH IS NOT NOW KNOWN OR SUSPECTED MAY LATER BE DISCOVERED. EACH OF THE RELEASORS ACCEPTS THIS POSSIBILITY, AND EACH OF THEM ASSUMES
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THE RISK OF THE FACTS TURNING OUT TO BE DIFFERENT AND NEW INFORMATION BEING DISCOVERED; AND EACH OF THEM FURTHER AGREES THAT THE RELEASE PROVIDED FOR HEREIN SHALL IN ALL RESPECTS CONTINUE TO BE EFFECTIVE AND NOT SUBJECT TO TERMINATION OR RESCISSION BECAUSE OF ANY DIFFERENCE IN SUCH FACTS OR ANY NEW INFORMATION. RELEASORS AGREE THAT (I) THE COMMENCEMENT OF ANY LITIGATION OR LEGAL PROCEEDINGS BY ANY RELEASOR OR ANY OF THEIR RESPECTIVE AFFILIATES AGAINST ANY RELEASED PARTY WITH RESPECT TO ANY CLAIMS, COUNTERCLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES AND LIABILITIES RELEASED HEREBY, PURPORTED TO BE RELEASED HEREBY OR ARISING ON OR BEFORE THE DATE HEREOF, AND/OR (II) THE COMMENCEMENT OF ANY CLAIM, INITIATION OR COMMENCEMENT OF ANY CLAIM OR PROCEEDING IN FAVOR OF, THROUGH OR BY ANY RELEASOR WHICH ALLEGES THAT THE RELEASE HEREIN IS INVALID OR UNENFORCEABLE IN ANY RESPECT, SHALL, IN EACH CASE, CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT.
9.Waiver of Compliance with Article 9 of UCC. To the extent not prohibited by applicable law, each of Borrower, Holdings and Parent Entity: (a) waives its right to receive notice under, and any other rights in respect to, Sections 9-611, 9-620(e), 9-621 and 9-623 of the UCC following the occurrence and during the continuance of an Event of Default; (b) waives any right to object to the sale, transfer, conveyance or surrender of the Collateral following the occurrence and during the continuance of an Event of Default; (c) waives any obligation of Agent to dispose of the Collateral under the UCC or otherwise following the occurrence and during the continuance of an Event of Default; (d) waives any other right, whether legal or equitable, which Borrower, Holdings or Parent Entity may possess in and to the Collateral following the occurrence and during the continuance of an Event of Default; (e) agrees that the transactions contemplated herein have been effected and negotiated in a commercially reasonable manner; and (f) agrees that Agent and each Lender has acted in, and has effected and negotiated the transactions contemplated herein, in good faith. Each of Borrower, Holdings and Parent Entity acknowledges and agrees that the waivers set forth in this Section 9 and elsewhere in this Agreement constitute material consideration for the agreement of Agent and the Lenders to execute, deliver and accept this Agreement.
[Signature page follows.]
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Zibby - Twelfth Amendment to Loan and Security Agreement
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IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.
BORROWER:
KATAPULT SPV-1 LLC
By: /s/ Orlando Zayas
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
HOLDINGS:
KATAPULT GROUP, INC.
By: /s/ Orlando Zayas
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
PARENT ENTITY:
KATAPULT HOLDINGS, INC.
By: /s/ Orlando Zayas
Name: Orlando Zayas
Title: Chief Executive Officer
Address:
500 7th Avenue, 8th Floor
New York, New York 10018
Zibby - Twelfth Amendment to Loan and Security Agreement
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AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
Zibby – Twelfth Amendment to Loan and Security Agreement
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CLASS A LENDERS:
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND IV LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) IV LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
ATALAYA SPECIAL OPPORTUNITIES FUND (CAYMAN) VII LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND V LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
Zibby - Twelfth Amendment to Loan and Security Agreement
#152980344
CLASS B LENDER(S):
ATALAYA SPECIAL OPPORTUNITIES FUND VII LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND IV LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND V LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
Zibby – Twelfth Amendment to Loan and Security Agreement
#152980344
ATALAYA SPECIAL OPPORTUNITIES FUND (CAYMAN) VII LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) IV LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
ATALAYA ASSET INCOME FUND (CAYMAN) V LP
By: /s/ David Aidi
Name: David Aidi
Title: Authorized Signatory
Zibby – Twelfth Amendment to Loan and Security Agreement
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PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this “Agreement”) dated as of May 14, 2019, is executed by COGNICAL, INC., a Delaware corporation (“Pledgor”), in favor of MIDTOWN MADISON MANAGEMENT, LLC, a Delaware limited liability company, as administrative, payment and collateral agent for itself, as a Lender and for the other Lenders (in such capacities, together with its successors and assigns “Agent”).
W I T N E S S E T H:
WHEREAS, Pledgor owns one hundred percent (100%) of all equity membership interests in KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), as more particularly described on Schedule I attached hereto;
WHEREAS, Borrower, Pledgor, Agent and each of the lenders from time to time party to the Loan Agreement (individually each a “Lender” and collectively the “Lenders”), have entered into that certain Loan and Security Agreement, dated as of May 14, 2019 (as it may be modified, amended or restated from time to time the “Loan Agreement”), pursuant to which such Lenders will make certain Advances to Borrower;
WHEREAS, the Borrower pledged all of its respective assets to Agent as collateral as required under the Loan Agreement;
WHEREAS, Pledgor hereby acknowledges that it will directly and indirectly benefit from the transactions contemplated by the Loan Agreement;
NOW, THEREFORE, in consideration of the agreements made by Agent and Lenders for the benefit of Borrower in the Loan Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Definitions. When used herein, capitalized terms which are not otherwise defined have the meanings assigned thereto in the Loan Agreement.
2.Pledge.
(a)As security for the payment and performance of all of the Obligations, Pledgor hereby pledges and grants to Agent, for the benefit of Agent and Lenders, a continuing first priority security interest in, all of the following, whether now existing or hereafter owned, existing or arising (the “Subject Collateral”):
(1)All equity interests in Borrower held by Pledgor, including, without limitation, the equity interests described on Schedule I hereto and any investment property and general intangibles evidenced by or relating to such membership interests (collectively, the “Subject Securities”), and all other property hereafter delivered to Agent in substitution for or in addition to any of the foregoing;
(2)all documents, certificates and/or instruments representing any of the foregoing and all cash, securities, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing, except for any distributions with respect to the Subject Securities that would be permitted under the Loan Documents; and
(3)all products and proceeds of all of the foregoing
(b)Pledgor agrees to cause Borrower to (x) elect to treat its Equity Interests as securities as contemplated by the definition of “security” in Section 8-102(15) and by Section 8-103 of Article 8 of the UCC and to (y) certificate its Equity Interests and deliver to Agent, for the benefit of itself and Lenders, any and all certificates evidencing the Subject Securities, and any other Subject Collateral which may at any time or from time to time come into the possession or control of such Pledgor; and prior to the delivery thereof to Agent, such Subject Collateral shall be held by Pledgor separate and apart from its other property and in express trust for Agent.
(c)Pledgor further agrees to obtain the written acknowledgment of any custodian of the Subject Collateral, and that (i) all rights of such Pledgor in the Subject Collateral are subject to such security interest, (ii) such custodian is authorized and instructed to comply with any instruction of Agent with respect to disposition or transfer of the Subject Collateral, including any instruction to cease accepting instructions from such Pledgor, and (iii) in the event of a conflict between instructions given by Agent and instructions given by Pledgor, Agent’s instructions shall control. It is Pledgor’s intent that, by virtue of this Agreement and such acknowledgments, Agent is granted “control” within the meaning of Sections 9-104 and 9-106 of the UCC with respect to the Subject Collateral and any deposit account to which the Subject Collateral is credited. Pledgor hereby agrees that it will not grant “control” (within the meaning of such Sections of the UCC) to any Person other than Agent with respect to the Subject Collateral or any deposit account to which the Subject Collateral is credited.
3.Warranties; Further Assurances. Pledgor warrants to Agent that: (a) such Pledgor is (or at the time of any future delivery, pledge, assignment or transfer thereof will be) the legal and equitable owner of the Subject Collateral owned by it free and clear of all liens, security interests and encumbrances of every description whatsoever other than the security interest created hereunder; and (b) the pledge and delivery of the Subject Collateral owned by it pursuant to this Agreement will create a valid first priority, perfected security interest in such Subject Collateral in favor of Agent and its assigns.
