As filed with the Securities and Exchange Commission on February 8, 2023
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RUBICON TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 88-3703651 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
100 West Main Street Suite #610
Lexington, KY 40507
(844) 479-1507
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Philip Rodoni
Chief Executive Officer
100 West Main Street Suite #610
Lexington, KY 40507
(844) 479-1507
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copy to:
Michael J. Blankenship
Winston & Strawn LLP
800 Capitol Street, Suite 2400
Houston, Texas 77002
Tel: 713-651-2678
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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 under the Securities Exchange Act of 1934:
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 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling securityholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED FEBRUARY 8, 2023
PRELIMINARY PROSPECTUS
Up to 44,884,579 Shares of Class A Common Stock
This prospectus relates to the resale from time to time by the selling securityholders named in this prospectus (the “Selling Securityholders”) of up to an aggregate of 44,884,579 shares of Class A Common Stock (as defined below), including (i) up to 31,810,075 shares of Class A Common Stock that Rubicon Technologies, Inc. (“Rubicon”) may, at its discretion, elect to issue and sell to YA II PN, Ltd. (“the Yorkville Investor”), from time to time after the date of this prospectus, pursuant to the Standby Equity Purchase Agreement, dated as of August 31, 2022, entered into by and between Rubicon and the Yorkville Investor (the “SEPA”), (ii) 200,000 shares of Class A Common Stock (the “Yorkville Commitment Shares”) issued to the Yorkville Investor as consideration for its irrevocable commitment to purchase shares of Class A Common Stock at Rubicon’s direction, from time to time after the date of this prospectus, upon the terms and subject to the conditions set forth in the SEPA, (iii) up to 5,629,245 shares of Class A Common Stock issuable by Rubicon to various insider investors (the “First Closing Insider Investors”) if they fully convert their convertible debentures issued pursuant to the Securities Purchase Agreement, dated as of December 16, 2022 (the “First Closing Insider SPA”), by and between Rubicon and the First Closing Insider Investors, (iv) up to 3,367,509 shares of Class A Common Stock issuable by Rubicon to various insider investors (the “Second Closing Insider Investors” together with the “First Closing Insider Investors”, the “Insider Investors”) if they fully convert their convertible debentures pursuant to the Security Purchase Agreement, dated as of February 1, 2023 (the “Second Closing Insider SPA” together with the First Closing Insider SPA, the “Insider SPAs”), by and between Rubicon and the Second Closing Insider Investors, (v) 3,877,750 shares of Class A Common Stock issued to Jefferies LLC (“Jefferies”), as consideration for the post-closing deferred cash obligation, pursuant to the Underwriting Agreement, dated as of October 14, 2021 (as further amended on August 15, 2022) (the “Amended Underwriting Agreement”) by and between Rubicon (f/k/a Founder SPAC) and Jefferies LLC.
The shares of Class A Common Stock being offered for resale in this prospectus represent, as of the date of this prospectus, approximately 26.3% of our total outstanding shares of Common Stock (as defined below). The sale of some or all of the securities being offered in this prospectus, following the satisfaction of any applicable conditions, could have adverse effects on the market for our Class A Common Stock, including increasing volatility, limiting the availability of an active market and/or resulting in a significant decline in the public trading price. Despite any potential adverse effects, the Selling Securityholders may still experience a positive rate of return on the securities they purchased due to the differences in the purchase prices at which they purchased or will purchase the securities described above. See the sections entitled “Summary—Information Related to Offered Securities” and “Risk Factors — Risks Related to Ownership of Our Securities.”
We will not receive any proceeds from the sale of shares of Class A Common Stock by the Selling Securityholders pursuant to this prospectus. However, we expect to receive proceeds from sales of Class A Common Stock that we may elect to make to the Yorkville Investor pursuant to the SEPA, if any, from time to time in our discretion. The net proceeds from sales, if any, under the SEPA, will depend on the frequency and prices at which we sell shares of Class A Common Stock to the Yorkville Investor after the date of this prospectus. See “Certain Financing Transactions—SEPA” for a description of how the price at which we may sell shares of Class A Common Stock to the Yorkville Investor is calculated pursuant to the SEPA. Subject to our obligations under the Term Loan, our management team will have broad discretion over the use of the net proceeds from our sale of shares of Class A Common Stock pursuant to the SEPA, if any.
Each Selling Securityholder will pay any underwriting discounts and commissions and expenses incurred by the Selling Securityholder for brokerage, marketing, accounting, tax or legal services or any other expenses incurred by the Selling Securityholder in disposing of its securities; provided, however, that (i) pursuant to the SEPA, we will bear the costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including all registration and filing fees, New York Stock Exchange (“NYSE”) listing fees and fees and expenses of our counsel and our independent registered public accounting firm, and certain fees incurred in connection with a Selling Securityholder’s exercise of certain block trade and underwritten offering rights, and (ii) pursuant to the Insider SPAs, we will bear all expenses incurred by Rubicon in complying with its obligations in connection with the registration and disposition of registrable securities, including, without limitation, all registration, listing and qualifications fees, printers, fees and expenses of Rubicon’s counsel and accountants (except legal fees of the Insider Investors’ counsel associated with the review of the registration statement).
We are registering the securities for resale pursuant to the Selling Securityholders’ registration rights under certain agreements between us and the Selling Securityholders. Our registration of the securities covered by this prospectus does not mean that either we or the Selling Securityholders will offer or sell any of the shares of Class A Common Stock. The Selling Securityholders or their permitted transferees may offer, sell or distribute all or a portion of their shares of Class A Common Stock publicly or through private transactions at prevailing market prices or at negotiated prices. We provide more information about how the Selling Securityholders may sell the Class A Common Stock in the section entitled “Plan of Distribution.” The Yorkville Investor is an “underwriter” in connection with SEPA within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”).
You should read this prospectus, any prospectus supplements and the documents filed as exhibits to the registration statement of which this prospectus forms a part carefully before you invest in our securities.
Our Class A Common Stock and our Public Warrants are listed on the NYSE, under the symbols “RBT” and “RBT WS,” respectively. On February 7, 2023, the closing price of our Class A Common Stock was $1.45 and the closing price of our Public Warrants was $0.0695.
We are an “emerging growth company” and a “smaller reporting company” under federal securities laws and are subject to reduced public company reporting requirements.
Investing in our securities involves a high degree of risk. See the section entitled “Risk Factors” beginning on page 13 of this prospectus to read about factors you should consider before buying our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2023.
TABLE OF CONTENTS
i |
INTRODUCTORY NOTE REGARDING THE BUSINESS COMBINATION AND CERTAIN OTHER TRANSACTIONS
On August 15, 2022 (the “Closing” and such date, the “Closing Date”), we consummated the business combination (the “Business Combination”) pursuant to that certain Agreement and Plan of Merger, dated December 15, 2021 (the “Merger Agreement”), by and among Founder SPAC, a Cayman Islands exempted company (together with its successors, including after the Domestication (as defined below), “Founder”), Ravenclaw Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Founder (“Merger Sub”), Ravenclaw Merger Sub Corporation 1, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 1”), Ravenclaw Merger Sub Corporation 2, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 2”), Ravenclaw Merger Sub Corporation 3, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 3” and, together with Merger Sub Inc. 1 and Merger Sub Inc. 2, each a “Blocker Merger Sub”), Boom Clover Business Limited, a British Virgin Islands corporation (“Blocker Company 1”), NZSF Frontier Investments Inc., a Delaware corporation (“Blocker Company 2”), PLC Blocker A LLC, a Delaware limited liability company (“Blocker Company 3” and, together with Blocker Company 1 and Blocker Company 2, each a “Blocker Company” and collectively, the “Blocker Companies”), and Rubicon Technologies, LLC, a Delaware limited liability company (“Holdings LLC”).
Pursuant to the Merger Agreement, among other things, (a) Founder deregistered as an exempted company under the Cayman Islands Companies Act (As Revised) and continued and domesticated as a Delaware corporation under Section 388 of the Delaware General Corporation Law (the “Domestication”), and in connection therewith, changed its name from Founder SPAC to Rubicon Technologies, Inc. (“Rubicon”), (b) Merger Sub merged with and into Holdings LLC (the “Merger”), with Holdings LLC surviving the Merger as a wholly owned subsidiary of Rubicon, and (c) in a series of sequential two-step mergers (i) each Blocker Merger Sub merged with and into its corresponding Blocker Company, with each Blocker Company surviving as a wholly owned subsidiary of Rubicon, following which (ii) each surviving Blocker Company merged with and into Rubicon, with Rubicon surviving the merger (collectively the “Blocker Mergers” and, together with the Merger, the “Mergers”). The transactions contemplated by the Merger Agreement, including the Mergers, are collectively referred to in this prospectus as the “Business Combination”.
As a result of and upon the effective time of the Domestication, (a) each then-issued and outstanding Class A ordinary share, par value $0.0001 per share, of Founder (“Founder Class A Shares”) automatically converted into one share of Class A common stock, par value $0.0001 per share, of Rubicon (“Class A Common Stock”), (b) each then-issued and outstanding Class B ordinary share, par value $0.0001 per share, of Founder (“Founder Class B Shares” and, together with Founder Class A Shares, “Founder Ordinary Shares”), converted into one share of Class A Common Stock, pursuant to the Sponsor Agreement, dated December 15, 2021, by and among Founder, Founder SPAC Sponsor LLC (“Sponsor”), Holdings LLC, and certain insiders of Founder (the “Sponsor Agreement”), (c) each then-issued and outstanding public warrant of Founder, each representing a right to acquire one Founder Class A Share for $11.50 (a “Founder Public Warrant”), converted automatically, on a one-for-one basis, into a public warrant of Rubicon (a “Public Warrant”) that represents a right to acquire one share of Class A Common Stock for $11.50 pursuant to Section 4.5 of the Warrant Agreement, dated October 14, 2021, by and between Founder and Continental Stock Transfer and Trust Company (as amended by the Warrant Agreement Amendment (as defined below), the “Warrant Agreement”), (d) each then-issued and outstanding private placement warrant of Founder, each representing a right to acquire one Founder Class A Share for $11.50 (a “Founder Private Placement Warrant”), converted automatically, on a one-for-one basis, into a private placement warrant of Rubicon (the “Private Warrant” and together with the Public Warrants, the “Warrants”) that represents a right to acquire one share of Class A Common Stock for $11.50 pursuant to Section 4.5 of the Warrant Agreement, and (e) each then-issued and outstanding unit of Founder, each representing a Founder Class A Share and one-half of a Founder Public Warrant (a “Founder Unit”), that had not been previously separated into the underlying Founder Class A Share and one-half of one Founder Public Warrant upon the request of the holder thereof, was separated and automatically converted into one share of Class A Common Stock and one-half of one Public Warrant. No fractional Public Warrants were issued upon separation of the Founder Units. In addition, the certificate of incorporation of Rubicon (the “Charter”) authorizes Class V common stock, par value $0.0001 per share (“Class V Common Stock” and together with the Class A Common Stock, “Common Stock”). Class A Common Stock is entitled to economic rights and one vote per share and Class V Common Stock is entitled to one vote per share with no economic rights. In connection with the consummation of the Business Combination, Continental Stock Transfer and Trust Company and Rubicon amended the Warrant Agreement, to among other things, reflect the change in name and the Domestication (the “Warrant Agreement Amendment”).
ii |
Following the Merger, among other things, Rubicon was issued Class A Units in Holdings LLC (“Class A Units”) and all preferred units, common units, and incentive units of Holdings LLC (including such convertible instruments, the “Rubicon Interests”) outstanding as of immediately prior to the Merger were automatically recapitalized into Class A Units and Class B Units of Holdings LLC (“Class B Units”), as authorized by the Eighth Amended and Restated Limited Liability Company Agreement of Holdings LLC (“A&R LLCA”) that was adopted at the time of the Merger. Following the Blocker Mergers, (a) holders of Rubicon Interests immediately before the Closing, other than the Blocker Companies (the “Blocked Unitholders”), were issued Class B Units (the “Rubicon Continuing Unitholders”), (b) Rubicon Continuing Unitholders were issued a number of shares of Class V Common Stock equal to the number of Class B Units issued to the Rubicon Continuing Unitholders, (c) Blocked Unitholders were issued shares of Class A Common Stock (as a result of the Blocker Mergers), and (d) following the adoption of the equity incentive award plan of Rubicon adopted at the Closing (the “2022 Plan”) and the effectiveness of a registration statement on Form S-8 filed by Rubicon on October 19, 2022, holders of phantom units of Holdings LLC immediately prior to the Closing (“Rubicon Phantom Unitholders”) and those current and former directors, officers and employees of Holdings LLC entitled to certain cash bonuses (the “Rubicon Management Rollover Holders”) were awarded restricted stock units of Rubicon (“RSUs”) or deferred stock units (“DSUs”) (in each case depending on their employment status at the time of the award), and such RSUs and DSUs will vest into shares of Class A Common Stock on February 11, 2023, the date that is 180 days following the Closing. In addition to the securities issuable at the Closing and pursuant to the 2022 Plan, certain of the Rubicon Management Rollover Holders received one-time cash payments (the “Cash Transaction Bonuses”). In addition, pursuant to the Merger Agreement, (i) Blocked Unitholders immediately before the Closing received a right to receive a pro rata portion of 1,488,519 shares of Class A Common Stock (the “Earn-Out Class A Shares”) and (ii) Rubicon Continuing Unitholders immediately before the Closing received a right to receive a pro rata portion of 8,900,840 Class B Units (“Earn-Out Units”) and an equivalent number of shares of Class V Common Stock (“Earn-Out Class V Shares”, and together with Earn-Out Class A Shares and Earn-Out Units, “Earn-Out Interests”), in each case, depending upon the performance of Class A Common Stock during the five (5) year period after the Closing.
Concurrent with the execution of the Merger Agreement, Founder entered into certain Subscription Agreements, dated as of December 15, 2021, by and between Founder, on the one hand, and certain investors (“PIPE Investors”) on the other hand (collectively, the “Subscription Agreements”), pursuant to which, among other things, concurrent with the Closing, Rubicon issued and sold to the PIPE Investors an aggregate of 11,100,000 shares of Class A Common Stock, at a per share price of $10.00, for an aggregate purchase price of $111.0 million on the terms and subject to the conditions set forth therein. On August 12, 2022, certain of the current PIPE Investors and new PIPE Investors entered into additional Subscription Agreements to purchase an aggregate of 1,000,000 shares of Class A Common Stock, at a per share price of $10.00, for an aggregate purchase price of $10.0 million (together with the original Subscription Agreements, the “PIPE Financing” or “PIPE Investment”).