So long as any of the Obligations shall be outstanding, Pledgor (i) shall not (other than as provided in the Subordination Agreement dated as of the date hereof), without the express prior written consent of Agent, sell, assign, exchange, pledge or otherwise transfer, encumber, or grant any option, warrant or other right to purchase any Subject Securities pledged hereunder, or otherwise diminish or impair any of its rights in, to or under any of the Subject Collateral; (ii) hereby consents to the filing of such UCC financing statements and other documents (and pay the costs of filing and recording or re-filing and re-recording the, same in all public offices reasonably deemed necessary or appropriate by Agent) and do such other acts and things, all as Agent may from time to time reasonably request, to establish and maintain a valid, first priority perfected security interest in the Subject Collateral (free of all other liens, claims and rights of third parties whatsoever) to secure the performance and payment of the Obligations; (iii) will execute and deliver to Agent such allonges, endorsements and similar documents relating to the Subject Collateral, satisfactory in form and substance to Agent, as Agent may reasonably request; and (iv) will furnish Agent such information concerning the Subject Collateral as Agent may from time to time reasonably request, and will permit Agent or any designee of Agent, from time to time to inspect, audit and make copies of and extracts from all records and all other papers in the possession of Pledgor which pertain to the Subject Collateral, and will, upon request of Agent at any time when an Event of Default has occurred and is continuing, deliver to Agent all of such records and papers.
4.Holding in Name of Agent, etc. Agent may from time to time after the occurrence and during the continuance of an Event of Default, without notice to Pledgor, take all or any of the following actions: (a) transfer all or any part of the Subject Collateral into the name of Agent or
any nominee or sub-agent for Agent, with or without disclosing that such Subject Collateral is subject to the lien, pledge and security interest hereunder, (b) appoint one or more sub-agents or nominees for the purpose of retaining physical possession of the Subject Collateral, (c) notify the parties obligated on any of the Subject Collateral to make payment directly to Agent of any amounts due or to become due thereunder, (d) endorse any checks, drafts or other writings in the name of Pledgor to allow collection of the Subject Collateral, (e) enforce collection of any of the Subject Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (f) take control of any proceeds of the Subject Collateral.
5.Voting Rights, Dividends, etc. Notwithstanding any other provisions contained in this Agreement, so long as the Obligations remain outstanding, and so long as Agent has not given the notice referred to in Subsection 5(c) below:
(a)Pledgor shall be entitled to exercise any and all voting or consensual rights and powers and purchase or subscription rights (any exercise by Pledgor of such purchase or subscription rights may be made only from funds of Pledgor not comprising the Subject Collateral) relating or pertaining to the Subject Collateral or any part thereof for any purpose; provided, that Pledgor agrees that it will not exercise any such right or power in any manner which would have a material adverse effect on the value of the Subject Collateral or any part thereof or any other material adverse effect in relation to the Collateral or Pledgor’s obligations pursuant to the Loan Agreement or any other Loan Document;
(b)Pledgor shall be entitled to receive and retain any and all dividends, interest or other cash distributions payable on or in respect of the Subject Collateral which are paid in cash if such dividends, interest or other distributions are permitted by the Loan Documents, but all dividends, interest and distributions in respect of the Subject Collateral or any part thereof made in Subject Securities, whether resulting from a subdivision, combination or reclassification of Subject Collateral or any part thereof or received in exchange for Subject Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any Person who issues a Subject Security may be a party or otherwise or as a result of any exercise of any purchase or subscription rights, shall be and become part of the Subject Collateral hereunder and, if received by Pledgor, shall be forthwith delivered to Agent in due form for transfer (i.e., endorsed in blank or accompanied by stock or bond powers executed in blank) to be held for the purposes of this Agreement; and
(c)Upon the occurrence of an Event of Default and notice thereof delivered to Pledgor from Agent and at all times during the continuance of such Event of Default, all rights and powers which Pledgor is entitled to exercise pursuant to this Section 5, and all rights of Pledgor to receive and retain dividends pursuant to Subsection 5(b) hereof, shall forthwith cease, and all such rights and powers shall thereupon become vested in Agent which shall have, during the continuance of such Event of Default the sole and exclusive authority to exercise such rights and powers and to receive such dividends, interest or other distributions. Any and all money and other property paid over to or received by Agent pursuant to this Subsection 5(c) shall be retained by Agent as additional Subject Collateral hereunder and applied in accordance with the provisions hereof.
6.Remedies. Whenever an Event of Default shall exist, Agent may exercise from time to time any rights and remedies available to it under the UCC or otherwise available to it under the Loan Documents or other Applicable Law. Without limiting the foregoing, whenever an Event of Default shall exist, Agent, to the extent necessary to satisfy the Obligations, (a) may, to the
fullest extent permitted by Applicable Law, without notice, advertisement, hearing or process of law of any kind, (i) sell any or all of the Subject Collateral, free of all rights and claims of Pledgor therein and thereto, at any public or private sale on such terms as Agent may deem commercially reasonable and (ii) bid for and purchase any or all of the Subject Collateral at any such public or private sale, as applicable and (b) shall have the right, for and in the name, place and stead of Pledgor, to execute endorsements, assignments and other instruments of conveyance or transfer with respect to all or any of the Subject Collateral. Pledgor hereby expressly waives, to the fullest extent permitted by Applicable Law, any and all notices, advertisements, hearings or process of law in connection with the exercise by Agent of any of its rights and remedies during the continuance of an Event of Default. Any notification of intended disposition of any of the Subject Collateral shall be deemed reasonably and properly given if given at least ten (10) days before such disposition. Any proceeds of any of the Subject Collateral may be applied by Agent to the payment of reasonable expenses in connection with the Subject Collateral, including, without limitation, reasonable attorneys’ fees and legal expenses, and any balance of such proceeds may be applied by Agent toward the payment of the Obligations, and in such order of application, as Agent may from time to time elect (and, after payment in full of all Obligations, any excess shall be delivered to Pledgor or as a court of competent jurisdiction shall direct).
Agent is hereby authorized to comply with any limitation or restriction in connection with any sale of Subject Collateral as it may be advised by counsel is necessary in order to (a) avoid any violation of Applicable Law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders or purchasers and/or further restrict such prospective bidders or purchasers to persons or entities who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Subject Collateral) or (b) obtain any required approval of the sale or of the purchase by any Governmental Authority or official, and Pledgor agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner and that Agent shall not be liable or accountable to Pledgor for any discount allowed by reason of the fact that such Subject Collateral is sold in compliance with any such limitation or restriction. Pledgor waives any right it may now or hereafter have to require Agent to marshal any of the collateral (including the Subject Collateral) from time to time securing the Obligations guaranteed by Pledgor or any other Guarantor.
7.Waiver of Transfer Restrictions. Pledgor and the Borrower hereby consent to the terms and conditions contained in this Agreement, notwithstanding any limitations or restrictions on transfers of the Subject Collateral set forth in the governing documents of Borrower or otherwise with respect to the transfer of any of the Subject Collateral. Without limiting the foregoing, Pledgor and the Borrower agree that any rights of first refusal, options to purchase or other conditions or restrictions affecting the transfer of any of the Subject Collateral shall not be triggered by, or otherwise in any respect be applicable to, the execution and delivery of this Agreement or the exercise of Agent’s rights and remedies under this Agreement, as amended from time to time, and upon Agent’s exercise of its rights and remedies under this Agreement (as amended from time to time), Agent, a purchaser at a foreclosure sale of the Collateral or any such party’s designee shall be immediately and automatically admitted as an owner of the Borrower with all ownership rights accruing to it (including, without limitation, all rights to distributions and voting) without the need to obtain the consent of any owner or the Borrower or to provide or comply with a right of first refusal or option to purchase with respect to any of the Subject Collateral in favor of any owner, the Borrower or any other Person, notwithstanding anything in the Charter and Good Standing Documents of Borrower, any agreement to which the Pledgor is now or hereafter a party with respect to any of the Subject Collateral or otherwise to the contrary or in conflict thereof.
8.Additional Covenants of Pledgor.
(a)Exclusive Right to Finance. Pledgor hereby covenants and agrees not to form, or consent to or otherwise acquiesce in the formation of, any Affiliate of Pledgor, or otherwise use any Subsidiary existing on the Closing Date, to circumvent the intent of the covenants, agreements and obligations of the Borrower set forth in Section 2.14(c) of the Loan Agreement.
(b)[Reserved]
(c)[Reserved]
9.Representations and Warranties of Pledgor. Pledgor represents and warrants to Agent as follows:
(a)Benefit. Pledgor is the sole equity holder of Borrower, and has received, or will receive, direct or indirect benefit from the making of this Agreement with respect to the Obligations.
(b)Familiarity and Reliance. Pledgor is familiar with, and has independently reviewed the books and records regarding the financial condition of the Borrower and is familiar with the value of the Subject Collateral intended to be created as security for the payment of the Obligations; provided, however, that Pledgor is not relying on such financial condition or the collateral as an inducement to enter into this Agreement.
(c)No Representation By Agent. Neither Agent nor any other party has made any representation, warranty or statement to Pledgor in order to induce Pledgor to execute this Agreement.
(d)Pledgor’s Financial Condition. As of the date hereof, and after giving effect to this Agreement and the contingent obligation evidenced hereby, Pledgor is, and will be, solvent and able to meet its obligations and liabilities as they become due, and the assets of such Guarantor, at a Fair Valuation, exceed the total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of Pledgor, and no unreasonably small capital base exists with respect to Pledgor.