Concurrent with the execution of the Merger Agreement, the Sponsor and certain insiders of Founder (the “Insiders”) entered into the Sponsor Agreement with Founder and Holdings LLC, pursuant to which the Sponsor and the Insiders agreed, among other things, not to transfer any Class A Common Stock or Private Warrants (or any shares of Class A Common Stock issuable upon conversion or exercise thereof) until the earlier of (i) February 11, 2023 (180 days after the Closing Date) and (ii) the date after the Closing Date on which Rubicon completes a liquidation, merger, or similar transaction that results in all of Rubicon’s stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property. In the event that Rubicon waives, releases, or terminates a Lock-Up Agreement (as defined below) with respect to any shares or holders, the Sponsor and the Insiders will be granted a similar waiver, release, or termination with respect to a pro rata portion of the securities held by them and subject to the foregoing restrictions.
Concurrent with the execution of the Merger Agreement, certain holders of Rubicon Interests entered into lock-up agreements with Founder and Holdings LLC (the “Lock-Up Agreements”). Pursuant to the Lock-Up Agreements, each holder agreed to certain transfer restrictions with respect to the securities such holder received as transaction consideration pursuant to the Merger Agreement, until the earlier of (i) February 11, 2023 (180 days after the Closing Date) and (ii) the date after the Closing on which Rubicon completes a liquidation, merger, or similar transaction that results in all of Rubicon’s stockholders having the right to exchange their equity holdings for cash, securities or other property. The holders of Rubicon Interests further agreed pursuant to the Lock-Up Agreements not to exchange Class B Units for Class A Common Stock during this restricted period. In the event that Rubicon waives, releases, or terminates the lock-up provision in any other Lock-Up Agreement, then the other holders subject to the Lock-Up Agreements will be granted a similar waiver, release or termination with respect to a pro rata portion of the securities held thereby and subject to the foregoing restrictions. Between entry into the Merger Agreement and Closing, additional holders of Rubicon Interests entered into Lock-Up Agreements on the same terms.
iii |
Pursuant to that certain Rubicon Equity Investment Agreement entered into on May 25, 2022 (the “Rubicon Equity Investment Agreement”), by and among Holdings LLC and certain of its equityholders (the “New Equity Holders”) who are affiliated with Andres Chico (a member of our board of directors) and Jose Miguel Enrich (a beneficial owner of greater than 10% of the issued and outstanding Common Stock). Concurrent with the Closing and in satisfaction of the obligations thereunder, (a) Rubicon caused to be issued to the New Equity Holders 880,000 Class B Units pursuant to the Merger Agreement, (b) Rubicon issued 160,000 shares of Class A Common Stock to the New Equity Holders, and (c) Sponsor forfeited 160,000 Founder Class B Shares.
In connection with the extraordinary general meeting of Founder held on August 2, 2022 to approve the Business Combination and other related matters (the “Founder Special Meeting”), holders of 31,260,777 Founder Class A Shares (or approximately 98.8% of the issued and outstanding Founder Class A Shares on such date) exercised their right to redeem those shares for cash at a price of approximately $10.176 per share. On August 4, 2022, Founder, Holdings LLC and ACM ARRT F LLC, a Delaware limited liability company (“ACM Seller”, together with such other parties to which obligations of ACM Seller were novated, the “FPA Sellers”), entered into an agreement (the “Forward Purchase Agreement”) for an OTC Equity Prepaid Forward Transaction. The primary purpose of entering into the Forward Purchase Agreement was to help ensure that Founder’s initial listing application with the NYSE was approved, increasing the likelihood that the transaction would close. Pursuant to the Forward Purchase Agreement, prior to the consummation of the Business Combination, at an average purchase price of $10.15 per share, the FPA Sellers purchased an aggregate of 7,082,616 Founder Class A Shares from certain holders that elected to redeem Founder Class A Shares for cash and reversed such election (the “Redeeming Holders”), of which 666,667 shares were Share Consideration (as defined in the Forward Purchase Agreement). Pursuant to the Forward Purchase Agreement, each of the FPA Sellers waived its redemption rights under the governing documents of Founder in connection with the Closing. As a result of the Forward Purchase Agreement, at the Business Combination, holders of 24,178,161 Founder Class A Shares (or approximately 76.5% of the issued and outstanding Founder Class A Shares on such date) exercised their right to redeem those shares for cash at a price of approximately $10.176 per share, resulting in an aggregate redemption payment of approximately $246.0 million from Founder’s trust account. Following these redemptions, at the Closing we received approximately $75.8 million from Founder’s trust account, without accounting for the payment of transaction costs, payments under the Forward Purchase Agreement and Cash Transaction Bonuses. As a result of consummation of the Mergers and accounting for the foregoing redemption payments and receipt of funds from Founder’s trust account, we received approximately $73.8 million in net proceeds from the Business Combination after accounting for our payment of approximately $25.4 million of transaction costs, aggregate payments of $68.7 million by us to the FPA Sellers under the Forward Purchase Agreement, net proceeds of $121.0 million from the PIPE Investment, and the payment by us of an aggregate of $28.9 million in Cash Transaction Bonuses.
On August 15, 2022, prior to the Closing, Founder, Sponsor, and Holdings LLC entered into a forfeiture agreement (the “Sponsor Forfeiture Agreement”), whereby Sponsor forfeited 1,000,000 Founder Class B Shares immediately prior to the Closing.
At the Closing, Rubicon and Holdings LLC entered into a Tax Receivable Agreement (the “Tax Receivable Agreement” or “TRA”) with Rubicon Continuing Unitholders and Blocked Unitholders (the “TRA Holders”). Pursuant to the Tax Receivable Agreement, among other things, Rubicon is required to pay to the TRA Holders 85% of certain of Rubicon’s realized (or in certain cases deemed realized) tax savings as a result of certain tax benefits related to the transactions contemplated by the Merger Agreement and future exchanges of Class B Units for Class A Common Stock or cash.
At the Closing, Founder entered into an amended and restated registration rights agreement (the “A&R Registration Rights Agreement”) with the Sponsor, Holdings LLC, and certain holders of Rubicon Interests (the “Rubicon Legacy Holders” and together with the Sponsor and any persons who thereafter become party to the agreement, the “RRA Holders”). Pursuant to the A&R Registration Rights Agreement, within 30 days of the Closing Date, Rubicon was required to file a registration statement under the Securities Act, registering for resale (i) all outstanding shares of Class A Common Stock held by the RRA Holders immediately following the Closing, (ii) all shares of Class A Common Stock issuable upon exercise, conversion or exchange of any option, warrant or convertible security held directly or indirectly by a RRA Holder immediately following the Closing, (iii) any Warrants or shares of Class A Common Stock that may be acquired by the RRA Holders upon the exercise of a Warrant or other right to acquire Class A Common Stock held by a RRA Holder immediately following the Closing, (iv) any shares of Class A Common Stock or Warrants otherwise acquired or owned by a RRA Holder following the date of the A&R Registration Rights Agreement to the extent that such securities are “restricted securities” (as defined in Rule 144 promulgated under the Securities Act (“Rule 144”)) or are otherwise held by an “affiliate” (as defined in Rule 144) of Rubicon, and (v) any other equity security of Rubicon or its subsidiaries issued or issuable with respect to any of the foregoing pursuant to a reorganization, stock split, stock dividend, or like transaction. Rubicon thereafter is required to maintain a registration statement that is continuously effective and to cause the registration statement to regain effectiveness in the event that it ceases to be effective. The RRA Holders have certain “demand” and “piggyback” registration rights under the agreement. Rubicon will bear the expenses incurred in connection with the filing of any registration statements pursuant to the A&R Registration Rights Agreement.
iv |
On August 31, 2022, Rubicon entered into the SEPA with the Yorkville Investor, pursuant to which (a) Rubicon issued the Yorkville Investor the Yorkville Commitment Shares, which 200,000 shares of Class A Common Stock represented an initial up-front commitment fee, and (b) assuming satisfaction of certain conditions and subject to the limitations set forth in the SEPA, Rubicon has the right, from time to time to issue and sell to the Yorkville Investor up to $200.0 million in shares of Class A Common Stock until the earlier of September 1, 2025 (the first day of the month next following the 36-month anniversary of the SEPA) or the date on which the facility has been fully utilized, in each case, with such sales first subject to the Securities and Exchange Commission (the “SEC”) declaring effective a registration statement covering the resale of such shares of Class A Common Stock (such registration statement, the “SEPA Registration Statement”). The registration statement of which this prospectus forms a part is being filed in respect of this obligation.
On November 30, 2022, Rubicon and the Yorkville Investor entered into a letter agreement to amend the SEPA (the “SEPA Amendment”). Pursuant to the SEPA Amendment, the parties agreed that Rubicon would not file the SEPA Registration Statement until there is an effective registration statement covering the resale of at least 18,000,000 YA Conversion Shares (as defined below). The Form S-1/A registration statement (Registration No. 333-268799) filed by Rubicon with the SEC on January 26, 2023, which registered 19,800,000 YA Conversion Shares for resale and which was declared effective by the SEC on February 1, 2023, satisfied this requirement. Upon its effectiveness, the registration statement of which this prospectus forms a part will register all shares of Class A Common Stock issued or otherwise issuable to the Yorkville Investor under the SEPA (subject to the SEPA Exchange Cap (as defined below)).
On November 30, 2022, Rubicon terminated the Forward Purchase Agreement with the FPA Sellers pursuant to termination agreements with each of ACM Seller and Vellar Opportunity Fund SPV LLC – Series 2 (“Vellar”), an FPA Seller that was assigned and novated a portion of the Forward Purchase Agreement pursuant to that certain Assignment and Novation Agreement, dated August 5, 2022, by and among Rubicon, Holdings LLC, Vellar and ACM Seller. Pursuant to the termination agreement with ACM Seller (the “Atalaya Termination Agreement”), Rubicon, among other things, made a one-time $6.0 million cash payment to ACM Seller and ACM Seller forfeited, for no additional consideration, 2,222,119 shares of Class A Common Stock and further agreed to certain lock-up and transfer restrictions with respect to the remaining 500,000 shares of Class A Common Stock that it holds pursuant to the Forward Purchase Agreement. Pursuant to the termination agreement with Vellar (the “Vellar Termination Agreement” and, together with the Atalaya Termination Agreement, the “FPA Termination Agreements”), Vellar retained 1,640,848 shares of Class A Common Stock (the “Previously Owned Shares”) it holds pursuant to the Forward Purchase Agreement (subject to certain lock-up and transfer restrictions) and Rubicon agreed to make a $2.0 million payment to Vellar which can be settled, at Rubicon’s sole option, in cash or shares of Class A Common Stock, subject to certain adjustments.
On November 30, 2022, we entered into a securities purchase agreement (the “YA SPA”) with the Yorkville Investor, whereby we agreed to issue and sell to the Yorkville Investor (i) convertible debentures (the “YA Convertible Debentures”) in the aggregate principal amount of up to $17.0 million, which are convertible into shares of Class A Common Stock (as converted, the “YA Conversion Shares”), and (ii) a pre-funded common stock purchase warrant (the “YA Warrant”), which is exercisable into $20.0 million of shares of Class A Common Stock (the “YA Warrant Shares”), in each case, on the terms and subject to the conditions set forth therein. Upon signing the YA SPA, we (i) issued and sold to the Yorkville Investor (a) a YA Convertible Debenture in the principal amount of $7.0 million for a purchase price of $7.0 million (the “First YA Convertible Debenture”), and (b) the YA Warrant for a pre-funded purchase price of $6.0 million, and (ii) paid the Yorkville Investor a cash commitment fee equal to $2.04 million, with such amount being deducted from the proceeds of the First YA Convertible Debenture, netting Rubicon approximately $10.96 million in total proceeds. On February 3, 2023, we issued and sold to the Yorkville Investor a second YA Convertible Debenture in the principal amount of $10.0 million for a purchase price of $10.0 million (the “Second YA Convertible Debenture”). The YA Convertible Debentures have a maturity date of May 30, 2024 and accrue interest at the rate of 4% per annum (provided that the interest rate will increase to 15% per annum in the event of certain defaults). The YA Warrant and YA Convertible Debentures may be exercised or converted, as applicable, into shares of Class A Common Stock, in each case to be issued at a variable rate dependent on the future volume-weighted average price (“VWAP”) of the Class A Common Stock, and subject to certain other adjustments as set forth therein. Concurrent with the entry into the YA SPA, we entered into a registration rights agreement with the Yorkville Investor (the “YA Registration Rights Agreement”), whereby, we agreed to, among other things, register for resale all of the YA Conversion Shares and YA Warrant Shares.
v |
On December 16, 2022, Rubicon entered into the First Closing Insider SPA with various investors comprised of members of Rubicon’s management team and board of directors, the First Closing Insider Investors. Pursuant to the First Closing Insider SPA, Rubicon agreed to issue and sell to the First Closing Insider Investors convertible debentures (the “First Closing Insider Convertible Debentures”) in the aggregate principal amount of up to $17.0 million, net of an original issuance discount of $2.0 million, which are convertible into shares of Class A Common Stock (the “First Closing Insider Conversion Shares”), which First Closing Insider Convertible Debentures may be purchased by the First Closing Insider Investors over the course of more than one closing. The First Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the First Closing Insider Convertible Debentures. The registration statement of which this prospectus forms a part of is being filed in respect of the registration requirements pursuant to the First Closing Insider SPA.
At the first closing, which closed on December 16, 2022, the First Closing Insider Investors purchased the First Closing Insider Convertible Debentures in an aggregate amount of $10.5 million in United States dollars, net of an original issuance discount of $1.4 million, for a total principal amount of $11.9 million in the First Closing Insider Convertible Debentures. Pursuant to the terms of the First Closing Insider SPA, at the second closing, Rubicon agreed to issue the Second Closing Insider Convertible Debentures (as defined below) with an aggregate value of no less than $4.0 million, to certain third-party investors, as designated thereby at the second closing. The First Closing Insider Convertible Debentures have a maturity date of June 16, 2024, 18 months after issuance, and accrue interest at the rate of 6% per annum (provided that the interest rate will increase to 12% per annum in the event of certain defaults). The First Closing Insider Convertible Debentures may be converted into shares of Class A Common Stock at an initial conversion price equal to the lower of 110% of: (i) the average closing price of Class A Common Stock for the five (5) trading days immediately preceding the date of the respective closing or (ii) the closing price of Class A Common Stock immediately preceding the date of the respective closing, subject to adjustments as further specified in the First Closing Insider Convertible Debentures. The First Closing Insider Convertible Debentures will be fully repayable in cash upon maturity. Concurrent with the entry into the First Closing Insider SPA, we entered into (i) a registration rights agreement (the “First Closing Insider Registration Rights Agreement”), pursuant to which Rubicon agreed to file a registration statement with the SEC registering the resale of First Closing Insider Conversion Shares within 45 days of the first closing, and to cause any such registration statement to become effective within 120 days after filing, and (ii) a lockup agreement (the “First Closing Insider Lockup Agreement”), pursuant to which the First Closing Insider Investors agreed to not offer, sell, or otherwise dispose of, directly or indirectly, any First Closing Insider Conversion Shares during certain period defined in the First Closing Insider Lockup Agreement. As of the filing of this prospectus, Rubicon has received $10.5 million of proceeds for the First Closing Insider Convertible Debentures.