(e)Other Agreements. Pledgor is not (a) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would have a Material Adverse Effect on its ability to execute and deliver, or perform under this Agreement, or (b) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period, could reasonably be expected to be, have or result in a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to be, have or result in a Material Adverse Effect.
10.Attorney-in-Fact. Pledgor hereby irrevocably appoints Agent as its limited attorney-in-fact in accordance with the powers granted in connection with this Agreement (without requiring Agent to act as such), with full power of substitution, which appointment as limited attorney-in-fact is irrevocable during the term of this Agreement, to take any action Agent deems necessary upon the occurrence and during the continuation of an Event of Default to perfect, protect and realize upon its lien and first priority security interest in the Subject Collateral, including the execution and delivery of any and all documents or instruments related to the Subject Collateral in Pledgor’s name, or otherwise to effect fully the purpose, terms and conditions of this
Agreement and the other Loan Documents, and said appointment shall create in Agent a power coupled with an interest.
11.General.
(a)Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Subject Collateral if it takes such action for that purpose as Pledgor shall request in writing, but failure of Agent in and of itself to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure of Agent to preserve or protect any rights with respect to the Subject Collateral against prior parties, or to do any act with respect to preservation of the Subject Collateral not so requested by Pledgor, shall be deemed a failure to exercise reasonable care in the custody or preservation of any Subject Collateral.
(b)No course of action or dealing, renewal, release or extension of any provision hereunder, or single or partial exercise of any such provision, or delay, failure or omission on Agent’s part in enforcing any such provision shall affect the liability of Pledgor or operate as a waiver of such provision or preclude any other or further exercise of such provision. No waiver by any party to this Agreement of any one or more defaults by any other party in the performance of any of the provisions hereunder shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision hereunder, by completing the Closing under the Loan Agreement and/or by making Advances, neither the Agent nor any Lender waives any breach of any representation or warranty of under this Agreement, and all of Agent’s or any Lender’s claims and rights resulting from any such breach or misrepresentation are specifically reserved.
(c)Agent shall have the right in its sole discretion to determine which rights, Liens and/or remedies Agent and Lenders may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way waive, compromise, modify or affect any of Agent’s or Lenders’ rights, Liens or remedies under this Agreement, Applicable Law or equity. The enumeration of any rights and remedies in this Agreement is not intended to be exhaustive, and all rights and remedies of Agent and Lenders described herein are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent and Lenders otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy.
(d)This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Pledgor may not, without the prior written consent of Agent, assign any of its rights, powers, duties or obligations hereunder. If Pledgor consists of more than one person or party, the obligations and liabilities of each such person or party pursuant to this Agreement, including, but not limited to, the payment and performance of the Obligations and the payment of costs and expenses pursuant to Section 6 hereof, shall be joint and several.
(e)If any provision of this Agreement is adjudicated to be invalid under Applicable Laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Agreement which shall be given effect so far as possible. The captions in this Agreement are intended for convenience and reference only and shall not affect the meaning or interpretation of this Agreement. This Agreement may be executed in one or more
counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission, which facsimile signatures shall be considered original executed counterparts. Each party to this Agreement agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party.
12.Governing Law; Jurisdiction; Service of Process; Venue.
(A) THIS AGREEMENT, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF A DIFFERENT JURISDICTION.
(B) BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST PLEDGOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(C) PLEDGOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN PARAGRAPH (A) OF THIS SECTION 12. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(D) EACH OF THE PARTIES HERETO WAIVES PERSONAL SERVICE OF PROCESS AND AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 12.5 OF THE LOAN AGREEMENT. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF
OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. PLEDGOR FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, PLEDGOR HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER, INCLUDING LENDER’S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. PLEDGOR ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER’S ACCEPTANCE OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE.
13.Waiver of Right To Trial By Jury.
(A) PLEDGOR HEREBY (i) EXPRESSLY, KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING HEREUNDER OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND (ii) AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.
(B) IN THE EVENT ANY SUCH CLAIM OR CAUSE OF ACTION IS BROUGHT OR FILED IN ANY UNITED STATES FEDERAL COURT SITTING IN THE STATE OF CALIFORNIA OR IN ANY STATE COURT OF THE STATE OF CALIFORNIA, AND THE WAIVER OF JURY TRIAL SET FORTH IN SECTION 13(A) IS DETERMINED OR HELD TO BE INEFFECTIVE OR UNENFORCEABLE, THE PARTIES AGREE THAT ALL CLAIMS AND CAUSES OF ACTION SHALL BE RESOLVED BY REFERENCE TO A PRIVATE JUDGE SITTING WITHOUT A JURY, PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638, BEFORE A MUTUALLY ACCEPTABLE REFEREE OR, IF THE PARTIES CANNOT AGREE, A REFEREE SELECTED BY THE PRESIDING JUDGE OF THE SANTA CLARA COUNTY, CALIFORNIA. SUCH PROCEEDING SHALL BE CONDUCTED IN SANTA CLARA COUNTY, CALIFORNIA, WITH CALIFORNIA RULES OF EVIDENCE AND DISCOVERY APPLICABLE TO SUCH PROCEEDING. IN THE EVENT CLAIMS OR CAUSES OF ACTION ARE TO BE RESOLVED BY JUDICIAL REFERENCE, ANY PARTY MAY SEEK FROM ANY COURT HAVING JURISDICTION THEREOVER ANY PREJUDGMENT ORDER, WRIT OR OTHER RELIEF AND HAVE SUCH PREJUDGMENT ORDER, WRIT OR OTHER RELIEF ENFORCED TO THE FULLEST EXTENT PERMITTED BY LAW NOTWITHSTANDING THAT ALL CLAIMS AND CAUSES OF ACTION ARE OTHERWISE SUBJECT TO RESOLUTION BY JUDICIAL REFERENCE.
14.Loan Agreement. Pledgor hereby agrees to be bound by any covenants stated to be binding upon it in the Loan Agreement and such covenants are hereby incorporated by reference as if fully set forth herein.
15.[Reserved]
16.[Reserved]
17.Recitals. The recital and introductory paragraphs hereof are a part hereof and form a basis for this Agreement and shall be considered prima facie evidence of the facts and documents referred to therein.
[Remainder of Page Intentionally Blank; Signatures on following page]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as of the day and year first written above.
| | | | | |
| PLEDGOR:
COGNICAL, INC., a Delaware corporation
By: /s/ Orlando Zayas_______________ Name: Orlando Zayas
Title: Chief Executive Officer |
| |
| 500 7th Avenue, 8th Floor New York, NY 10018 Attention: Orlando Zayas Telephone: (833) 449-4229 |
[Signature Page to Pledge Agreement]
| | | | | |
| |
| AGENT:
MIDTOWN MADISON MANAGEMENT LLC
By: /s/ Raymond S. Chan Name: Raymond S. Chan Title: Authorized Signatory
|
| 780 Third Avenue, 27th Floor New York, NY 10017
Attention: David Aidi
Telephone: 212-201-1912
Facsimile: 917-464-7350
Email: aidi@atalayacap.com
With a copy to:
200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attention: Matthew Fontane Phone: 214-964-9454 Email: matthew.fontane@hklaw.com |
[Signature Page to Pledge Agreement]
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the foregoing Pledge Agreement, agrees to the terms of, and agrees to be bound by, the Pledge Agreement and to promptly to note on its books and records the security interests granted under such Pledge Agreement, and waives any rights or requirement at any time hereafter to receive a copy of such Pledge Agreement in connection with the registration of any of the Subject Collateral in the name of Agent or its nominee or the exercise of voting rights by Agent, and, after written notice from Agent that an Event of Default has occurred, each agrees, that in acting upon the instructions of Agent, it will not require the further consent of, or seek further instruction from, Pledgor at any time.
Acknowledged and Agreed:
KATAPULT SPV-1 LLC, a Delaware limited liability company
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
[Acknowledgment of Pledge Agreement]
SCHEDULE I
SUBJECT SECURITIES
| | | | | | | | | | | |
| Name of Entity | Pledgor | Certificate Number | Percentage of Ownership |
1.KATAPULT SPV-1 LLC | COGNICAL, INC. | N/A | 100 % |
INDEMNITY GUARANTY
THIS INDEMNITY GUARANTY (this “Guaranty”) is executed as of May 14 2019, by COGNICAL, INC., a Delaware corporation (“Holdings”) and COGNICAL HOLDINGS, INC., a Delaware corporation (“Parent Entity” and, together with Holdings, the “Guarantors” and each, individually, a (“Guarantor”), for the benefit of MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company having an address at 780 Third Avenue, 27th Floor, New York, New York in its capacity as agent for itself as a Lender and the Lenders (as defined below) (in such capacity, the “Agent”).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Loan and Security Agreement dated as of May 14, 2019 (as the same may be amended, restated or modified from time to time, the “Loan Agreement”; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement) by and among KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”), Holdings, Agent and the financial institutions party thereto from time to time as lenders (along with Agent the “Lenders”), Borrower has become indebted, and may from time to time be further indebted, to Agent and Lenders with respect to a credit facility (the “Loan”) which is further evidenced, secured or governed by the other Loan Documents; and
WHEREAS, Agent and the Lenders are not willing to make the Loan, or otherwise extend credit, to Borrower unless each Guarantor unconditionally guarantees payment and performance to Agent, for the benefit of itself and the Lenders, of the Guaranteed Obligations (as herein defined); and
WHEREAS, each Guarantor owns, directly or indirectly, equity interests in the Borrower, and each Guarantor will directly or indirectly benefit from the Agent and the Lenders making the Loan to Borrower.