On February 1, 2023, Rubicon entered into the Second Closing Insider SPA with various Second Closing Insider Investors. Pursuant to the Second Closing Insider SPA, Rubicon agreed to issue and sell to the Second Closing Insider Investors convertible debentures (the “Second Closing Insider Convertible Debentures” together with the First Closing Insider Convertible Debentures, the “Insider Convertible Debentures”) with an aggregate value of no less than $4.0 million, subject to an original issuance discount, which are convertible into shares of Class A Common Stock (the “Second Closing Insider Conversion Shares” together with the First Closing Insider Conversion Shares, the "Insider Conversion Shares"), which Second Closing Insider Convertible Debentures may be purchased by the Second Closing Insider Investors at the second of two closings. The Second Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the Second Closing Insider Convertible Debentures. The registration statement of which this prospectus forms a part of is being filed in respect of the registration requirements pursuant to the Second Closing Insider SPA.
At the second closing, which closed on February 1, 2023, the Second Closing Insider Investors purchased Second Closing Insider Convertible Debentures in an aggregate amount of $5.7 million in United States dollars, net of an original issuance discount of $0.8 million, for a total principal amount of $6.5 million in Second Closing Insider Convertible Debentures. The Second Closing Insider Convertible Debentures have a maturity date of August 2, 2024, 18 months after issuance, and accrue interest at the rate of 6% per annum (provided that the interest rate will increase to 12% per annum in the event of certain defaults) for all Second Closing Insider Investors except for Guardians of New Zealand Superannuation; whose Second Closing Insider Convertible Debentures accrue interest at the rate of 8% per annum.
vi |
The Second Closing Insider Convertible Debentures may be converted into shares of Class A Common Stock at an initial conversion price equal to the lower of 110% of: (i) the average closing price of Class A Common Stock for the five (5) trading days immediately preceding the date of the respective closing or (ii) the closing price of Class A Common Stock immediately preceding the date of the respective closing, subject to adjustments as further specified in the Second Closing Insider Convertible Debentures. The Second Closing Insider Convertible Debentures will be fully repayable in cash upon maturity. Concurrent with the entry into the Second Closing Insider SPA, we entered into (i) a registration rights agreement (the “Second Closing Insider Registration Rights Agreement” together with the First Closing Insider Registration Rights Agreement, the “Insider Registration Rights Agreement”), pursuant to which Rubicon agreed to file a registration statement with the SEC registering the resale of Second Closing Insider Conversion Shares within 90 days of the second closing, and to cause any such registration statement to become effective within 120 days after filing, and (ii) a lockup agreement (the “Second Closing Insider Lockup Agreement” together with the First Closing Insider Lockup Agreement, the “Insider Lockup Agreement”), pursuant to which the Second Closing Insider Investors agreed to not offer, sell, or otherwise dispose of, directly or indirectly, any Second Closing Insider Conversion Shares during certain period defined in the Second Closing Insider Lockup Agreement. As of the filing of this prospectus, Rubicon has received $5.7 million of proceeds for the Second Closing Insider Convertible Debentures.
On January 31, 2023, Rubicon entered into the Seventh Amendment to the Revolving Credit Facility (the “Seventh Amendment”). The Seventh Amendment amends that certain Revolving Credit Facility, dated as of December 14, 2018. Pursuant to the Seventh Amendment, Rubicon and the lender agreed (i) for Rubicon and the Term Loan lender to enter into that certain Acknowledgement and Consent, dated as of January 31, 2023 (the “Acknowledgement and Consent”) and (ii) amend the provisions of the Revolving Credit Facility to revise the defined term “S-1 Trigger Date.” On February 7, 2023, Rubicon entered into the Eighth Amendment to the Revolving Credit Facility (the “Eighth Amendment”). Pursuant to the Eighth Amendment, the parties thereto, among other revisions, revised (i) the defined term “S-1 Trigger Date” in addition to other definitions, (ii) increased the Maximum Revolving Facility Amount (as defined therein) by an additional $15.0 million, from $60.0 million to $75.0 million, and (iii) extended the maturity date to the earlier of (i) December 14, 2025, (ii) 90 days prior to the maturity of the Term Loan and (iii) the maturity of Subordinated the Term Loan.
Pursuant to the Acknowledgement and Consent, Rubicon and the Term Loan lender (i) intend to enter into the Seventh Amendment to the Term Loan agreement, which amends the Loan and Security Agreement, dated as of March 29, 2019 (as further amended by Amendment No. 1, dated as of February 27, 2020, by Amendment No. 2, dated as of March 24, 2021, by Amendment No. 3, dated as of October 15, 2021, by Amendment No. 4, dated as of April 26, 2022, by Amendment No. 5, dated as of November 18, 2022, and Amendment No. 6, dated as of November 30, 2022) which would, among other things, extend the deadline for the Follow-on Contribution (as defined in the Term Loan agreement), and (ii) consent to an extension of the deadline for the Follow-On Contribution to February 3, 2023. On February 7, 2023, the parties thereto entered into Seventh Amendment to the Term Loan agreement. Pursuant to the Seventh Amendment to the Term Loan agreement, the parties thereto, among other revisions, (i) revised the defined term “Applicable Margin,” “S-1 Trigger Date,” in addition to other definitions, and (ii) replaced LIBOR with SOFR.
On February 2, 2023, Rubicon and CHPAF Holdings SAPI de CV (“Rodina”) entered into an Unsecured Promissory Note (the “Rodina Note”) pursuant to which Rodina agreed to loan Rubicon the principal sum of $3.0 million (the “Rodina Principal”) in exchange for Rubicon’s promise to pay to Rodina, in cash, the full outstanding Rodina Principal, and in kind, all unpaid interest accrued thereon, which interest shall accrue at an annual rate of 16.0%, by July 1, 2024, the maturity date.
The descriptions of the agreements set forth above are not complete and are subject to and qualified in their entirety by reference to the full text of the applicable agreements, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part and are incorporated herein by reference. For additional information regarding the transactions and agreements discussed above, see the sections entitled “Unaudited Pro Forma Condensed Combined Financial Information,” “Certain Financing Transactions,” “Certain Relationships and Related Party Transactions,” “Description of Securities” and “Securities Eligible for Future Sale.”
vii |
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-1 that we filed with the SEC using a “shelf” registration process. Under this shelf registration process, we and the Selling Securityholders may, from time to time, issue, offer and sell, as applicable, any combination of the securities described in this prospectus in one or more offerings from time to time through any means described in the section entitled “Plan of Distribution” of this prospectus or any prospectus supplement. More specific terms of any securities that the Selling Securityholders offer and sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the Class A Common Stock being offered and the terms of the offering.
A prospectus supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the information contained in this prospectus and any applicable prospectus supplement. See “Where You Can Find More Information.”
Neither we nor the Selling Securityholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus and any accompanying prospectus supplement. We and the Selling Securityholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or any applicable prospectus supplement. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any prospectus supplement is accurate only as of the date on the front of those documents, regardless of the time of delivery of this prospectus or any applicable prospectus supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.
For investors outside the United States: neither we nor the Selling Securityholders have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our securities and the distribution of this prospectus outside the United States.
This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”
viii |
MARKET, RANKING AND OTHER INDUSTRY DATA
Certain information contained in this document relates to or is based on studies, publications, surveys, and other data obtained from third-party sources and Rubicon’s own internal estimates and research. While we believe these third-party sources to be reliable as of the date of this prospectus, we have not independently verified the market and industry data contained in this prospectus or the underlying assumptions relied on therein. Finally, while we believe our own internal research is reliable, such research has not been verified by any independent source. These estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.
TRADEMARKS
This prospectus contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
ix |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the anticipated benefits of the Business Combination and the financial condition, results of operations, earnings outlook, and prospects of Rubicon. Forward-looking statements appear in a number of places in this prospectus including, without limitation, in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. You should understand that the following important factors, in addition to those factors described elsewhere in this prospectus, could affect the future results of Rubicon and could cause those results or other outcomes to differ materially from those expressed or implied in such forward-looking statements, including Rubicon’s ability to:
● | access, collect and use personal data about consumers; |
● | execute its business strategy, including monetization of services provided and expansions in and into existing and new lines of business; |
● | anticipate the impact of the coronavirus disease 2019 (“COVID-19”) pandemic and its effect on business and financial conditions; |
● | manage risks associated with operational changes in response to the COVID-19 pandemic; |
● | realize the benefits expected from the Business Combination; |
● | anticipate the uncertainties inherent in the development of new business lines and business strategies; |
● | retain and hire necessary employees; |
● | increase brand awareness; |
● | attract, train and retain effective officers, key employees or directors; |
● | upgrade and maintain information technology systems; |
● | acquire and protect intellectual property; |
● | meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness; |
● | effectively respond to general economic and business conditions; |
● | maintain the listing of the Company’s securities on the NYSE or an inability to have its securities listed on another national securities exchange; |
x |
● | obtain additional capital, including use of the debt market; |
● | enhance future operating and financial results; |
● | anticipate rapid technological changes; |
● | comply with laws and regulations applicable to its business, including laws and regulations related to data privacy and insurance operations; |
● | stay abreast of modified or new laws and regulations applying to its business; |
● | anticipate the impact of, and respond to, new accounting standards; |
● | anticipate the rise in interest rates and other inflationary pressures which increase the cost of capital; |
● | anticipate the significance and timing of contractual obligations; |
● | maintain key strategic relationships with partners and distributors; |
● | respond to uncertainties associated with product and service development and market acceptance; |
● | manage to finance operations on an economically viable basis; |
● | anticipate the impact of new U.S. federal income tax law, including the impact on deferred tax assets; |
● | successfully defend litigation; and |
● | successfully deploy the proceeds from the Business Combination, the YA Warrant, the YA Convertible Debentures, the Insider Convertible Debentures, any proceeds from shares of Class A Common Stock sold pursuant to the SEPA, and the Rodina Note. |
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this prospectus are more fully described under the heading “Risk Factors” and elsewhere in this prospectus. Forward-looking statements are not guarantees of performance and speak only as of the date hereof. The forward-looking statements are based on the current and reasonable expectations of Rubicon’s management but are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statements. There can be no assurance that future developments will be those that have been anticipated or that we will achieve or realize these plans, intentions or expectations.
All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, statements of belief and similar statements reflect the beliefs and opinions of the Company on the relevant subject. These statements are based upon information available to the Company as of the date of this prospectus, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that the Company has 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.
xi |
SUMMARY
This summary highlights certain significant aspects of our business and the offering and is a summary of information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before making your investment decision. You should carefully read this entire prospectus, including the information presented under the sections titled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Combined Financial Information,” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus before making an investment decision. Unless the context indicates otherwise, references in this prospectus to the “Company,” “we,” “us,” “our” and similar terms prior to the Closing are intended to refer to Founder SPAC, and after the Closing, to Rubicon Technologies, Inc. and its consolidated subsidiaries.
Business Summary
Overview
Founded in 2008, we are a digital marketplace for waste and recycling and provide cloud-based waste and recycling solutions to businesses and governments. As a digital challenger to status quo waste companies, we have developed and commercialized a proven, cutting-edge platform that brings transparency and environmental innovation to the waste and recycling industry, enabling customers and hauling and recycling partners to make data-driven decisions that can lead to more efficient and effective operations and yield more sustainable outcomes.
Underpinning this marketplace is a cutting-edge, modular platform that powers a modern, digital experience and delivers data-driven insights and transparency for our customers and hauling and recycling partners. We provide our waste generator customers with a digital marketplace that delivers pricing transparency, self-service capabilities, and a seamless customer experience while helping them achieve their environmental goals. We enhance our hauling and recycling partners’ economic opportunities by democratizing access to large, national accounts that typically engage suppliers at the corporate level. By providing telematics-based and waste-specific solutions as well as access to group purchasing efficiencies, we help large national accounts optimize their businesses. We help governments provide more advanced waste and recycling services that allow them to serve their local communities more effectively by digitizing their routing and back-office operations and using our computer vision technology to combat recycling material contamination at the source.
Over the past decade, this value proposition has allowed us to scale our platform considerably. Our digital marketplace now services over 8,000 customers, including numerous large, blue-chip customers such as Apple, Dollar General, Starbucks, Walmart, Chipotle, and FedEx, which together are representative of our broader customer base, which encompasses over 8,000 hauling and recycling partners across North America. We have also deployed our technology in over 70 municipalities within the United States and operate in 20 countries. Furthermore, we have secured a robust portfolio of intellectual property, having been awarded more than 50 patents, with over 100 pending, and 20 trademarks.
Strengths and Competitive Advantages
Our business model provides a transparent marketplace that digitizes the waste and recycling sector for private companies and municipalities. We gain, maintain, and grow our customer relationships by providing what we believe are superior solutions that can help waste generators and government entities save money. We believe we have expertise and competitive advantages that will allow us to continue to maintain and grow our market share.
1 |
Cloud-Based Model Reduces Costs and Benefits from the Network Effect
Our business model is highly scalable because of its digital, cloud-based nature; it does not depend on owning any physical infrastructure such as trucks or waste facilities. Without any physical infrastructure and the working capital requirements inherent in those operations, we can efficiently and effectively deploy our platform around the world without the capital investment or the exposure that comes along with owning and operating this infrastructure.
Our platform also benefits from significant network effects. As more waste generator customers join our platform, increased waste and recycling volumes improve our ability to negotiate with haulers and recyclers. Increased waste and recycling volumes also create efficiencies within haulers’ and recyclers’ routes and operations, because the marginal cost of servicing additional locations within an existing route is comparatively low, which can improve service and pricing for our customers. Additionally, as the network expands, the amount of data we collect increases, allowing us to learn and further improve our solutions, benefiting all network participants. As our pricing improves with haulers and recyclers and as our expanding data asset improves its ability to deliver new circular solutions, our overall value proposition improves for our waste generator customers.
Business Model and Customer Interests are Aligned Benefiting Us and Providing Greater Value to Customers
Our platform provides service and cost transparency to both our customers and partners along with automated business processes, allowing them to make informed decisions based on their priorities, whether it’s business growth, cost savings, or environmental outcomes.
Our incentives are aligned with our customers, both economically and environmentally. Landfill owners and operators often generate revenues through collection volumes and tipping fees, so they are incentivized to collect bins more frequently than necessary even when they are not full. Because we do not own landfills, we are not motivated by maximizing volumes and / or tipping fees. Therefore, we can work with our customers to optimize service levels for their business needs. In practice, we advise our waste generator customers on the implementation of new source separated recycling programs and educate store-level employees on how to safely and efficiently manage such program implementation and execution. Additionally, we will work upstream with our customers to design and effect reverse supply chain programs to aggregate valuable waste stream materials at central locations, or even to design programs that create internalized, circular solutions or reduce waste at the source.
Further, using our proprietary computer vision-based technology and our team of subject matter experts to examine the contents of a waste stream, we can assess the material composition of the waste stream. This information provides multiple benefits, including providing more detailed information about the contents and allowing customers to identify opportunities to divert certain materials from landfills. Using this information, we and our customers can generate better environmental outcomes, and, to the extent we can sell the materials to recycling and processing facilities, we can also create significant economic benefits.
For RUBICONPro, RUBICONPremier, and RUBICONSmartCity, our SaaS offerings, the core of services is about maximizing the use of scarce resources. We do this by optimizing routes and full fleet operations, by providing data for preventative vehicle maintenance, and by focusing on improving driver safety and behavior, which can improve outcomes for all constituents: drivers, supervisors, governments officials, and residents.
Superior Technology
Our user-friendly platform is vertically integrated and gives us control of all critical operations and transaction elements, which facilitates a fast, simple, and consistent user experience. We believe our ground-breaking technology is what the industry has needed for many years.
Our technology can affect all parties within the waste and recycling ecosystem:
● | We service waste generators’ needs through our network of haulers and recyclers and with vendor management, compliance, invoicing, payments, and receipts managed on our digital platform. We service requests through our proprietary customer portal RUBICONConnect or directly from waste generators via FMS / OMS system integrations, with real-time confirmation of service. |
2 |
● | We equip haulers and recyclers with technology to detect location, load, and capacity. Haulers and recyclers digitally receive dispatched orders to be configured into their existing routes. |
● | Municipal fleets are equipped with telematics and AI cameras to collect data for asset optimization. The resultant operational efficiencies can drive taxpayer savings, turning a garbage truck into a “roaming data center” that can deliver critical infrastructure assessments for governments all while performing its primary functions. |
● | Our technology also helps implement advanced recycling programs, coordinating multiple vendors, directing the waste feedstock to specific processing facilities, and tracking end-destinations for traceability. |
● | We enable data-driven waste management for all our partners, and integrated landfill operators process volumes contracted to us. |
Depth & Quality of Hauling & Recycling Network Benefits All Constituent Parties
We work with a network of more than 8,000 hauling and recycling partners. The scale of our network means we have access to vastly more hauling and recycling options through our digital platform. Our ability to access this extensive network benefits our customers and enables us to mitigate business risks for our customers associated with sole sourcing, including labor shortages, cost offsets (overages, contamination, etc.), and unaccommodating supplier scheduling.
The stickiness of the supplier side of our marketplace is ensured by the valuable services we provide them. Foremost is that we offer our hauling and recycling partners new business opportunities to service our waste generator customers. Given that many of our customers have a national or even global presence, often the only way a local supplier can get access to these important locations is through us.
We also offer our hauling and recycling partners a digital platform that is simple and efficient and can help them improve their routing, fleet operations, and driver behavior.
Lastly, we offer the benefits of scale to even the smallest hauler/recycler through a buying consortium where haulers and recyclers can save money on items critical to their businesses (fuel, parts, tires, insurance, etc.). We have not yet monetized this buying consortium but have plans to do so in the near term.
Number of Blue-chip Customers Creating Barrier to Entry
Our platform has been validated by a diverse group of over 8,000 customers in businesses and governments, most of which are under long-term contracts. Our typical customer agreement has a term of 3 years, providing confidence in and visibility towards future revenue streams. Our large and national accounts have also attracted many haulers and recyclers to the platform. Some of our blue-chip customers include Apple, Starbucks, Walmart, Dollar General, Chipotle, and FedEx.
Our Growth Strategies
The foundation of our business is our digital marketplace platform where it seamlessly transacts with our customers and hauling and recycling partners. The majority of our revenue is generated via this digital marketplace, which allows us to capture additional revenue streams through solutions designed to modernize hauling and recycling operations. We believe we have multiple proven avenues for future growth, including through increasing our geographic reach and the depth of our customer, hauling, and recycling networks in those markets.
Organic Customer Growth Through New Customer and Contract Wins Based on the Strengths of our Solutions
We have built a first-class sales and marketing organization that has helped build our base of more than 8,000 customers. We combine cutting-edge and sorely needed technology solutions with deep subject matter expertise in a mission-critical sector. Our products are designed to save customers money, provide for a more transparent and seamless customer experience, and help customers achieve positive environmental outcomes. This differentiated proposition creates a strong product-market fit within an industry that is ripe for change.
3 |
Additionally, we are uniquely capable of providing a “one-stop-shop” solution for all the waste generator customers’ waste and recycling needs. We offer a tiered solution, beginning with simply auditing and administering an incumbent hauler’s existing program for waste generators, through to the creation and provisioning of a full zero-waste program.
Organic customer growth is expected to continue to be a core driver of growth for us for the foreseeable future as a result of these and other strengths.
Growing Revenues with Existing Customers
We have proven our ability to expand our customer relationships. This is achieved both by expanding our geographic penetration across a customer’s footprint over time as well as by working collaboratively with our customers to identify incremental services that can be offered to further enhance their waste and recycling programs. Our waste generator account managers are empowered and incentivized to expand our existing customer relationships. Underscoring our ability to expand our existing customer relationships, revenue net retention stood at approximately 118% as of September 30, 2022.
Adding More Service Capabilities
We have demonstrated our ability to expand our capabilities in the past. We have expanded our waste marketplace service capabilities to over 150 material types and multiple fleet types, and even beyond waste and recycling. We intend to continue to add service capabilities and invest in product development and have the platform, vision, and data to fuel growth.
From a customer perspective, we currently service national and SMB waste generator accounts, predominately within the U.S. market. Through our SaaS-based offerings, we have already expanded our footprint internationally and expect to continue this expansion first by leading with technology, then by building out digital marketplace offerings in these markets.
As our business expands in its breadth and depth, we will continue to refine how we monetize our products and relationships. Today we earn money from licensing our technology, from waste and recycling services within our digital marketplace, and by participating in recyclable commodity sales transactions. By servicing all the constituents within the waste and recycling ecosystem, we have gathered valuable datasets that we have begun and will continue to offer on their own as data subscriptions. Further, we expect to be a larger player in establishing recycling and recyclable commodity marketplaces.
International Expansion within Existing Markets and into New Markets
We believe we are a global innovator in the waste and recycling industry and have successfully deployed our solutions in 20 countries though we currently generate the vast majority of our revenue within the United States. We intend to continue selling our solutions globally.
Strategic Acquisitions
We intend to grow by acquiring other businesses and the customers they serve. We have proven our ability to identify and execute on attractive acquisition targets. We have acquired and successfully integrated multiple businesses and have established a repeatable process for identifying and integrating complementary companies. Furthermore, we have spent considerable efforts building relationships across the industry, helping to build a large pipeline of additional acquisition opportunities.
4 |
Organizational Structure
The diagram below depicts a simplified version of our equity ownership and organizational structure immediately following the Business Combination, assuming no Warrant exercises and not accounting for (i) any issuances of shares of Class A Common Stock pursuant to the Deferred Fee Arrangements, (ii) any issuances of shares of Class A Common Stock pursuant to the Insider Convertible Debentures or (iii) any issuances of shares of Class A Common Stock to the Yorkville Investor pursuant to the SEPA, YA Convertible Debentures or YA Warrant. For more information regarding the Business Combination, see “Introductory Note Regarding the Business Combination and Certain Other Transactions.” Percentages set forth below reflect the voting power and implied ownership interest in Rubicon, but do not give effect to the exercise of Warrants or exchange of any Class B Units.
5 |
Summary of Risk Factors
An investment in our securities involves risks and uncertainties. You should carefully consider the following risks as well as the other information included in this prospectus, including “Cautionary Note Regarding Forward-Looking Statements,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before investing in our securities. See “Risk Factors” for a more detailed discussion of the risk factors listed below.
Risk Related to Our Business and Industry
● |
We have a history of net losses and project net losses in future periods. We may not appropriately manage our expenses, nor achieve nor maintain profitability in the future. |
● |
We may be unable to manage our growth effectively. |
● |
The waste and recycling industry is highly competitive, and if we cannot successfully compete in the marketplace, our business, financial condition and operating results may be materially adversely affected. |
● |
Our sales cycles can be long and unpredictable, and our sales efforts require considerable investment of time and expense. If our sales cycle lengthens or we invest substantial resources pursuing unsuccessful sales opportunities, our operating results and growth would be harmed. |
● |
Our customers and the third parties with whom we contract, including waste haulers, are participants in the waste and recycling industry and are therefore subject to a number of unique risks specific to this industry, which directly or indirectly subjects our business to many of the same risks to which their respective operations are subject. |
● |
Demand for our solutions is subject to volatility in our accounts’ and our haulers’ underlying businesses. |
● | Demand for our solutions can be affected by changes in recyclable commodity prices and quantities. |
Risks Related to Ownership of Our Securities
● | Certain existing shareholders purchased securities in Rubicon at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors in Rubicon may not experience a similar rate of return. |
● | Substantial future sales of shares of Class A Common Stock could cause the market price of our shares of Class A Common stock to decline. |
● | The issuances of additional shares of Class A Common Stock under certain of our contracts and arrangements may result in dilution of holders of Class A Common Stock and have a negative impact on the market price of the Class A Common Stock. |
6 |
● | A significant portion of the total outstanding shares of Class A Common Stock (or shares of Class A Common Stock that may be issued in the future pursuant to an exchange or redemption of Class B Units) are subject to lock-up restrictions, but may be sold into the market in the near future. This could cause the market price of our securities to drop significantly. |
● | The Public Warrants may never be in the money and they may expire worthless, and the terms of the Public Warrants may be amended in a manner adverse to a holder if holders of at least a majority of the then-outstanding Public Warrants approve of such amendment. |
● | There can be no assurance that the Class A Common Stock and Public Warrants will continue to be listed on NYSE and that we will continue to comply with the continued listing standards of NYSE. |
● | The market price and trading volume of Class A Common Stock may be volatile and could decline significantly following the Business Combination. |
● | Rubicon may be subject to securities litigation, which is expensive and could divert management attention. |
Risks Related to Operating as a Public Company
● | Our management does not have prior experience in operating a public company. |
● | Rubicon will depend on distributions from Holdings LLC to pay any taxes and other expenses, including payments under the Tax Receivable Agreement. |
● | Rubicon is required to pay to the TRA Holders most of the tax benefits Rubicon receives from tax basis step-ups (and certain other tax benefits) attributable to its acquisition of Legacy Rubicon Units (as defined below) in connection with the Business Combination and in the future, and the amount of those payments is expected to be substantial. |
● | In certain circumstances, Holdings LLC will be required to make distributions to us and the continuing members of Holdings LLC, and the distributions that Holdings LLC will be required to make may be substantial. |
Risks Related to our Indebtedness
● | Our current liquidity, including negative cash flows and a lack of existing financial resources, raises substantial doubt about our ability to continue as a going concern, which may materially and adversely affect our business, financial condition, results of operations and prospects. |
7 |
Corporate Information
We were incorporated on April 26, 2021 as a Cayman Islands exempted company, and on August 15, 2022, in connection with the Domestication and the Business Combination, became a Delaware corporation and changed our name to Rubicon Technologies, Inc. See “Introductory Note Regarding the Business Combination and Certain Other Transactions.” Our principal executive office is located at 100 W Main Street, Suite 610, Lexington, Kentucky 40507, and our telephone number is (844) 479-1507. Our website address is www.rubicon.com. The information contained in or accessible from our website does not constitute part of and is not incorporated into this prospectus or the registration statement of which it forms a part, and you should not consider it part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
8 |
THE OFFERING
Issuer | Rubicon Technologies, Inc. | |
Shares of Class A Common Stock offered by the Selling Securityholders
|
Up to an aggregate of 44,884,579 shares of Class A Common Stock, including (i) up to 31,810,075 shares of Class A Common Stock that Rubicon may, at its discretion, elect to issue and sell to the Yorkville Investor from time to time pursuant to the SEPA, (ii) 200,000 Yorkville Commitment Shares, (iii) up to 5,629,245 First Closing Insider Conversion Shares, (iv) up to 3,367,509 Second Closing Insider Conversion Shares (v) 3,877,750 shares of Class A Common Stock issued to Jefferies pursuant to the Amended Underwriting Agreement. | |
Shares of Common Stock outstanding prior to exercise of all Warrants | 170,773,145 shares of Common Stock, which represents 55,886,692 shares of Class A Common Stock and 114,886,453 shares of Class V Common Stock (as of February 7, 2023). | |
Shares of Common Stock outstanding assuming exercise of all Warrants | 200,789,996 shares of Common Stock, which represents 85,903,543 shares of Class A Common Stock and 114,886,453 shares of Class V Common Stock (based on total shares outstanding as of February 7, 2023). |
Use of Proceeds | We will not receive any proceeds from the sale of shares of Class A Common Stock by the Selling Securityholders. See “Use of Proceeds.” However, we expect to receive proceeds from sales of Class A Common Stock that we may elect to make to the Yorkville Investor pursuant to the SEPA, if any, from time to time in our discretion. See “Certain Financing Transactions—SEPA” for further discussion. | |
Business Combination - Related Lock-Up Agreements | Certain of our securityholders are subject to certain restrictions on transfer until the termination of applicable lock-up periods. See “Securities Eligible for Future Sale—Lock-Up Agreements” for further discussion. | |
Market for Common Stock and Warrants | Our Class A Common Stock and Public Warrants are currently traded on the NYSE under the symbols “RBT” and “RBT WS,” respectively. | |
Risk Factors | See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider before investing in our securities. |
9 |
INFORMATION RELATED TO OFFERED SECURITIES
The following table includes information relating to the shares of Class A Common Stock being registered for resale by the Selling Securityholders, including the average price each Selling Securityholder paid for such securities and the potential profit relating to the sale of such securities. The following table is in part based off the Company’s internal records and is for illustrative purposes only. The table should not be relied upon for any purpose outside of its illustrative nature. For more information regarding the composition of each Selling Securityholder’s securities registered for resale, see the section entitled “Selling Securityholders”.