NOW, THEREFORE, as an inducement to the Agent and the Lenders to make the Loan to Borrower, and to extend such additional credit as Agent and the Lenders may from time to time agree to extend under the Loan Documents, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
1.1Guaranty of Obligation. Each Guarantor hereby irrevocably and unconditionally, jointly and severally, guarantees to Agent and the Lenders and their respective successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable in accordance with Section 1.4, whether by lapse of time, by acceleration of maturity or otherwise. Each Guarantor hereby irrevocably and unconditionally covenants and agrees that it is jointly and severally liable for the Guaranteed Obligations as a primary obligor.
1.2Definition of Guaranteed Obligations. As used herein, the term “Guaranteed Obligations” means:
(a)Subject to Section 1.2(c) below, the obligations or liabilities of Borrower to Agent for any loss, damage, cost, expense, liability, claim or other obligation actually incurred by Agent or
any Lender (including, without limitation, attorneys’ fees and costs reasonably incurred) collectively, “Losses”) arising out of or in connection with the following:
(i)any willful or intentional misrepresentation or gross negligence by Borrower, Servicer (so long as Servicer is Holdings or an Affiliate of Holdings) or any Guarantor in connection with the Loan;
(ii)any acts of fraud, misappropriation or misapplication of funds or proceeds of any Collateral by Borrower, Servicer (so long as Servicer is an Affiliate of Borrower or any Guarantor) or any Guarantor;
(iii)any Change of Control not approved in writing by Agent prior to such Change of Control;
(iv)any unauthorized, consensual and intentional transfer, assignment, sale, encumbrance or other condition, restriction or exception affecting any Collateral under the Loan by Borrower, Servicer (so long as Servicer is Holdings or an Affiliate of Holdings) or any Guarantor;
(v)the willful removal or disposal of any portion of the Collateral after an Event of Default;
(vi)the willful misapplication or conversion by Borrower, Servicer (so long as Servicer is Holdings or an Affiliate of Holdings) or any Guarantor of (A) any proceeds of or payments made on or related to any Pledged Lease or (B) any insurance proceeds paid by reason of any loss, damage or destruction to the Collateral;
(vii)Borrower or any Guarantor (A) asserts any claim, defense or offset against Agent that Borrower or such Guarantor has waived or agreed not to assert or (B) make or made any application to any court or in connection with any other proceeding to declare that all or any portion of the lien of Agent or the obligations of Borrower to pay principal and interest as specified in the Loan Documents to be rescinded, set aside, or determined to be void or unenforceable; or
(viii)Borrower, Servicer or any Guarantor consenting to, seeking or causing, except pursuant to a court order consented to or sought by Borrower, Servicer or any Guarantor, any of the terms of any of the Loan Documents to be modified without Agent’s consent;
(b)Subject to Section 1.2(c) below, the entire amount of the Loan and all Obligations under the Loan Agreement and the other Loan Documents following the occurrence of any of the following:
(i)Borrower or any Guarantor files a voluntary petition under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law;
(ii)an officer, director, representative or Person which owns or controls, directly or indirectly, of Borrower or any Guarantor, files, or joins in the filing of, an involuntary petition against Borrower or any Guarantor under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, or solicits or causes to be solicited petitioning creditors for any involuntary petition against Borrower or any Guarantor from any Person; or
(iii)Borrower or any Guarantor files an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, or solicits or causes to be solicited petitioning creditors for any involuntary petition from any Person.
(c)Notwithstanding anything to the contrary in this Agreement, the Guaranteed Obligations shall not include, and the Guarantors shall have no liability, whether as a primary obligor or otherwise, including for any Losses under Section 1.2(a) or any Obligations under the Loan Agreement and the other Loan Documents or other amounts under Section 1.2(b), to the extent arising out of or in connection with any of the acts or occurrences set forth in Sections 1.2(a) and/or 1.2(b) to the extent that such acts or occurrences were taken, or caused to have been taken directly by Agent or any Lender and/or their transferees, or any Person to whom the equity interests in Borrower are transferred as a result of the exercise by Agent or Lenders of their rights and remedies under the Loan Agreement or other Loan Documents, whether in any capacity whatsoever, including in their capacities of Agent, Lender or attorney-in-fact to, or owner of, Borrower.
1.3Nature of Guaranty. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by any Guarantor and after any Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of any Guarantor to Agent or the Lenders with respect to the Guaranteed Obligations. This Guaranty may be enforced by Agent and its successors and assigns on behalf of itself and the Lenders and shall not be discharged by the assignment or negotiation of all or part of the Obligations.
1.4Payment By Guarantor. If at any time following the occurrence or continuation of an Event of Default, any Guarantor shall have any liability in respect of the Guaranteed Obligations, whether at demand, maturity, acceleration or otherwise, each Guarantor shall, within five (5) days after demand by Agent to such Guarantor, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Agent at Agent’s address as set forth herein, for the benefit of itself and the Lenders. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.
1.5No Duty To Pursue Others. It shall not be necessary for Agent (and each Guarantor hereby waives any rights which such Guarantor may have to require Agent), in order to enforce the obligations of Guarantors hereunder, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (ii) enforce or exhaust Agent’s rights against the Collateral, (iii) enforce Agent’s rights against any other guarantors of the Guaranteed Obligations, (iv) join Borrower or any others liable on the Obligations in any action seeking to enforce this Guaranty, or (vi) resort to any other means of obtaining payment of the Guaranteed Obligations. Agent shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.
1.6Waivers. Each Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (i) any loans or advances made by Agent to Borrower pursuant to and in accordance with the Loan Agreement and each other Loan Document, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Loan Agreement or of any other Loan Documents, (iv) the execution and delivery by Borrower and Agent of any other loan or credit agreement or of Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents, (v) the occurrence of any Default or an Event of Default
under the Loan Agreement, (vi) Agent’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Obligations, (viii) protest, proof of non-payment or default by Borrower of its Obligations, or (ix) any other action at any time taken or omitted by Agent, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.
1.7Payment of Expenses. In the event that Guarantors should breach or fail to timely perform any provisions of this Guaranty, Guarantors shall, within five (5) days after demand by Agent, pay Agent all costs and expenses (including court costs and attorneys’ fees) incurred by Agent in the enforcement hereof or the preservation of Agent’s rights hereunder. Each Guarantor agrees that it is jointly and severally liable for the payment of costs and expenses under this Section 1.7. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations.
1.8Effect of Bankruptcy. In the event that, pursuant to any Debtor Relief Law, or any judgment, order or decision thereunder, Agent or any Lender must rescind or restore any payment, or any part thereof, received by Agent or any Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Agent or any Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and each Guarantor that no Guarantor’s obligations hereunder shall be discharged except by such Guarantor’s performance of such obligations and then only to the extent of such performance.
1.9Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating Guarantors to the rights of Agent), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by any Guarantor under or in connection with this Guaranty or otherwise, until the Obligations are repaid in full and the Loan Agreement and the other Loan Documents have been terminated.
1.10[Reserved].
1.11Exclusive Right to Finance. Each Guarantor hereby covenants and agrees not to form, or consent to or otherwise acquiesce in the formation of, any Affiliate of Guarantor, or otherwise use any Subsidiary existing on the Closing Date, to circumvent the intent of the covenants, agreements and obligations of the Borrower set forth in Section 2.14(c) of the Loan Agreement.
1.12Right of First Refusal. Each Guarantor hereby covenants and agrees to comply with the provisions of Section 6.16 of the Loan Agreement applicable to it in all respects.
1.13Publicity and Confidentiality. Each Guarantor hereby covenants and agrees to comply with and be bound by the provisions set forth in Section 12.10 of the Loan Agreement as if it were party thereto as the Borrower.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTORS’ OBLIGATIONS
Each Guarantor hereby consents and agrees to each of the following, and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following:
1.1Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations or the Obligations, the Loan Agreement, the other Loan Documents, or any other document, instrument, contract or understanding between Borrower and Agent or any Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Agent to notify such Guarantor of any such action, in each case, as permitted by the Loan Agreement or the other Loan Documents.
1.2Adjustment. Any adjustment, indulgence, forbearance or compromise of the Obligations or the Guaranteed Obligations that might be granted or given by Agent or the Lenders to Borrower or any other Guarantor.
1.3Condition of Borrower or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, any other Guarantor or any other party at any time liable for the payment of all or part of the Obligations or Guaranteed Obligations; or any death or dissolution of Borrower or any Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or any Guarantor, or any changes in the shareholders, partners, members or trustee of Borrower or any Guarantor; or any reorganization of Borrower or any Guarantor.
1.4Invalidity of Guaranteed Obligations and Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations or the Obligations, or any document or agreement executed in connection with the Guaranteed Obligations or the Obligations, for any reason whatsoever, including without limitation the fact that (i) the Guaranteed Obligations or the Obligations, or any part thereof, exceeds the amount permitted by law, (ii) the act of creating the Guaranteed Obligations or the Obligations or any part thereof is ultra vires, (iii) the officers or representatives executing the Loan Agreement or the other Loan Documents or otherwise creating the Guaranteed Obligations or the Obligations acted in excess of their authority, (iv) the Guaranteed Obligations or the Obligations violate applicable usury laws, (v) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Obligations wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations or the Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or the Obligations or executed in connection with the Guaranteed Obligations or the Obligations, or given to secure the repayment of the Guaranteed Obligations or the Obligations) is illegal, uncollectible or unenforceable, or (vii) the Loan Agreement or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain liable hereon regardless of whether Borrower or any other person (other than such Guarantor) be found not liable on the Guaranteed Obligations or the Obligations or any part thereof for any reason.
1.5Release of Obligors. Any full or partial release of the liability of Borrower on the Guaranteed Obligations or the Obligations, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations,
or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Agent will look to other parties to pay or perform the Guaranteed Obligations.
1.6Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations or the Obligations.
1.7Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations or the Obligations.
1.8Care and Diligence. The failure of Agent, any Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of any collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Agent (i) to take or prosecute any action for the collection of any of the Guaranteed Obligations or the Obligations, (ii) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (iii) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations or the Obligations.
1.9Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations or the Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectability or value of any of the collateral for the Guaranteed Obligations or the Obligations.
1.10Merger. The reorganization, merger or consolidation of Borrower into or with any other Person or any other corporate transaction involving Borrower.
1.11Preference. Any payment by Borrower to Agent or any Lender is held to constitute a preference under bankruptcy laws, or for any reason Agent is required to refund such payment or pay such amount to Borrower or someone else.
1.12Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, the Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations or the Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations or the Obligations.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce Agent and each Lender to enter into the Loan Documents and extend credit to Borrower, each Guarantor represents and warrants to Agent and the Lenders as follows:
1.1Benefit. Such Guarantor owns, directly or indirectly, equity interests in the Borrower, and each Guarantor has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.
1.2Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Obligations; however, such Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.
1.3No Representation By Agent. Neither Agent, any Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce such Guarantor to execute this Guaranty.
1.4Guarantor’s Financial Condition. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, such Guarantor is, and will be, solvent and able to meet its obligations and liabilities as they become due, and the assets of such Guarantor, at a Fair Valuation, exceed the total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of such Guarantor, and no unreasonably small capital base exists with respect such Guarantor.
1.5Legality. The execution, delivery and performance by such Guarantor of this Guaranty and each of the other Loan Documents to which it is a party and the consummation of the transactions contemplated hereunder (and thereunder) (a) have been duly authorized by all requisite action of such parties and have been duly executed and delivered by such parties; (b) do not violate any provisions of (i) any Applicable Law, (ii) any order of any Governmental Authority binding on any such party or any of their respective properties, or (iii) the limited liability company agreement (or any other equivalent governing agreement or document) of any such party, or any agreement between any such party and its equity owners or among any such equity owners; (c) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which any such party is a party, or by which the properties or assets of such party are bound, the effect of which could reasonably be expected to be, have or result in a Material Adverse Effect; (d) except as set forth herein or therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of such party, and (e) except for filings in connection with the perfection of Agent’s Liens, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person that has not been obtained. When executed and delivered, this Guaranty will constitute the legal, valid and binding obligation of such Guarantor, enforceable against such party in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors’ rights generally and to the effect of general principles of equity (whether in a proceeding at law or in equity).
1.6Litigation. No Guarantor is a party to any material pending or, to the knowledge of such Guarantor, threatened action, suit, proceeding or investigation related to its respective business that could reasonably be expected to have a Material Adverse Effect, (b) there is no pending or,
to the knowledge of such Guarantor, threatened action, suit, proceeding or investigation against such Guarantor that could reasonably be expected to prevent or materially delay the consummation by such Guarantor of the transactions contemplated herein, (c) no Guarantor is a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority and (d) there is no action, suit, proceeding or investigation initiated by such Guarantor currently pending that could reasonably be expected to have a Material Adverse Effect.
1.7Organization and Authority. Each Guarantor is a limited liability company or corporation, duly organized, validly existing and in good standing under the laws of its state of organization. Each Guarantor (a) has all requisite power and authority to own its properties and assets (including, without limitation, the Collateral) and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (b) is duly qualified to do business in each jurisdiction in which failure to so qualify could reasonably be likely to have or result in a Material Adverse Effect. Each Guarantor has all requisite power and authority (i) to execute, deliver and perform this Guaranty and the Loan Documents to which it is a party, and (ii) to consummate the transactions contemplated under the Loan Documents to which it is a party. No Guarantor is an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, nor controlled by such an “investment company.” No transaction contemplated in this Guaranty or the other Loan Documents requires compliance with any bulk sales act or similar law.
1.8[Reserved].
1.9[Reserved].
1.10Anti-Terrorism; OFAC. Each Guarantor shall not, nor shall such Guarantor permit any of its Subsidiaries to, (a) be or become a Person whose property or interests in property are blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism (66 Fed. Reg. 49079 (2001)), (b) engage in any dealings or transactions prohibited by Section 2 of such executive order, or otherwise be associated with any such Person in any manner violative of Section 2 of such executive order, or (c) otherwise become a Person on the list of Specially Designated Nationals and Blocked Persons in violation of the limitations or prohibitions under any other OFAC regulation or executive order.
ARTICLE IV
MISCELLANEOUS
1.1Delay; No Waiver of Defaults. No course of action or dealing, renewal, release or extension of any provision hereunder, or single or partial exercise of any such provision, or delay, failure or omission on Agent’s part in enforcing any such provision shall affect the liability of any Guarantor or operate as a waiver of such provision or preclude any other or further exercise of such provision. No waiver by any party to this Guaranty of any one or more defaults by any other party in the performance of any of the provisions hereunder shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision hereunder, by completing the Closing under the Loan Agreement and/or by making Advances, neither the Agent nor any Lender waives any breach of any representation or warranty of under this Guaranty, and all of Agent’s or any Lender’s claims and rights resulting from any such breach or misrepresentation are specifically reserved.
1.2Notices. Any notice or request shall be given to the applicable party at such party’s address set forth beneath its signature, or at such other address as such party may
hereafter specify in a notice given in the manner required under this Section 4.2. Any notice or request hereunder shall be given only by, and shall be deemed to have been received upon (each, a “Receipt”): (i) registered or certified mail, return receipt requested, on the date on which such received as indicated in such return receipt, (ii) delivery by a nationally recognized overnight courier, one (1) Business Day after deposit with such courier, or (iii) facsimile or electronic transmission, in each case upon telephone or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable.
1.3Governing Law; Jurisdiction; Service of Process; Venue.
(A) THIS GUARANTY, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF A DIFFERENT JURISDICTION.
(B) BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS GUARANTY SHALL AFFECT ANY RIGHT THAT AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS GUARANTY AGAINST ANY GUARANTOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(C) EACH GURANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN PARAGRAPH (A) OF THIS SECTION 4.3. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(D) EACH OF THE PARTIES HERETO WAIVES PERSONAL SERVICE OF PROCESS AND AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 4.2. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO
THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
1.4Severability; Captions; Counterparts; Facsimile Signatures. If any provision of this Guaranty is adjudicated to be invalid under Applicable Laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Guaranty which shall be given effect so far as possible. The captions in this Guaranty are intended for convenience and reference only and shall not affect the meaning or interpretation of this Guaranty. This Guaranty may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission, which facsimile signatures shall be considered original executed counterparts. Each party to this Guaranty agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party.
1.5Amendments. This Guaranty may only be amended by a writing executed by each Guarantor and Agent.
1.6Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantors may not, without the prior written consent of Agent, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party pursuant to this Guaranty, including, but not limited to, the payment and performance of the Guaranteed Obligations and the payment of costs and expenses pursuant to Section 1.7 hereof, shall be joint and several.
1.7[Reserved].
1.8Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.
1.9[Reserved].
1.10Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by Borrower to Agent, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Agent hereunder shall be cumulative of any and all other rights that Agent may ever have against such Guarantor. Agent shall have the right in its sole discretion to determine which rights, Liens and/or remedies Agent and Lenders may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way waive, compromise, modify or affect any of Agent’s or Lenders’ rights, Liens or remedies under this Guaranty, Applicable Law or equity. The enumeration of any rights and remedies in this Guaranty is not intended to be exhaustive, and all rights and remedies of Agent and Lenders described hereunder are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent and Lenders otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy.
1.11Entirety. This Guaranty constitutes the entire agreement between Guarantors and Agent with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter
made shall have no force and effect unless in writing signed by Guarantors and Agent. Except as set forth in and subject to Section 4.5, no provision of this Guaranty may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Guaranty and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof.