Offered Securities |
Number of Offered Securities |
Effective Purchase Price per Offered Security |
Potential Profit Per Offered Security (1) |
|||||||||
Yorkville Commitment Shares (2) | 200,000 | $ | 0.00 | $ | 1.45 | |||||||
SEPA Shares (3) | 31,810,075 | $ | - | $ | - | |||||||
First Closing Insider Conversion Shares | 5,629,245 | $ | 2.12 | $ | (0.67 | ) | ||||||
Second Closing Insider Conversion Shares | 3,367,509 | $ | 1.94 | $ | (0.49 | ) | ||||||
Amended Underwriting Agreement shares | 3,877,750 | $ | 1.82 | $ | (0.37 | ) |
(1) | Based on the closing price of our shares of Class A Common Stock on February 7, 2023 of $1.45. |
(2) | Represents 200,000 shares of Class A Common Stock issued to the Yorkville Investor pursuant to the SEPA as an initial up-front commitment fee. |
(3) | Represents up to 31,810,075 shares of Class A Common Stock that Rubicon may, at its discretion, elect to issue and sell to the Yorkville Investor from time to time pursuant to the SEPA. Because SEPA Shares are issuable at a variable rate dependent on the future VWAP price of shares of Class A Common Stock, we are unable to determine potential profits per offered security. |
10 |
SUMMARY HISTORICAL FINANCIAL INFORMATION OF RUBICON
The following table sets forth selected historical financial information derived from Holdings LLC’s (i) unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, (ii) unaudited condensed consolidated balance sheets as of September 30, 2022 and 2021, (iii) audited consolidated statements of operations for the years ended December 31, 2021 and 2020, and (iv) audited consolidated balance sheets as of December 31, 2021 and 2020, each of which is included elsewhere in this prospectus. The unaudited condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and, in the opinion of management, include all adjustments of a normal, recurring nature that are necessary for the fair presentation of the financial statements.
The historical results included below and elsewhere in this prospectus are not necessarily indicative of the future performance of Rubicon. The information presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes appearing elsewhere in this prospectus.
Selected Consolidated Statement of Operations Data:
For the Nine Months Ended September 30, |
For the Years Ended December 31, |
|||||||||||||||
(in thousands, except unit data) |
2022 (unaudited) |
2021 (unaudited) |
2021 | 2020 | ||||||||||||
Total Revenue | $ | 509,395 | $ | 419,762 | $ | 583,050 | $ | 539,373 | ||||||||
Total Costs and Expenses | 747,761 | 466,265 | 655,657 | 590,774 | ||||||||||||
Loss from operations | (238,366 | ) | (46,503 | ) | (72,607 | ) | (51,401 | ) | ||||||||
Other Income (Expense) | ||||||||||||||||
Gain on forgiveness of debt | - | 10,900 | 10,900 | - | ||||||||||||
Other expense | (1,994 | ) | (730 | ) | (1,055 | ) | (427 | ) | ||||||||
Interest expense, net | (12,264 | ) | (7,461 | ) | (11,453 | ) | (8,209 | ) | ||||||||
Total Other Income (Expense) | (25,312 | ) | 2,711 | (2,214 | ) | (8,636 | ) | |||||||||
Loss Before Income Tax Expense (Benefit) | (263,678 | ) | (43,792 | ) | (74,821 | ) | (60,037 | ) | ||||||||
Income Tax Expense (Benefit) | 60 | (961 | ) | (1,670 | ) | (1,454 | ) | |||||||||
Net Loss | $ | (263,738 | ) | $ | (42,831 | ) | $ | (73,151 | ) | $ | (58,583 | ) |
Selected Consolidated Balance Sheet Data:
As of September 30, |
As of December 31, |
|||||||||||||||
(in thousands) |
2022 (unaudited) |
2021 (unaudited) |
2021 | 2020 | ||||||||||||
Cash and cash equivalents | $ | 4,464 | $ | 7,638 | $ | 10,617 | $ | 6,021 | ||||||||
Accounts receivable, net | 58,662 | 47,649 | 42,660 | 45,019 | ||||||||||||
Total Assets | 191,859 | 173,555 | 175,641 | 159,899 | ||||||||||||
Accounts payable | 58,498 | 53,688 | 47,531 | 41,915 | ||||||||||||
Line of credit | 30,095 | 25,000 | 29,916 | 29,373 | ||||||||||||
Accrued expenses | 162,428 | 54,685 | 65,538 | 48,990 | ||||||||||||
Long-term debt, net of debt issuance costs | 69,543 | 52,291 | 51,000 | 47,024 | ||||||||||||
Total Liabilities | 346,488 | 204,596 | 236,945 | 181,085 | ||||||||||||
Stockholders/Members (Deficit) Equity | (154,629 | ) | (31,041 | ) | (61,304 | ) | (21,186 | ) |
11 |
SUMMARY UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION
The following summary unaudited pro forma condensed combined financial data gives effect to the Merger and the other transactions contemplated by the Merger Agreement described in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.” Founder was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Mergers were treated as the equivalent of Holdings LLC issuing stock for the net assets of Founder, accompanied by a recapitalization. The net assets of Founder were stated at their historical value within the pro forma financial statements with no goodwill or other intangible assets recorded.
The summary unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2022 combines the historical unaudited statement of operations of Founder for the six months ended June 30, 2022 with the historical unaudited condensed consolidated statement of operations of Holdings LLC for the nine months ended September 30, 2022.
The summary unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2021 combines the historical audited statement of operations of Founder for the period from April 26, 2021 (inception) through December 31, 2021 with the historical audited consolidated statement of operations of Holdings LLC for the fiscal year ended December 31, 2021. The unaudited pro forma statements of operations give effect to the relevant transactions as if they had been consummated on January 1, 2021.
The summary unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the historical financial statements of Holdings LLC and Founder and the accompanying notes, which are included elsewhere in this prospectus.
Statement of Operations Data for the Nine Months Ended September 30, 2022 | ||||
Revenue | $ | 509,395 | ||
Net loss attributable to Rubicon Technologies, Inc. | $ | (22,082 | ) | |
Net loss per share attributable to common stockholders - basic and diluted | $ | (0.45 | ) | |
Weighted average common shares outstanding - basic and diluted | 48,670,776 | |||
Statement of Operations Data for the Year Ended December 31, 2021 | ||||
Revenue | $ | 583,050 | ||
Net loss attributable to Rubicon Technologies, Inc. | $ | (83,609 | ) | |
Net loss per share attributable to common stockholders - basic and diluted | $ | (1.72 | ) | |
Weighted average common shares outstanding - basic and diluted | 48,670,776 |
12 |
RISK FACTORS
Investing in our securities involves substantial risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed below you should carefully consider the specific risks and other information set forth in this prospectus, including “Cautionary Note Regarding Forward-Looking Statements,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this prospectus or any prospectus supplement are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.
Risks Related to Our Business and Industry
We have a history of net losses and project net losses in future periods. We may not appropriately manage our expenses, nor achieve nor maintain profitability in the future.
We have experienced net losses in each year since inception, including net losses of $73.2 million and $58.6 million for the fiscal years ended December 31, 2021 and 2020, respectively, and $263.7 million and $42.8 million for the nine months ended September 30, 2022 and 2021, respectively, and we may incur net losses in the future. While we project net losses to continue in future periods, it is difficult for us to predict our future results of operations, and we expect our operating expenses to increase significantly over the next several years as we continue to hire additional personnel, expand our operations and infrastructure, integrate completed acquisitions, make and integrate future acquisitions and invest in product development. In addition to the expected costs to grow our business, we also expect to incur significant additional legal, accounting and other expenses as a public company. Our indebtedness also bears interest at rates as high as 15%, which requires us to commit significant amounts to interest expense. If we fail to increase our revenue to offset the increases in our operating expenses, we may not achieve or sustain profitability in the future.
We may be unable to manage our growth effectively.
Our growth strategy places significant demands on our financial, operational and management resources. To continue our growth, we may need to add administrative, managerial and other personnel, and may need to make additional investments in operations and systems and this expansion will require us to increase our spending on working capital. We cannot assure you that we will be able to find and train qualified personnel, or do so on a timely basis, or to expand or otherwise modify our operations and systems to the extent, and in the time, required, or that we will be able to fund this expansion and increased spending on working capital from operating cash flows, debt or equity financing or other sources.
We are eligible to be treated as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which we refer to as the Sarbanes-Oxley Act or “SOX”, (2) reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our Class A Common Stock less attractive because we may rely on these exemptions. If some investors find our Class A Common Stock less attractive as a result, there may be a less active trading market for our Class A Common Stock and our stock price may be more volatile.
13 |
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following the date that we are no longer an “emerging growth company” as defined in the JOBS Act. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected, and expect to continue, to avail ourselves of this exemption from new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We are an emerging growth company and smaller reporting company and as such are subject to various risks unique only to emerging growth companies and smaller reporting companies, including but not limited to, no requirement to provide an assessment of the effectiveness of internal controls over financial reporting.
We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earlier of (i) December 31, 2026, the last day of the fiscal year following the fifth anniversary of the date of the first sale of Founder’s initial public offering (the “IPO”); (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules.
We expect that we will remain an emerging growth company for the foreseeable future but cannot retain our emerging growth company status indefinitely and will no longer qualify as an emerging growth company on or before December 31, 2026. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.
For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
● | being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; |
● | not being required to comply with the requirement of auditor attestation of our internal controls over financial reporting; |
● | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; |
● | reduced disclosure obligations regarding executive compensation; and |
● | not being required to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
Additionally, as an emerging growth company and smaller reporting company our status as such carries various unique risks such as the risk that our financial statements may not be comparable to those of other public companies, and the risk that we will not be required to provide an assessment of the effectiveness of our internal controls over financial reporting until our second annual report following our initial public offering.
For as long as we continue to be an emerging growth company, we expect that we will take advantage of the reduced disclosure obligations available to us as a result of that classification. We have taken advantage of certain of those reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
14 |
An emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not be required to adopt new or revised accounting standards on the dates on which adoption of such standards is required for other public reporting companies.
We are also a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act, and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies.
If we fail to put in place appropriate and effective internal control over financial reporting and disclosure controls and procedures, we may suffer harm to our reputation and investor confidence levels.
Prior to the consummation of the Business Combination, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404. As a public company, we have significant requirements for enhanced financial reporting and internal controls.
The process of designing and implementing effective internal controls 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 system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements, and harm our operating results. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K for the fiscal year ending December 31, 2022. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. This assessment will need to include disclosure of any material weaknesses identified by our management in its internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following the date that we are no longer an “emerging growth company” as defined in the JOBS Act.
In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by SOX for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by our independent registered public accounting firm in connection with the issuance of their attestation report. Our testing, or the subsequent testing (if required) by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected on a timely basis. Any material weaknesses could result in a material misstatement of our annual or quarterly consolidated financial statements or disclosures that may not be prevented or detected. The existence of any material weakness would require management to devote significant time and incur significant expense to remediate any such material weakness, and management may not be able to remediate any such material weakness in a timely manner.
If we fail to implement the requirements of Section 404 in the required timeframe once we are no longer an emerging growth company or a smaller reporting company, we may be subject to sanctions or investigations by regulatory authorities, including the SEC and NYSE. Furthermore, if we are unable to conclude that our internal controls over financial reporting are effective, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our securities could decline, and we could be subject to sanctions or investigations by regulatory authorities. Failure to implement or maintain effective internal control over financial reporting and disclosure controls and procedures required of public companies could also restrict our future access to the capital markets.
15 |
The waste and recycling industry is highly competitive, and if we cannot successfully compete in the marketplace, our business, financial condition and operating results may be materially adversely affected.
Our industry is highly competitive. Competition in the waste and recycling industry is typically based on the quality of services, ease of doing business, and price. We encounter intense competition from governmental, quasi-governmental and private sources in all aspects of our operations. We principally compete with large national waste management companies, counties and municipalities that maintain and manage their own waste collection and disposal operations and regional and local companies of varying sizes and financial resources. Our industry also includes companies that specialize in certain discrete areas of waste management, operators of alternative disposal facilities, companies that seek to use parts of the waste stream as feedstock for renewable energy and other by-products, and other waste brokers that rely upon haulers in local markets to address customer needs. Any shortage of haulers or negative impact on our relationship with haulers in local markets may adversely affect our ability to serve our customers and result in a negative impact to our customer relationships, revenue and growth potential. In recent years, the waste and recycling industry has seen some additional consolidation, which has reduced the number of haulers, though the industry remains intensely competitive.
We compete with national waste management companies who may have significantly greater resources than we do and some of whom have and may internally develop services and solutions similar to ours. Counties and municipalities may have financial competitive advantages to us because of their ability to collect tax revenues and issue tax-exempt financing with the associated governmental underwriting bond ratings. In addition, some of our competitors may have lower costs, debt levels or financial expectations than we do, allowing them to reduce their prices to expand their reach or to win competitively-bid contracts, including large national accounts and exclusive franchise arrangements with municipalities. When this happens, we may lose customers and be unable to execute our pricing strategy, resulting in a negative impact to our revenue growth from yield on base business. Any failure to effectively compete would adversely affect our business, financial condition and results of operations.
Weakness in the U.S. economy may expose us to credit risk for amounts due from governmental entities, large national accounts, industrial customers and others.
Weakness in the U.S. economy, including contractions caused by the COVID-19 pandemic, reduces the amount of taxes collected by various governmental entities. We provide services to a number of these entities, including numerous municipalities. These governmental entities may suffer financial difficulties resulting from a decrease in tax revenue and may ultimately be unable or unwilling to pay amounts owed to us. In addition, weakness in the economy may cause other customers, including our large national accounts, or industrial or environmental services clients, to suffer financial difficulties and ultimately to be unable or unwilling to pay amounts owed to us. Purchasers of our recyclable commodities can be particularly vulnerable to financial difficulties in times of commodity price volatility. The inability of our customers to pay us in a timely manner or to pay increased rates, particularly governmental entities and large national accounts, could negatively affect our business, financial condition and results of operations.
The COVID-19 pandemic has adversely affected our business and may continue to do so in the future.