1.12Waiver of Right To Trial By Jury.
(A) EACH GUARANTOR HEREBY (i) EXPRESSLY, KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING HEREUNDER OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND (ii) AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.
(B) IN THE EVENT ANY SUCH CLAIM OR CAUSE OF ACTION IS BROUGHT OR FILED IN ANY UNITED STATES FEDERAL COURT SITTING IN THE STATE OF CALIFORNIA OR IN ANY STATE COURT OF THE STATE OF CALIFORNIA, AND THE WAIVER OF JURY TRIAL SET FORTH IN SECTION 4.12(A) IS DETERMINED OR HELD TO BE INEFFECTIVE OR UNENFORCEABLE, THE PARTIES AGREE THAT ALL CLAIMS AND CAUSES OF ACTION SHALL BE RESOLVED BY REFERENCE TO A PRIVATE JUDGE SITTING WITHOUT A JURY, PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638, BEFORE A MUTUALLY ACCEPTABLE REFEREE OR, IF THE PARTIES CANNOT AGREE, A REFEREE SELECTED BY THE PRESIDING JUDGE OF THE SANTA CLARA COUNTY, CALIFORNIA. SUCH PROCEEDING SHALL BE CONDUCTED IN SANTA CLARA COUNTY, CALIFORNIA, WITH CALIFORNIA RULES OF EVIDENCE AND DISCOVERY APPLICABLE TO SUCH PROCEEDING. IN THE EVENT CLAIMS OR CAUSES OF ACTION ARE TO BE RESOLVED BY JUDICIAL REFERENCE, ANY PARTY MAY SEEK FROM ANY COURT HAVING JURISDICTION THEREOVER ANY PREJUDGMENT ORDER, WRIT OR OTHER RELIEF AND HAVE SUCH PREJUDGMENT ORDER, WRIT OR OTHER RELIEF ENFORCED TO THE FULLEST EXTENT PERMITTED BY LAW NOTWITHSTANDING THAT ALL CLAIMS AND CAUSES OF ACTION ARE OTHERWISE SUBJECT TO RESOLUTION BY JUDICIAL REFERENCE.
1.13Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Loan Agreement or any other amount payable by the Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.
[Signature page follows]
EXECUTED as of the day and year first above written.
GUARANTORS:
COGNICAL, INC., a Delaware corporation
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
500 7th Avenue, 8th Floor
New York, NY 10018
Attention: Orlando Zayas
Telephone: (833) 449-4229
COGNICAL HOLDINGS, INC., a Delaware corporation
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
500 7th Avenue, 8th Floor
New York, NY 10018
Attention: Orlando Zayas
Telephone: (833) 449-4229
CORPORATE GUARANTY AND SECURITY AGREEMENT
This CORPORATE GUARANTY AND SECURITY AGREEMENT, dated as of December 4, 2020 (this “Guaranty”) is made by each of KATAPULT GROUP, INC., a Delaware corporation and KATAPULT HOLDINGS, INC., a Delaware corporation (collectively, “Guarantor”), in favor of MIDTOWN MADISON MANAGEMENT LLC, a Delaware limited liability company, in its capacity as administrative, payment and collateral agent for itself and each of the other financial institutions from time to party to the hereinafter defined Loan Agreement as Lenders (“Lenders”) (in such capacities, “Agent”) for the benefit of itself and each Lender.
W I T N E S S E T H :
WHEREAS, KATAPULT SPV-1 LLC, a Delaware limited liability company (“Borrower”) and Guarantor are party to that certain Loan and Security Agreement dated as of May 14, 2019 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Loan Agreement”; capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Loan Agreement) with Agent and Lenders, pursuant to which the Lenders have agreed, among other things, to make available to Borrower a senior secured revolving loan facility in the maximum principal amount of up to the Maximum Revolving Loan Amount and a senior secured term loan facility in the maximum principal amount of $50,000,000.00, subject to the terms and conditions set forth in the Loan Agreement; and
WHEREAS, Katapult Holdings, Inc. and Katapult Group, Inc. are either direct or indirect parents of Borrower and hereby acknowledge that they will benefit from the transactions contemplated by the Loan Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of the Ninth Amendment that Guarantor shall have executed and delivered this Guaranty in favor of and for the benefit of Agent, for the benefit of itself and the Lenders;
NOW, THEREFORE, in consideration of the promises contained herein, and for good and valuable consideration, the sufficiency of which is hereby acknowledged, and to induce the Lenders to make the Advances to Borrower thereunder, Guarantor hereby agrees as follows:
SECTION 1.Guaranty.
(a) Guarantor hereby, unconditionally and irrevocably (i) guarantees to Agent, for the ratable benefit of the Lenders, the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all of the Obligations and (ii) agrees to pay all costs and expenses incurred by Agent (including, without limitation, the reasonable and documented fees and disbursements of external counsel and other professionals) in connection with (A) enforcing or defending its rights under or in respect of this Guaranty or any other Loan Document or (B) collecting the Obligations or otherwise administering this Guaranty (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C., 88 362(a)) (collectively, the “Guaranteed Obligations”).
(b) Subject to Section 5, Guarantor hereby agrees, in furtherance of the foregoing and not in limitation of any other right which Agent or any Lender may have at law or in equity against Guarantor by virtue hereof, that upon the failure of Borrower to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C., 88 362(a)), Guarantor will upon demand pay, or cause to be paid, in cash, to Agent for the ratable benefit of Lenders, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Borrower becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Borrower for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to Lenders as aforesaid. Guarantor hereby agrees that all payments hereunder will be paid to Agent without setoff, deduction or counterclaim at the office of Agent located at the address specified in Section 12.5 of the Loan Agreement in U.S. dollars and in immediately available funds.
SECTION 2.Guaranty Absolute. Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Agreement, the Notes and the other Loan Documents regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Agent or any Lender with respect thereto. Guarantor agrees that this Guaranty is a guaranty of payment and performance when due and not of collectability. This Guaranty is a primary obligation of Guarantor and not merely a contract of surety. The liability of Guarantor under this Guaranty shall be absolute, irrevocable and unconditional irrespective of:
(a) any lack of genuineness, validity, regularity or enforceability of the Loan Agreement or any other Loan Document;
(b) any lack of validity, regularity or enforceability of this Guaranty;
(c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from the Loan Agreement, the Guaranty or any other Loan Document;
(d) any exchange, release or non-perfection of any security interest in any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Obligations;
(e) the insolvency of Borrower or any Guarantor or any Indemnity Guarantor;
(f) any failure on the part of Agent or any other Person to exercise, or any delay in exercising, any right under the Loan Agreement or any other Loan Document; or
(g) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Borrower or any Guarantor or Indemnity Guarantor with respect to the Guaranteed Obligations (including, without limitation, all defenses based on suretyship or impairment of collateral, and all defenses that Borrower may assert to the repayment of the Guaranteed Obligations, including, without limitation, failure of consideration, breach of warranty, payment, statute of frauds, bankruptcy, lack of legal capacity, statute of limitations, lender liability, accord and satisfaction, and usury), this Guaranty and the obligations of Guarantor under this Guaranty.
Guarantor hereby agrees that if Borrower or any Guarantor or any Indemnity Guarantor is the subject of a bankruptcy case under the Bankruptcy Code, it will not assert the pendency of such case or any order entered therein as a defense to the timely payment of the
Guaranteed Obligations. Guarantor hereby waives notice of or proof of reliance by Agent or any Lender upon this Guaranty, and the Guaranteed Obligations shall conclusively be deemed to have been created, contracted, incurred, renewed, extended, amended or reduced (as to Borrower only) in reliance upon this Guaranty. Guarantor hereby agrees that this Guaranty is a guaranty of payment and not simply collection.
Guarantor recognizes and agrees that Borrower, after the date hereof, may incur additional Indebtedness or other obligations, fees and expenses to Agent or the Lenders under the Loan Agreement, refinance existing Guaranteed Obligations or pay existing Guaranteed Obligations and subsequently incur additional Indebtedness to Agent or the Lenders under the Loan Agreement, and that in any such transaction, even if such transaction is not now contemplated, Agent or the Lenders will rely in any such case upon this Guaranty and the enforceability thereof against Guarantor and that this Guaranty shall remain in full force and effect with respect to such future Indebtedness of Borrower to Agent or the Lenders.
SECTION 3.Interests. Guarantor hereby acknowledges that the rates of interest applicable to the Guaranteed Obligations shall be computed on the basis of a year of 360 days, and paid for the actual number of days elapsed in accordance with Section 2.2 of the Loan Agreement.