During 2021 and continuing into 2022, federal, state and local governments throughout North America, Europe, Asia and other parts of the world have imposed varying degrees of restriction on social, commercial and economic activity to slow the spread of COVID-19. The pandemic and related measures have had a significant adverse impact on many sectors of the economy, including the waste and recycling industry. The resulting business closures, increases in unemployment and loss of consumer financial stability and confidence resulted in waste and recycling volume declines and reductions in customers’ waste service needs, which adversely affected our business as well as those of our customers and others within the waste and recycling industry.
16 |
Our business and the waste and recycling industry have been adversely, and may be materially adversely affected, by the COVID-19 pandemic and the global response. Primarily due to the impact of COVID-19, a number of our customers either closed operations for a period of time and/or reduced operations or on-site work, particularly those in the restaurant and foodservice industries, resulting in the production of less waste and recyclable materials and, consequently, less demand for waste brokerage services. Several of our customers ultimately declared bankruptcy due to the impact of the pandemic. Additionally, within the waste and recycling industry, during the early stages of the pandemic, there was a decrease in the availability of haulers and other industry participants, primarily due to labor shortages. We also incurred some costs related to health, safety and financial security of our workforce during the COVID-19 pandemic, including increased automation in connection with transitioning our workforce to work-from-home. Costs increased for others within the waste and recycling industry as well, in part due to increased vendor costs particularly with respect to owners and operators of landfills and hauling services, many of which guaranteed full-time hourly employees compensation for a 40-hour work week regardless of any service decreases or reduced work schedules. It could be necessary for us and others within the waste and recycling industry to incur additional such costs in the future related to pandemic conditions or in connection with transitioning back to an in-office work environment.
We received $10.8 million in loans under the U.S. federal government’s Paycheck Protection Program established under the CARES Act. The receipt and any forgiveness of these loans was dependent on us having initially qualified for the loans and qualifying for forgiveness based on the funds being used for certain expenditures such as payroll costs and rent. We initially elected to repay $2.3 million of the loans during the year ended December 31, 2020, but the full $10.8 million amount of the loans was forgiven in March and June 2021. The SBA and other government communications have however indicated that all loans in excess of $2.0 million will be subject to audit and that those audits could take up to seven years to complete. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Note 5 – Contingencies and uncertainties/COVID-19 pandemic and Note 19 – Subsequent events in the notes to our audited consolidated financial statements included elsewhere in this prospectus.
A broad-based economic slowdown resulting from prolonged negative effects of COVID-19 or otherwise could have significant adverse consequences for the financial condition of our customers or suppliers. As a result, customers may seek to reduce service levels or terminate contracts, or they may be unable to timely pay outstanding receivables owed to us, each of which would adversely affect our results of operations and cash flows. Additionally, such factors have, at times, made it more challenging to negotiate, renew or expand service contracts with acceptable pricing terms. Volume changes can fluctuate dramatically by line of business and decreases in volumes in higher margin businesses, such as what we have seen with COVID-19, can impact key financial metrics. Additionally, if stay-at-home orders and work from home trends continue or are re-instated, the demand for our services from our commercial and public customers could continue to or further negatively impact us. To the extent the landfills and waste haulers experience a deterioration in financial condition or operational capability as a result of the impacts of COVID-19 or another economic slowdown, we may experience material supply chain disruptions and delays, which could also increase our operating costs. If a large portion of our employee base or our hauler base were to become ill, it could impact our ability to provide timely and reliable service. Additionally, the transition of most of our back-office employees to work-from-home increases various operational risks, including potential exposure to cyber incidents, loss of data, fraud, internal control challenges and other disruptions as a consequence of more employees accessing our systems and information remotely in the course of their ordinary work. Many within the waste and recycling industry were exposed to these same risks as well.
The COVID-19 pandemic has adversely affected many industries as well as the economies and financial markets of many countries, initially causing a significant deceleration of economic activity. This slowdown reduced production, decreased demand for a broad variety of goods and services, diminished trade levels and led to widespread corporate downsizing, causing a sharp increase in unemployment. Although many of these impacts have lessened, there are still significant global supply chain issues impacting many different industries. We have also seen significant disruption of and extreme volatility in the global capital markets, which could increase the cost of, or entirely restrict access to, capital. The long-term impact of this outbreak on the United States and world economies is uncertain and these adverse impacts could worsen, impacting all segments of the global economy, and could result in a significant recession or worse, any of which could impact our business.
Considerable uncertainty still surrounds the COVID-19 virus and the new strains identified globally as well as the extent and effectiveness of responses taken on a local, national, and global level, including the roll-out and long-term efficacy of vaccines. While we expect the pandemic and related events will have a negative effect on our business and could accelerate or magnify one or more of the risks described in “Risk Factors” or elsewhere in this prospectus, the full extent and scope of the impact on our business and industry as well as on national, regional and global markets and economies is highly uncertain and cannot be predicted. Accordingly, our ability to conduct our business in the manner and on the timelines previously done or presently planned could be adversely affected. Any of the foregoing risks, or other direct or indirect effects of the COVID-19 pandemic that are not currently foreseeable, could materially and adversely affect our business, financial condition and results of operations.
17 |
Our sales cycles can be long and unpredictable, and our sales efforts require considerable investment of time and expense. If our sales cycle lengthens or we invest substantial resources pursuing unsuccessful sales opportunities, our operating results and growth would be harmed.
We have historically incurred significant costs and experienced long sales cycles when selling to customers. The decision to adopt our modules may require the approval of multiple technical and business decision makers, including security, compliance, operations, finance and treasury, marketing, and IT. In addition, before our customers will commit to deploying our modules at scale, they often require extensive education about our modules and significant customer support time or pilot programs, engage in protracted pricing negotiations and seek to secure development resources. In addition, sales cycles for our customers are inherently complex and unpredictable. These complex and resource intensive sales efforts could place additional strain on our development and engineering resources. Further, even after our customers contract to use our platform, they may require extensive integration or deployment resources from us before they become active customers, which has at times extended to multiple quarterly periods following the execution of the agreement. Finally, our customers may choose to develop their own solutions that do not include any or all of our modules. They also may demand reductions in pricing as their usage of our modules increases, which could have an adverse impact on our gross margin. If we are unable to increase the revenue that we derive from these customers, then our business, results of operations and financial condition may be adversely affected.
Subject to our obligations under the Term Loan, our management team will have broad discretion over the use of the net proceeds from our sale of shares of Class A Common Stock pursuant to the SEPA, if any, and you may not agree with how we use the proceeds and the proceeds may not be invested successfully.
Subject to our obligations under the Term Loan, our management team will have broad discretion as to the use of the net proceeds from our sale of shares of Class A Common Stock pursuant to the SEPA, if any, and we could use such proceeds for purposes other than those currently contemplated. Accordingly, you will be relying on the judgment of our management team with regard to the use of those net proceeds, and you will not have the opportunity to vote on or otherwise determine how or whether the proceeds are being used appropriately. It is possible that, pending their use, we may invest those net proceeds in a way that does not yield a favorable, or any, return for us. The failure of our management team to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flows.
We may have environmental liabilities that are not covered by our insurance, regardless of whether we are at fault.
We may incur environmental liabilities arising from our operations or third parties with whom we do business. Even if we obtain legally enforceable representations, warranties and indemnities from the parties with whom we do business, these protections may not fully cover the liabilities or these parties may not have sufficient funds to perform their obligations. Some environmental laws and regulations may impose strict, joint and several liability in connection with releases of regulated substances into the environment, and can impose liability on parties who were not to blame. New or increased regulation of substances, such as PFAS or other emerging contaminants, could also lead to increased or previously unauthorized remediation costs or litigation risk. Therefore, in some situations we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, third parties for which we are not at fault. Further, we maintain insurance with respect to these environmental liabilities, but in certain cases we have determined to do so with high deductibles. If we were to incur substantial liability for environmental damage, our insurance coverage may be inadequate to cover such liability. Also, due to the variable condition of the insurance market, we have experienced, and may experience in the future, increased insurance retention levels and increased premiums or unavailability of insurance. As we assume more risk for insurance through higher retention levels, we may experience more variability in our insurance reserves and expense. If we were to incur liability for environmental damage, environmental clean-ups, corrective action or damage not covered by insurance or in excess of the amount of our coverage, our business, financial condition and results of operations could be adversely affected.
Our customers and the third parties with whom we contract, including waste haulers, are participants in the waste and recycling industry and are therefore subject to a number of unique risks specific to this industry, which directly or indirectly subjects our business to many of the same risks to which their respective operations are subject.
We participate within the waste and recycling industry by providing consulting and management services to our customers for waste removal, waste management, logistics, and recycling solutions. Many of our customers and each of the parties with whom we contract on behalf of our customers, including waste haulers, operate within the waste and recycling industry, some of which may also construct, own and operate landfills, recycling facilities and transfer stations, and own or lease and operate collection and transfer trucks and other equipment used for collection, transfer and disposal of waste. As a result, our future financial performance and success is dependent in large part upon the viability of the waste and recycling industry and the success and survival of industry participants. However, waste and recycling industry participants and their operations are subject to a number of unique risks, including:
18 |
● | Fluctuations in the cost of fuel and other petrochemicals Landfill operators and waste haulers need diesel fuel and other petrochemicals to run a significant portion of their operations and prices for these commodities fluctuate significantly based on international, political and economic circumstances, as well as other factors beyond their control, such as supply shortages and actions by the Organization of the Petroleum Exporting Countries and other oil and gas producers, regional production patterns, weather conditions and environmental concerns. As fuel prices increase, these companies’ direct operating costs increase, adversely affecting their business. The war in Ukraine may also adversely affect the commodities markets, including trading prices and volatility. |
● | Fluctuations in commodity prices Landfill operators and waste haulers purchase or collect and process recyclable materials, including paper, cardboard, plastics, aluminum and other metals for sale to third parties, and prices for these recyclable commodities are volatile and subject to a number of factors outside of their control, including economic conditions and governmental action such as the Chinese government’s 2017 imposition of strict limitations and 2021 ban on the import of recyclable commodities as well as international regulation on the trade of these materials such as the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, which imposed new restrictions on the trade of plastic beginning January 1, 2021. The resulting price increase for recycling services in communities and at businesses in the U.S. has resulted in some recyclers and customers reducing or eliminating their recycling service. These and other factors have caused recyclable commodity prices to fall and operating costs of those in the waste and recycling industry to increase, adversely affecting their business. |
● | The capital-intensive nature of the industry The waste and recycling industry is capital intensive and the waste haulers we contract with depend significantly on cash flow from operations and access to capital to operate and grow their respective businesses. Any inability to generate and raise sufficient capital could increase our costs and cause these companies to reduce or cease operations. |
● | Accruals closure and post-closure activities Landfill operators have significant financial obligations for capping and closure activities once a landfill reaches its permitted capacity as well as for environmental remediation and other post-closure activities. Further, these capital requirements may increase above their current estimates due to changes in federal, state or local government requirements and other factors beyond their control. Operators establish accruals and trust funds to cover these costs, but actual obligations may exceed their expectations. Any failure of operators to properly estimate these future capital requirements could adversely affect their financial condition and jeopardize the future viability of their business. Any closures of landfill operators may negatively impact the ability of waste haulers to meet our customers’ demands or may result in increased transportation or other costs associated with disposal of our customers’ waste. |
● | Alternatives to landfill disposal Many state and local governments are developing comprehensive plans to reduce the volume of solid waste deposited in landfills through waste planning, composting, recycling or other programs such as extended producer responsibility regulations, which are designed to make producers fund the post-use life cycle of their products by providing recycling programs or otherwise taking their post-use products back from consumers. Many communities are also mandating waste reduction at the source and prohibiting disposal of waste, such as food and yard waste, at landfills. There is also a trend of voluntarily diverting waste to landfill alternatives, such as recycling and composting, while also working to reduce the amount of waste being generated. Many of the largest U.S. companies have or intend to set zero-waste goals in which they strive to send no waste to landfills. These actions, as well as the actions of our customers to reduce waste or seek disposal alternatives, have reduced and may in the future further reduce the volume of waste going to landfills in certain areas, which may affect operators’ financial condition, and therefore their ability to operate landfills at full capacity and could adversely affect their operating results. |
● | Governmental regulations The waste and recycling industry is highly regulated with a complex array of laws, rules, orders and interpretations governing environmental protection, health, safety, land use, zoning, transportation and related matters. These regulations and related enforcement actions can significantly restrict operations by imposing: limitations on siting and constructing new or expanding existing waste disposal, transfer, recycling or processing facilities; limitations or levies on collection and disposal prices, rates and volumes; limitations or bans on disposal or transportation of out-of-state waste or certain categories of waste; mandates regarding management of solid waste, including requirements to recycle, divert or otherwise process certain waste, recycling and other streams; or limitations or restrictions on the recycling, processing or transformation of waste, recycling and other streams. Additionally, landfill operations emit anthropogenic methane, identified as a greenhouse gas, and vehicle fleets emit, among other things, carbon dioxide, which also is a greenhouse gas, and efforts to curtail the emission of these and other greenhouse gases and to ameliorate the effects of climate change continue to progress. Although passage of comprehensive, federal climate change legislation may not occur in the near term, any such legislation, if enacted, could significantly restrict and impose significant costs on the waste and recycling industry. |
19 |
● | The ability to obtain and maintain required permits and approvals The waste and recycling industry is highly regulated and landfill and hauler owners and operators are required to obtain and maintain permits and approvals to operate their business, including to open or operate new landfills and transfer stations, or to expand the permitted capacity of existing landfills or increase acceptable volume at transfer stations, and these permits and approvals have become more difficult and expensive to obtain and maintain. These permits are also often subject to resistance from citizen or other groups and other political pressures. The inability to obtain or renew required permits and approvals or significant cost increases in doing so would adversely affect the ability of landfill and hauler owners and operators to operate their business. |
● | Operational and safety risks, including the risk of personal injury Operating landfills, transfer stations, large fleets of trucks and other waste-related assets involves the use of dangerous equipment and coming into contact with hazardous substances. These activities involve risks, including risk of accidents, equipment defects, malfunctions and failures, improper use, fire and explosion, any of which could result in environmental liability, personal injury, loss of life, business interruption or property damage or destruction. These types of events have happened in the past and will happen in the future. Any substantial losses of an owner or operator not covered by insurance could have a material adverse effect on the business, results of operations and financial condition of the waste haulers with whom we contract. |
● | Labor union activity and work stoppages Labor unions are very active in the waste and recycling industry, representing a meaningful percentage of the workforce. These unions are continuously recruiting additional employees, and these efforts will likely continue in the future. If unionized workers engage in strikes, work stoppages or other slowdowns, the operations of one or more companies could be significantly disrupted, which could have an adverse effect on their ability to operate their business and results of operations. |
● | Multiemployer pension plans Many companies operating in the waste and recycling industry participate in trustee-managed multiemployer defined benefit pension plans, a number of which are either “critical” or “endangered,” meaning participating employers may be obligated to provide significant amounts of additional funding to these plans. Additionally, upon termination of a multiemployer pension plan, or in the event an employer determines to withdraw from a plan or a mass withdrawal of contributing employers, participating companies would be required to make payments for their proportionate share of the plan’s unfunded vested liabilities. These payments could be substantial and could adversely affect the companies’ financial condition. |
If any of the foregoing risks or other risks adversely affects those in the waste and recycling industry, including the waste haulers and landfill operators with whom we contract, it could cause them to raise the prices that they charge us and our customers. Any reduction in the demand for their services could also cause certain haulers and operators to consider offering services and solutions similar to ours, increasing our direct competition. Further, any events that impact the viability of their business as presently conducted or proposed to be conducted in the future or reduce the number of waste and recycling facilities or haulers could have an adverse effect on the demand for certain of our services or increase the cost thereof. Therefore, any of the foregoing risks or others that adversely affect participants in the waste and recycling industry could similarly have an adverse effect on our business, financial condition and results of operations.