SECTION 4.Fraudulent Conveyance. Notwithstanding any provision of this Guaranty to the contrary, it is intended that this Guaranty, and any Liens granted by Guarantor to secure the obligations and liabilities arising pursuant to this Guaranty, not constitute a “Fraudulent Conveyance” (as defined below). Consequently, Guarantor agrees that if this Guaranty, or any Liens securing the obligations and liabilities arising pursuant to this Guaranty, would, but for the application of this sentence, constitute a Fraudulent Conveyance, this Guaranty and each such Lien shall be valid and enforceable only to the maximum extent that would not cause this Guaranty or such Lien to constitute a Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have been amended accordingly at all relevant times. For purposes hereof, “Fraudulent Conveyance” means a fraudulent conveyance or fraudulent transfer under Section 548 of the Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under the provisions of any applicable fraudulent conveyance or fraudulent transfer law or similar law of any state of the United States, as in effect from time to time.
SECTION 5.Waiver. Guarantor hereby waives, for the benefit of Agent and Lenders (a) any right to require Agent or any Lender, as a condition of payment or performance by Guarantor, to (i) proceed against Borrower, any other guarantor of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Borrower, any such other guarantor of all or any portion of the Obligations or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of Agent or any Lender in favor of Borrower or any other Person or (iv) pursue any other remedy in the power of Agent or any Lender whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Borrower or any other guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Borrower or any other guarantor of all or any of the Guaranteed Obligations from any cause other than payment in full of the Guaranteed Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon Agent or any Lender’s errors or omissions in the administration of the Guaranteed Obligations; (e)(i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of Guarantor’s obligations hereunder, (ii) the benefit of any statute of limitations affecting Guarantor’s liability
hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, or any other Loan Document, notices of any renewal, extension or modification of the Guaranteed Obligations or any Loan Document, notices of any extension of credit to Borrower and notices of any of the matters referred to in Section 2 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof.
SECTION 6.Security Interest. As additional security for the Obligations, Guarantor hereby grants to Agent, for the benefit of itself and the other Lenders a first priority security interest in all of Guarantor's right, title and interest in and to all of the Guarantor’s assets, wherever located and whether now or hereafter owned or acquired, including, but not limited to the following assets (collectively, the “Collateral”): (a) all Accounts, (b) Chattel Paper, (c) Commercial Tort Claims, (d) Deposit Accounts, (e) Documents, (f) Equipment, (g) General Intangibles, (h) Goods (including but not limited to all files, correspondence, computer programs, tapes, disks and related data processing software which contain information identifying or pertaining to any of the Collateral or any Account Lessee or showing the amounts thereof or payments thereon or otherwise necessary or helpful in the realization thereon or the collection thereof, (i) Inventory, (j) Investment Property, (k) letters of credit and Letter of Credit Rights, (l) all Supporting Obligations and (m) all cash and non-cash proceed of the foregoing (including insurance proceeds). Upon the occurrence of an Event of Default under the Loan Agreement or any breach or default by Guarantor under this Guaranty, Agent shall have all the rights of a secured party under applicable law, and more specifically under the Uniform Commercial Code (in effect in the State of New York) and shall have all the rights and remedies set forth in the Loan Agreement. In addition and without limitation, Agent may, without notice to or demand upon Guarantor at any time following the occurrence and during the continuance of an Event of Default take possession of the Collateral, and for that purpose Agent may enter upon any premises on which the Collateral may be situated and remove the same therefrom and may require Guarantor to assemble all or any part of the Collateral at such location or locations within the jurisdiction(s) of Guarantor's principal office or at such other locations as Agent may reasonably designate. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Agent shall give Guarantor at least ten (10) Business Days prior written notice of the time and place of any public sale of Collateral or of the time after, which any private sale or any other intended disposition is to be made (it being understood, for the avoidance of doubt that the Agent shall not take any action to effect any such sale unless an Event of Default shall have occurred and be continuing). Guarantor hereby acknowledges that ten (10) Business Days prior written notice of such sale or sales shall be reasonable notice. In addition, Guarantor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of Agent’s rights hereunder following the occurrence and during the continuance of an Event of Default, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights with respect thereto. In addition, Agent shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise. All of Agent’s rights and remedies, whether evidenced by this Guaranty, the Loan Agreement or any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Agent to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Guarantor under this Guaranty, after Guarantor's failure to perform, shall not affect Agent’s right to declare a default and to exercise its remedies. Guarantor hereby authorizes Agent to prepare and file financing statements provided for by the UCC with all appropriate jurisdictions to perfect or protect the Lenders’
security interest or rights hereunder, and to take such other action as may be required, in Agent’s Permitted Discretion, in order to perfect and to continue the perfection of Agent’s Lien on the Collateral, for the benefit of itself and the other Lenders, including a notice that any disposition of the Collateral, by either the Guarantor or any other Person, shall be deemed to violate the rights of the Lender under the UCC. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in the Agent’s sole discretion.
SECTION 7.Subrogation; Subordination. Guarantor hereby agrees that it will not exercise or assert any rights or claims which it may acquire against Borrower or any other guarantor of all or part of the Guaranteed Obligations that arise from the existence, payment, performance or enforcement of its obligations hereunder (including, without limitation, any rights or claims of subrogation, reimbursement or contribution), until the indefeasible payment in full in cash, of all the Guaranteed Obligations, the termination of the Loan and termination of this Guaranty, the Loan Agreement and the other Loan Documents. If any amount shall be paid to Guarantor in violation of the immediately preceding sentence, such amount shall be held in trust for the benefit of Agent and shall forthwith be paid to Agent for the ratable benefit of the Lenders to be credited and applied against the Guaranteed Obligations and all other amounts payable under Section 1(a)(ii), whether matured or unmatured, in such order as Agent may determine. Any Indebtedness of Borrower or any other guarantors of the Obligations now or hereafter held by Guarantor (the “Obligee Guarantor”) is hereby expressly and fully subordinated in right of payment to the Guaranteed Obligations, and any such indebtedness collected or received by Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Agent on behalf of Lenders and shall forthwith be paid over to Agent for the benefit of Lenders to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of Guarantor under any other provision hereof.
SECTION 8.Representations and Warranties.
(a) Guarantor (i) is a corporation, duly incorporated, validly existing and in good standing under the laws of its state of organization, (ii) has all requisite power and authority to own its properties and assets and to carry on its business as now being conducted and to execute, deliver and perform this Guaranty and the other Loan Documents to which it is a party and (iii) is duly qualified to do business in all of the jurisdictions in which failure to so qualify could reasonably be likely to have or result in a Material Adverse Effect.
(b) Guarantor has, independently and without reliance upon Agent or any Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Guaranty.
(c) Guarantor is not an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, nor controlled by such an "investment company." No transaction contemplated in this Guaranty or the other Loan Documents requires compliance with any bulk sales act or similar law.
(d) The execution, delivery and performance by Guarantor of this Guaranty and the consummation by Guarantor of the transactions contemplated thereby, (a) have been duly authorized by all requisite action of Guarantor and have been duly executed and delivered by Guarantor; (b) do not violate any provisions of (i) any Applicable Law, (ii) any order of any Governmental Authority binding on Guarantor or any of its respective properties, or (iii) the certificate of incorporation or by-laws of Guarantor, or any agreement between Guarantor and its equity owners or among any such equity owners, in each case the effect of
which could reasonably be expected to be, have or result in a Material Adverse Effect; (c) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which Guarantor is a party, or by which the properties or assets of Guarantor are bound, the effect of which could reasonably be expected to be, have or result in a Material Adverse Effect; (d) except as set forth herein or therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of Guarantor , and (e) except for filings in connection with the perfection of Agent’s Liens, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person that has not been obtained. When executed and delivered, this Guaranty will constitute the legal, valid and binding obligation of each party signatory hereto enforceable against such parties in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity (whether in a proceeding at law or in equity).
(e) Guarantor is not (a) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would have a Material Adverse Effect on its ability to execute and deliver, or perform under, this Guaranty or fulfill the Guaranteed Obligations, or (b) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period, could reasonably be expected to be, have or result in a Material Adverse Effect.
(f) All deposit accounts, securities accounts and investment accounts of Guarantor are set forth on Schedule 9(f) hereof. Guarantor shall not open any new deposit account, securities account or investment account other than any such account that is an Excluded Deposit Account unless (i) Guarantor shall have given at least thirty (30) days prior written notice to Agent and (ii) Guarantor and Agent shall first have entered into an account control agreement in form and substance satisfactory to Agent sufficient to give Agent “control” (for purposes of Articles 8 and 9 of the Uniform Commercial Code) over such account (other than an account that is an Excluded Deposit Account).
SECTION 9.Release of Collateral. So long as no Default or Event of Default has occurred and is continuing, upon request of Guarantor, Agent shall release any Lien granted to or held by Agent upon any Collateral being sold or disposed of in compliance with the provisions of the Loan Documents, as determined by Agent in its sole discretion. Subject to Section 12.3 of the Loan Agreement, promptly following indefeasible payment in full in cash of all Obligations (other than indemnity obligations under the Loan Documents that are not then due and payable or with respect to which no claim has been made) and the termination of the Loan Agreement, the Liens created hereby shall terminate and Agent shall execute and deliver such documents, at Guarantor’s expense, as are necessary to release Agent’s Liens in the Collateral and shall return or cause the return of or consent to the return of the Collateral to Guarantor; provided, however, that the parties agree that, notwithstanding any such termination or release or the execution, delivery or filing of any such documents or the return of any Collateral, if and to the extent that any such payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent and the Liens created hereby shall be revived
automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Agent. Agent shall not be deemed to have made any representation or warranty with respect to any Collateral so delivered except that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts. Section 12.9 of the Loan Agreement shall not be applicable to any actions required to be taken by the Agent under this Section.