Demand for our solutions is subject to volatility in our accounts’ and our haulers’ underlying businesses.
Our sales are based on accounts’ demand for solutions to manage waste and recycling needs. This sector periodically experiences economic declines and may be exacerbated by other economic, environmental and social factors. If participants in this sector reduce spending or allocate future funding in a manner that results in fewer projects, then our accounts’ underlying business may be impacted and demand for our solutions may decrease or our rate of contract renewals may decrease. A prolonged decrease in such spending may harm our results of operations. Our accounts may request discounts or extended payment terms on new arrangements or seek to extend payment terms on existing arrangements due to lower levels of infrastructure spending or for other reasons, all of which may reduce revenue. For example, during the COVID-19 pandemic, a number of our customers in the restaurant and foodservice industries ceased or significantly scaled back operations, adversely affecting our results. We may not be able to adjust our operating expenses to offset such discounts or other arrangements because a substantial portion of our operating expenses relate to personnel, facilities, and marketing programs. The level of personnel and related expenses may not be able to be adjusted quickly and is based, in significant part, on our expectations for future revenues and demand.
20 |
Our sales are also premised on the availability of haulers to transport our accounts’ waste and recyclable materials. If there is volatility within the waste and recycling industry or decreased availability of adequate haulers or other necessary vendors we may not be able to meet our customers’ needs, which would adversely affect our business. Any increase in hauler or vendor costs may also adversely affect our margins or may require us to offset such expenses or to pass these increased expenses on to our customers which may further negatively impact our relationship with our accounts and demand for our solutions.
Demand for our solutions can be affected by changes in recyclable commodity prices and quantities.
Certain of our customers collect and process, purchase or sell recyclable materials such as paper, cardboard, plastics, aluminum and other metals, and utilize our solutions and services in connection with these activities. The sale prices of and the demand for recyclable commodities are frequently volatile and when they decline, demand for our solutions will be affected. The market demand for recyclable commodities is volatile due to changes in economic conditions and numerous other factors beyond our and our customers’ control. The value of plastics is influenced by the volatility of crude oil prices, and in 2020 there was a resulting decline in the value of plastic recyclables associated with the precipitous drop in the value of crude at the onset of the COVID-19 pandemic. The value of paper products is often influenced by quality concerns, which have resulted in the imposition of restrictions by other countries, including China, on the import of certain recyclables. For instance, in 2017 the Chinese government imposed strict limits on the import of recyclable materials, including by restricting the amount of contaminants allowed in imported recycled paper. These limitations significantly decreased the global demand for recyclable commodities and resulted in lower commodity prices. The war in Ukraine may also adversely affect the commodities markets, including trading prices and volatility. Additionally, future regulation, tariffs, international trade policies or initiatives may result in further reduced demand. Any decrease in recyclable commodity prices or other facts which cause the profitability of recycling operations to decline could adversely affect demand for our solutions and have an adverse effect on our business, financial condition and results of operations.
Our Charter provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our Charter provides that, unless Rubicon selects or consents in writing to the selection of an alternative forum, to the fullest extent permitted by applicable law: (a) the sole and exclusive forum for any complaint asserting any internal corporate claims, to the fullest extent permitted by law, and subject to applicable jurisdictional requirements, shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have, or declines to accept, jurisdiction, another state court or a federal court located within the State of Delaware); and (b) the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act, to the fullest extent permitted by law, shall be the federal district courts of the United States of America. For purposes of the foregoing, “internal corporate claims” means claims, including claims in the right of Rubicon that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity, or as to which Delaware General Corporation Law (the “DGCL”) confers jurisdiction upon the Court of Chancery. Any person or entity purchasing or otherwise acquiring any interest in any shares of Class A Common Stock or Class V Common Stock will be deemed to have notice of and consented to the provisions of this provision.
This choice of forum provision may limit a Rubicon stockholder’s ability to bring a claim in a forum that it finds favorable for disputes with us or any of our directors, officers or employees, which may discourage lawsuits with respect to such claims. There is uncertainty as to whether a court would enforce this provision. If a court ruled the choice of forum provision was inapplicable or unenforceable in an action, Rubicon may incur additional costs to resolve such action in other jurisdictions. The choice of forum provision is intended to apply to the fullest extent permitted by law to the above-specified types of actions and proceedings, and is intended to require, in each case, to the fullest extent permitted by law, that (i) any claims arising under the Securities Act be brought in the federal district courts of the United States in accordance with clause (b) of the choice of forum provision, and (ii) any derivative actions, including those brought to enforce any duty or liability created by the Exchange Act be brought in the United States District Court for the District of Delaware in accordance with clause (a) of the choice of forum provision. The provision does not apply to any direct claims brought by Rubicon’s stockholders on their own behalf, or on behalf of any class of similarly situated stockholders, under the Exchange Act. Rubicon stockholders will not be deemed, by operation of the choice of forum provision, to have waived Rubicon’s obligation to comply with all applicable federal securities laws and the rules and regulations thereunder.
21 |
Our Cybersecurity and Technology Related Risks
If we fail to continue to improve and enhance the functionality, performance, reliability, design, security, or scalability of our platform in a manner that responds to our customers’ evolving needs, our business may be adversely affected.
The on-demand commerce and digital ordering markets are characterized by rapid technological change, frequent new product and service introductions, and evolving industry standards. Our success has been based on our ability to identify and anticipate the needs of our customers and design and maintain a platform that provides them with the tools they need to operate their businesses in a manner that is productive and meets or exceeds their expectations. Our ability to attract new customers, retain revenue from existing customers, and increase sales to both new and existing customers will depend in large part on our ability to continue to improve and enhance the functionality, performance, reliability, design, security, and scalability of our platform. Additionally, to achieve and maintain market acceptance for our platform, we must effectively integrate with new or existing solutions that meet changing customer demands in a timely manner.
As we expand our platform and services, and as the number of our customers with higher volume sales increases, we expect that we will need to offer increased functionality, scalability and support, including to keep our platform, systems, and services secure, which requires us to devote additional resources to such efforts. To the extent we are not able to enhance our platform’s functionality in order to maintain its utility and security, enhance our platform’s scalability in order to maintain its performance and availability, or improve our support functions in order to meet increased customer service demands, our business, operating results, and financial condition could be adversely affected.
The success of enhancements, new features and services depends on several factors, including the timely completion, introduction and market acceptance of the feature, service or enhancement by customers, as well as our ability to seamlessly integrate all of our product and service offerings and develop adequate selling capabilities in new markets. We may make significant investments in new modules or enhancements that may not achieve expected returns. The continual improvement and enhancement of our platform requires significant investment and we may not have the resources to make such investment. Our improvements and enhancements may not result in our ability to recoup our investments in a timely manner, or at all. The improvement and enhancement of the functionality, performance, reliability, design, security, and scalability of our platform is expensive and complex, and to the extent we are not able to perform it in a manner that responds to our customers’ evolving needs, our business, operating results, and financial condition will be adversely affected.
Quality problems, defects, errors, failures, or vulnerabilities in our solutions or services could harm our reputation and adversely affect our business, financial condition, results of operations, and prospects.
Our solutions are, in some cases, highly complex and incorporate advanced technologies that we attempt to make interoperable with the products of other providers. Despite testing prior to release, our solutions may contain undetected defects or errors. Further, the combined use of our solutions with those of other providers may cause errors or failures, or it may expose undetected defects, errors, or failures in our solutions. These defects, errors, or failures could affect performance of the solutions and damage the businesses of our accounts, as well as delay the development or release of new offerings or new versions of solutions. Allegations of unsatisfactory performance in any of these situations could damage our reputation in the market and our relationships with our accounts, cause us to lose revenue or market share, increase our service costs, cause us to incur substantial costs in analyzing, correcting, or redesigning the solutions, cause us to lose accounts, subject us to liability for damages, and divert our resources from other tasks, any one of which could adversely affect our business, financial condition, results of operations, and prospects. We may also be required to provide full replacements or refunds for such defective product. We cannot assure you that such remediation would not harm our business, financial condition, results of operations, and prospects.
If our security measures or those of our third-party cloud data hosts, cloud computing platform providers, or third-party service partners, are breached and unauthorized access is obtained to an account’s data, our data or our IT systems our services may be perceived as not being secure, accounts may curtail or stop using our services, and we may incur significant legal and financial exposure and liabilities.
As we digitize and use cloud and web-based technologies to leverage account data to deliver a more complete account experience, we are exposed to increased security risks and the potential for unauthorized access to, or improper use of, our and our accounts’ information. Certain of our services involve the storage and transmission of accounts’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation, and possible liability. Although we devote resources to maintaining our security and integrity, we may not prevent security incidents.
22 |
The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. These threats, some of which we have experienced, include but are not limited to identity theft, unauthorized access, domain name system attacks, wireless network attacks, viruses and worms, ransomware attacks, advanced persistent threat, application centric attacks, peer-to-peer attacks, phishing, backdoor trojans, and distributed denial of service attacks. Any of the foregoing could attack our accounts’ data (including their employees’ personal data), our data (including colleagues’ personal data), or our IT systems. It is virtually impossible for us to entirely eliminate this risk. Like all solutions, our products are vulnerable to cyber-attacks. For example, in April 2021 we discovered a ransomware event in which an unauthorized third party gained access to our network. Although the April 2021 incident was fully remediated and no incidents to date of which we have knowledge have had a material impact on our business, financial condition or results of operations, the impact of cyber-attacks could disrupt the proper functioning of our solutions or services, cause errors in the output of our accounts’ work, allow unauthorized access to sensitive, proprietary, or confidential information of ours or our accounts, and other destructive outcomes.
Additionally, third parties may attempt to fraudulently induce colleagues or accounts into disclosing sensitive information such as usernames, passwords, or other information in order to gain access to our accounts’ data, our data, or our IT systems. Malicious third parties may also conduct attacks designed to temporarily deny accounts access to our services. Any security breach could result in a loss of confidence in the security of our products and services, damage our reputation, negatively impact our future sales, disrupt our business, and lead to regulatory inquiry and legal liability.
Material portions of our business require the Internet infrastructure to be reliable.
Part of our future success continues to depend on the use of the Internet as a means to perform transactions electronically, including, for example, document digitization. This in part requires ongoing maintenance of the Internet infrastructure, especially to prevent interruptions in service, as well as additional development of that infrastructure. This requires a reliable network backbone with the necessary speed, data capacity, security, and timely development of complementary products for providing reliable Internet access and services. If this infrastructure fails to be sufficiently developed or be adequately maintained, our business would be harmed because users may not be able to access our portals.
Our General Business Risks
The success of our business depends, in part, on our ability to execute on our acquisition strategy.
A portion of our historical growth has occurred through acquisitions, and we anticipate continued growth through acquisitions in the future. We are presently evaluating, and we expect to continue to evaluate on an ongoing basis, a variety of possible acquisition transactions. We cannot predict the timing of any contemplated transactions, and there can be no assurances that we will identify suitable acquisition opportunities or, if we do identify such opportunities, that any transaction can be consummated on terms acceptable to us. A significant change in our business or the economy, an unexpected decrease in our cash flows or any restrictions imposed by our debt may limit our ability to obtain the necessary capital for acquisitions or otherwise impede our ability to complete an acquisition. Certain proposed acquisitions or dispositions may also trigger a review by the U.S. Department of Justice, or “DOJ”, and the U.S. Federal Trade Commission, or “FTC”, under their respective regulatory authority, focusing on the effects on competition, including the size or structure of the relevant markets and the pro-competitive benefits of the transaction. Any delay, prohibition or modification required by regulatory authorities could adversely affect the terms of a proposed acquisition or could require us to modify or abandon an otherwise attractive acquisition opportunity. The failure to identify suitable transaction partners and to consummate transactions on acceptable terms could have a material adverse effect on our business, financial condition and results of operations.
Acquisitions also involve risks that the businesses acquired will not perform as expected, that our judgments concerning the value, strengths and weaknesses of acquired businesses will prove wrong or that we will incur unanticipated costs as a result of a transaction. We may become liable for certain unforeseen pre-acquisition liabilities of an acquired business, including, among others, tax liabilities, environmental liabilities, contingent consideration and liabilities for employment practices. In addition, an acquisition could result in the impairment of client relationships and other acquired assets such as goodwill. We may also incur costs and experience inefficiencies to the extent an acquisition expands the services, markets or geographies in which we operate due to our limited exposure and experience. Acquisitions can also involve post-transaction disputes regarding a number of matters, including a purchase price or working capital adjustment, earn-out or other contingent payments, environmental liabilities, and indemnification or other obligations. Acquisitions also place significant demands on our management’s time, which may divert their attention from our day-to-day business operations, and may lead to significant due diligence and other expenses regardless of whether we pursue or consummate any acquisition. We may also not be able to manage our growth through acquisitions due to the number and the diversity of the businesses we have acquired or for other reasons. Acquisitions may require that we incur additional debt to finance the transaction, which could be substantial and limit our operating flexibility or, alternatively, acquisitions may require that we issue stock as consideration, which could dilute share ownership. If any of these risks were to occur, our business, financial condition and results of operations may be adversely affected.
23 |
Any inability to successfully integrate our recent or future acquisitions, or realize their anticipated benefits, could have a material adverse effect on us.