SECTION 10.Right of Setoff. In addition to and not in limitation of all rights of offset that Agent and its Affiliates may have under Applicable Law, provided that Agent has made prior demand (on behalf of itself and the Lenders) and the obligations of Guarantor have matured, upon the occurrence and during the continuation of any Event of Default, Agent and its Affiliates shall have the right to set off and apply any and all deposits (general or special, time or demand, provisional or final, or any other type) at any time held and any other Indebtedness at any time owing by Agent and its Affiliates to or for the credit or the account of Guarantor against any and all of the Guaranteed Obligations then due and payable. If Agent exercises any of its rights under this Section 10, Agent shall provide notice to Borrower of such exercise, provided that the failure to give such notice shall not affect the validity of the exercise of such rights.
SECTION 11.Survival of Provisions. All covenants, representations, warranties and waivers and indemnities made by Guarantor under this Guaranty shall survive the execution, delivery, and termination of this Guaranty until the indefeasible payment in full in cash, of all the Guaranteed Obligations, the termination of the Revolving Loan Commitments and the Term Loan Commitments and termination of this Guaranty, the Loan Agreement and the other Loan Documents.
SECTION 12.Amendments, Waivers and Consents. No amendment or waiver of any provision of this Guaranty, or consent to any departure by Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by Agent and Guarantor, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
SECTION 13.Delays; Partial Exercise of Remedies. No delay or omission of Agent to exercise any right or remedy hereunder shall impair any such right or operate as a waiver thereof. No single or partial exercise by Agent of any right or remedy shall preclude any other or further exercise thereof, or preclude any other right or remedy.
SECTION 14.Facsimile Signature. This Guaranty may be executed and delivered by facsimile or other electronic transmission all with the same force and effect as if the same was a fully executed and delivered original manual counterpart. The words “execution,” “executed”, “signed,” “signature,” and words of like import in this Guaranty shall be deemed to include electronic signatures, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature.
SECTION 15.Interpretation. All terms not defined herein or in the Loan Agreement shall have the meaning set forth in the UCC, except where the context otherwise requires. To the extent a term or provision of this Guaranty conflicts with the Loan Agreement and is not addressed herein with more specificity, the Loan Agreement shall control with respect to the subject matter of such term or provision.
SECTION 16.Continuing Guaranty; Assignments of Guaranteed Debt. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the earlier of (i) the payment in full in cash of all Obligations (other than indemnity obligations under the Loan Documents that are not then due and payable or with respect to which no claim has been made)
and the termination of the Loan Agreement or (ii) this Guaranty is released in accordance herewith, (b) be binding upon Guarantor and its successors and assigns, and (c) inure, together with the rights and remedies of Agent and the Lenders hereunder, to its own benefit and to its successors and assigns. Without limiting the generality of the foregoing clause (c), Agent may, in accordance with the terms of the Loan Agreement, assign or otherwise transfer all or any portion of its rights and obligations under the Loan Agreement to any successor agent, and such successor agent shall thereupon become vested with all the benefits in respect hereof granted to Agent herein or otherwise, in each case as provided in the Loan Agreement. Guarantor may not, without the consent of Agent, assign or transfer any of its rights and obligations hereunder or any interest herein.
SECTION 17.Reinstatement. To the extent permitted by law, this Guaranty and the Guaranteed Obligations shall be reinstated if at any time any amount received by Agent or any Lender in respect of the Guaranteed Obligations is rescinded or must otherwise be restored or returned by Agent or such Lender upon the occurrence or during the pendency of any bankruptcy, reorganization or other similar proceeding applicable to Guarantor, or upon or during the occurrence of any dissolution, liquidation or winding up of Guarantor, all as though such amount had not been received.
SECTION 18.Bankruptcy, etc.
(a) The obligations of Guarantor hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Borrower or any Guarantor or by any defense which Borrower or any Guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of Guarantor and the Lenders that the Guaranteed Obligations which are guaranteed by Guarantor pursuant hereto should be determined without regard to any rule of law or order which may relieve Borrower of any portion of such Guaranteed Obligations. Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Agent, or allow the claim of Agent in respect of, any such interest accruing after the date on which such case or proceeding is commenced.
SECTION 19.Financial Condition of Borrower. Any Advance may be made to Borrower or continued from time to time, without notice to or authorization from Guarantor regardless of the financial or other condition of Borrower at the time of any such grant or continuation. Neither Agent nor any Lender shall have any obligation to disclose or discuss with Guarantor its assessment of the financial condition of Borrower. Guarantor has adequate means to obtain information from Borrower on a continuing basis concerning the financial condition of Borrower and its ability to perform their respective obligations under the Loan Documents, and Guarantor assumes the responsibility for being and keeping informed of the financial condition of Borrower and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Guarantor hereby waives and relinquishes any duty on the part of Agent or any
Lender to disclose any matter, fact or thing relating to the business, operations or conditions of Borrower now known or hereafter known by Agent or any Lender.
SECTION 20.Sections 10.3, 12.1, 12.4, 12.5 and 12.6 of the Loan Agreement are hereby incorporated by reference mutatis mutandis, with (i) each reference to “Borrower” being a reference to “Guarantor” and (ii) each reference to “Agreement” being a reference to this Guaranty.
SECTION 21.Entire Agreement; Successors and Assigns. This Guaranty constitutes the entire agreement between the parties, supersedes any prior written and verbal agreements between them, and shall bind and benefit the parties and their respective successors and permitted assigns.
SECTION 22. [RESERVED].
[REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed by its proper and duly authorized officer as of the date first set forth above.
KATAPULT GROUP, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
KATAPULT HOLDINGS, INC.
By: _/s/ Orlando Zayas_______________
Name: Orlando Zayas
Title: Chief Executive Officer
[Signature Page to Corporate Guaranty]
Schedule 9(f)
Katapult Group, Inc.
| | | | | |
| Bank Name | Account |
Silicon Valley Bank | *3302996311: Katapult Group, Inc. – OPERATING ACCOUNT |
Silicon Valley Bank | *3302996326: Katapult Group, Inc. – PURCHASING ACCOUNT |
Silicon Valley Bank | *3302996345: Katapult Group, Inc. – RESERVE ACCOUNT |
Silicon Valley Bank | *3302996330: Katapult Group, Inc. – INTEREST RESERVE ACCOUNT |
Silicon Valley Bank | *3302893366- COLLATERAL MMA1 |
Katapult Holdings, Inc.
| | | | | |
| Bank Name | Account |
Silicon Valley Bank | *3302057030: Katapult Holdings, Inc. – OPERATING ACCOUNT |
Silicon Valley Bank | *3302721685: Katapult Holdings, Inc. – RESERVE ACCOUNT |
Silicon Valley Bank | *3302706538: Katapult Holdings, Inc. – INTEREST RESERVE ACCOUNT |
1 This account is an Excluded Account.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration No. 333-258852 on Form S-8, of our report dated March 15, 2022, relating to the financial statements of Katapult Holdings, Inc. and subsidiaries (the “Company”) appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2021.
/s/ DELOITTE & TOUCHE LLP
New York, NY
March 15, 2022
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Orlando Zayas, certify that:
1.I have reviewed this Annual Report on Form 10-K of Katapult Holdings, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| | | | | | | | | | | | | | | | | |
| Date: | March 15, 2022 | | | /s/ Orlando Zayas | |
| | | | Orlando Zayas | |
| | | | Chief Executive Officer | |
| | | | (Principal Executive Officer) | |
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Karissa Cupito, certify that:
1.I have reviewed this Annual Report on Form 10-K of Katapult Holdings, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| | | | | | | | | | | | | | | | | |
| Date: | March 15, 2022 | | | /s/ Karissa Cupito | |
| | | | Karissa Cupito | |
| | | | Chief Financial Officer | |
| | | | (Principal Financial Officer) | |
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that, to the best of his knowledge:
1.The Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual Report”) of Katapult Holdings, Inc. (the “Company”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in this Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| | | | | | | | | | | | | | | | | |
| Date: | March 15, 2022 | | | /s/ Orlando Zayas | |
| | | | Orlando Zayas | |
| | | | Chief Executive Officer | |
| | | | (Principal Executive Officer) | |
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that, to the best of his knowledge:
1.The Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual Report”) of Katapult Holdings, Inc. (the “Company”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in this Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| | | | | | | | | | | | | | | | | |
| Date: | March 15, 2022 | | | /s/ Karissa Cupito | |
| | | | Karissa Cupito | |
| | | | Chief Financial Officer | |
| | | | (Principal Financial Officer) | |