Acquisitions have required, and in the future will require, that we integrate into our existing operations separate companies that historically operated independently or as part of another, larger organization, and had different systems, processes and cultures. Risks involved with the successful integration of an acquired business include, but are not limited to:
● | assimilating personnel and operating and administrative departments, including finance; |
● | integrating operations under differing legal and regulatory regimes and any governmental contracting work; |
● | diverting management’s attention and that of the acquired business; |
● | merging and updating different accounting and financial reporting systems and policies, including with respect to revenue recognition, and systems of internal controls; |
● | merging computer, technology and other information networks and systems; |
● | disrupting relationships with or losses of key clients and suppliers of our business or the acquired business; |
● | interfering with, or loss of momentum in, our ongoing business or that of the acquired company; |
● | failure to retain our key personnel or that of the acquired company; and |
● | delays or cost-overruns in the integration process. |
We may not be able to successfully integrate any business we have acquired or may acquire, or may not be able to do so in a timely, efficient or cost-effective manner. Our inability to effectively complete the integration of new businesses on schedule and in an orderly manner could increase costs and lower profits. Our inability to manage our growth through acquisitions, including the integration process, and to realize the anticipated benefits of an acquisition could have a material adverse effect on our business, financial condition and results of operations.
A large percentage of our revenue is tied to a small number of customers, such that the loss of any of these customers could materially and adversely affect our business, results of operations and financial condition.
We derive a significant portion of our revenues from two customers. For the years ended December 31, 2021 and 2020, we derived approximately 30% and 28%, respectively, of our total revenues from these customers. For the nine months ended September 30, 2022 and 2021, we derived approximately 27% and 29%, respectively, of our total revenues from these customers. We cannot assure you that these customers will continue to contract with us on terms or at rates currently in effect, or will not elect to contract with our competitors or attempt to perform the services we provide themselves. Further, as of September 30, 2022, December 31, 2021 and 2020, approximately 22%, 23% and 23%, respectively, of our aggregate accounts receivable and contract assets were due from these two customers. The contract term with these two customers ranges from 2 to 3 years, but one of the customers has the right to terminate without penalty with 60 days advance written notice. These contracts do not include any minimum purchase requirements for the customers and were made in the ordinary course of business. As a result, these customers could stop purchasing our services, reduce their purchase levels or request reduced pricing structures at any time. We may therefore need to adapt our pricing and marketing strategies in response to a customer who may seek concessions in return for its continued or increased business. In addition, a macroeconomic downturn or any other cause of consolidation in our industry or among our other customers could significantly increase the market share and bargaining power of a limited number of customers and give them significant additional leverage to negotiate more favorable terms and place greater demands on us. The loss of either of these customers, if not offset by revenues from new or other existing customers, or any inability of either customer to pay amounts as and when due, could adversely affect our business, financial condition and results of operations.
24 |
Our business depends on customers using our platform, and any loss of customers or decline in their use of our platform could materially and adversely affect our business, results of operations, and financial condition.
Our ability to grow and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing customers, to have them increase their deployment and use of our platform, and to increase or maintain transaction volume on our platform. Although our customers generally have multi-year contracts with us, they can typically terminate the agreement without penalty by providing as little as 30 days written notice and may elect not to renew the agreement following the expiration date. In addition, if our customers do not increase their use of our platform or adopt and deploy additional modules, then our revenue may decline and our results of operations may be harmed. Customers may not renew their contracts with us or reduce their use of our platform for any number of reasons, including if they are not satisfied with our platform or modules, the value proposition of our platform or our ability to meet their needs and expectations, security or platform reliability issues, or if they decide to build their own solution internally. Additionally, consumers may change their purchasing habits or reduce their orders from our current customers, which could harm their business and reduce their use of our platform. We cannot accurately predict our customers’ usage levels and the loss of customers or their usage levels of our modules may each have a negative impact on our business, results of operations, and financial condition and may cause our expansion rate to decline. If a significant number of customers cease using or reduce their usage of our platform, then we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase revenue from our customers. Such additional sales and marketing expenditures could adversely affect our business, results of operations, and financial condition.
Clients may elect to terminate our contracts and manage operations internally.
It is possible that our clients may elect to not renew contracts for our solutions. Alternatively, clients may elect to drop maintenance on certain modules that they ultimately decide not to use. This could adversely affect our revenues and profits. Additionally, they may inadvertently allow our intellectual property or other information to fall into the hands of third parties, including our competitors, which could adversely affect our business.
Selling products and services into the public sector poses unique challenges.
We derive a portion of our revenue from sales of software-as-a-service and professional services to state, county, and city governments, other federal or municipal agencies, and other public entities. We expect that sales to public sector clients will continue to account for a portion of our revenue in the future. We face many risks and challenges associated with contracting with governmental entities, including:
● | Resource limitations caused by budgetary constraints, which may provide for a termination of executed contracts due to a lack of future funding; |
● | Long and complex sales cycles; |
● | Contract payments at times being subject to achieving implementation milestones, and we may have differences with clients as to whether milestones have been achieved; |
● | Political resistance to the concept of contracting with third parties to provide IT solutions; |
● | Legislative changes affecting a local government’s authority to contract with third parties; |
● | Varying bid procedures and internal processes for bid acceptance; and |
● | Various other political factors, including changes in governmental administrations and personnel. |
Each of these risks is outside our control. If we fail to adequately adapt to these risks and uncertainties, our financial performance could be adversely affected.
25 |
If we fail to attract and retain qualified management and skilled technical personnel, our business may be adversely affected.
Our long-term success depends, in significant part, upon the continued service and performance of our senior management and other key personnel. We rely on knowledgeable, experienced and skilled technical personnel, particularly analysts, product developers and service personnel to provide our services, often in a stringent regulatory environment. Certain of our employees, including our senior management and the key employees of the various businesses we have acquired, have exceptionally strong knowledge of our businesses, sectors and clients. Their departure could lead to the loss of know-how and information of value to us, and their departure could pose a risk to key client relationships. Our continued growth will also depend upon our ability to attract and retain additional skilled management and other key employees, including in new markets, whether organically or through acquisitions. For certain positions, there may be a limited number of qualified people to fulfill the roles, whether limited based on scarcity with respect to the particular skillset, within a given geography or otherwise. The loss of the services of one or more members of our management team or of qualified employees and other key personnel, or the inability to identify, hire and retain the key personnel that may be necessary to grow our business, could have a material adverse effect on our business, financial condition and results of operations.
Our international operations subject us to additional risks that could adversely affect our business.
We have activities outside of the United States and work with some international third-party providers, including product developers in Europe. Our operations, those of the third parties with which we work as well as those of our customers, are therefore subject to regulatory, economic, political and other events and uncertainties in countries where these operations are located. Further, our growth strategy includes expansion into additional international markets. In addition to the risks discussed elsewhere herein that are common to both our domestic and international operations, we face risks specific to our foreign activities, including but not limited to:
● | political, social, economic and financial instability, including wars, civil unrest, acts of terrorism and other conflicts, including the war in Ukraine; |
● | difficulties and increased costs in developing, staffing and simultaneously managing a large number of varying foreign operations as a result of distance, language and cultural difference; |
● | restrictions and limitations on the transfer or repatriation of funds and fluctuations in currency exchange rates; |
● | complying with varying legal and regulatory environments in multiple foreign jurisdictions, including privacy laws such as the E.U. General Data Protection Regulation, export controls and trade and economic sanctions laws and regulations and anti-corruption laws and regulations of the United States and various international jurisdictions, including the Foreign Corrupt Practices Act; |
● | laws and business practices that favor local competitors or prohibit foreign ownership of certain businesses; |
● | potential for privatization and other confiscatory action; and |
● | other dynamics in international jurisdictions, any of which could result in substantial additional legal or compliance costs, liabilities or obligations for us or could require us to significantly modify our current business practices or even exit a given market. |
Foreign operations bring increased complexity and the costs of managing or overseeing foreign operations, including adapting and localizing services or systems to specific regions and countries, can be material. Further, international operations carry inherent uncertainties regarding the effect of local or domestic actions, such as the unpredictable impact of the referendum vote in the United Kingdom to leave the European Union (Brexit) and the uncertainty regarding the terms that govern its exit, any of which could be material. These and other risks related to our foreign operations, or the associated costs or liabilities, could have a material adverse effect on our business, financial condition and results of operations.
26 |
We may be unable to protect our proprietary rights.
Many of our product and service offerings incorporate proprietary information, trade secrets, know-how, and other intellectual property rights. We rely on a combination of contracts, patents, copyrights, and trade secret laws to establish and protect our proprietary rights in our technology. We cannot be certain that we have taken all appropriate steps to deter misappropriation of our intellectual property. There has also been an apparent evolution in the legal standards and regulations courts and the U.S. patent office may apply in favorably evaluating software patent rights. We are not currently involved in any material intellectual property litigation; however, we may be a party to such litigation in the future to protect our proprietary information, trade secrets, know-how, and other intellectual property rights. We cannot assure you that third parties will not assert infringement or misappropriation claims against us with respect to current or future products. Any claims or litigation, with or without merit, could be time-consuming, costly, and a diversion to management. Any such claims and litigation could also cause delays or require us to enter into royalty or licensing arrangements. Such royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all. Therefore, litigation to defend and enforce our intellectual property rights could have a material adverse effect on our business, regardless of the final outcome of such litigation.
We rely on software licensed from, and services rendered by, third parties in order to provide our modules and run our business.
We rely on software licensed from, and services rendered by, third parties in order to provide our modules and run our business. Third-party software and services may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use, or any failures of, third-party software or services could result in delays in our ability to provide our modules or run our business until equivalent software or services are developed by us or, if available, identified, obtained and integrated, which could be costly and time-consuming and may not result in an equivalent module, any of which could cause an adverse effect on our business and operating results. Further, customers could assert claims against us in connection with such service disruption or cease conducting business with us altogether. Even if not successful, a claim brought against us by any of our customers would likely be time-consuming and costly to defend and could seriously damage our reputation and brand, making it harder for us to sell our modules.
Pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements.
As a large company with international operations, across the U.S. and Canada in particular, we are, and from time to time become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings arising out of the ordinary course of our business, including with respect to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour and other claims. Additionally, our participation in the waste and recycling industry, even though we are only an indirect market participant that does not own or operate any landfill or hauling operations, subjects us to additional claims that many other companies in other industries are not likely to face. Many of these matters raise complicated factual and legal issues and are subject to uncertainties and complexities, all of which make the matters costly and often divert management’s attention from day-to-day operations. For example, we may incur costs to defend against litigation brought by government agencies and private parties who allege we are in violation of our permits and applicable environmental laws and regulations, or who assert claims alleging nuisance, environmental damage, personal injury or property damage. Additionally, in recent years, wage and employment laws have changed regularly and become increasingly complex, which has fostered litigation, including purported class actions. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is uncertain. We may be required to pay fines or judgments, which could be significant, or to implement corrective measures, or we may have our permits and licenses modified or revoked as a result of these actions. We establish accruals for our estimates of the costs associated with lawsuits, regulatory, governmental and other legal proceedings. We could underestimate such accruals. Such shortfalls could result in significant unanticipated charges to income. A significant judgment against us, the loss of a significant permit or license, or the imposition of a significant fine or other expenses in excess of any accrual or reserve could have a material adverse effect on our business, financial condition and results of operations. See Note 16 Commitments and contingencies in our audited consolidated financial statements included elsewhere in this prospectus.
27 |
Risks Related to Our Indebtedness
Our current liquidity, including negative cash flows and a lack of existing financial resources, raises substantial doubt about our ability to continue as a going concern, which may materially and adversely affect our business, financial condition, results of operations and prospects.
Pursuant to ASC 205, Presentation of Financial Statements, we are required to and do evaluate at each annual and interim financial statement period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Based on the definitions in the relevant accounting standards and our history of operating losses and negative cash flows, we currently project that we will not have sufficient cash on hand or available liquidity under existing arrangements to meet our projected liquidity needs for the next 12 months, which raises substantial doubt about our ability to continue as a going concern.
Although we have taken, and plan to continue to take, proactive measures to enhance our liquidity position and provide additional financial flexibility, including, among other things, negotiation with respect to the New Debt Facilities and receipt of binding commitments for the Financing Commitment, there can be no assurance that these measures, including the timing and terms thereof, will be successful or sufficient. Any new financing may also lead to increased costs, increased interest rates, additional and more restrictive financial covenants and other lender protections, and whether we will be able to successfully complete any such refinancing will depend on market conditions, the negotiations with those lenders and investors, and our financial performance. The Financing Commitment and the New Debt Facilities are also proposed to include potential equity financing, the terms of which could cause substantial dilution to existing stockholders. In addition, we are formulating additional plans to extend cash availability, including modifying our operations to further reduce spending, but these steps may not produce the anticipated results or provide any benefit at all. While management believes that our plan to address the pending debt maturities is probable of being achieved, and our financial statements have accordingly been prepared assuming that we will continue as a going concern, there can be no assurance the necessary financing will be available on terms acceptable to us, or at all. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 19, Liquidity, and Note 20, Subsequent Events, in our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
If we are unable to obtain adequate additional capital resources to fund our liquidity needs, we will not be able to continue to operate our business pursuant to our current business plan, which would require us to further modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing, product development and other activities, selling certain business lines or assets or we may be forced to discontinue our operations entirely and/or liquidate our assets, in which case it is likely that equity investors would lose most or all of their investment. The substantial doubt about our ability to continue as a going concern may also affect the price of our common stock and our credit rating, negatively impact relationships with third parties with whom we do business, including customers, vendors, lenders and employees, prevent us from identifying, hiring or retaining the key personnel that may be necessary to operate and grow our business and limit our ability to raise additional capital. Any of the foregoing factors could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our substantial levels of indebtedness could adversely affect our business.
As of September 30, 2022, we had approximately $99.6 million of indebtedness, consisting of $69.5 million in borrowings under our term loan (including a subordinated term loan in the amount of $20.0 million) and $30.1 million under our revolving credit facility. As of December 31, 2021, we had approximately $103.6 million of indebtedness, consisting of $73.7 million in borrowings under our term loan (including a subordinated term loan in the amount of $20.0 million) and $29.9 million under our revolving credit facility. Our indebtedness could have important consequences for us and our investors, including, but not limited to:
28 |
● | increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions; |
● | requiring the dedication of a substantial portion of cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund operations, working capital, capital expenditures, acquisitions, joint ventures or other future business opportunities; |
● | exposing us to the risk of increased interest rates on our borrowings under our credit facility, which is at variable rates of interest; |
● | limiting flexibility in planning for, or reacting to, changes in our business, market conditions and the competitive environment, placing us at a competitive disadvantage compared to our competitors who are less highly leveraged; |
● | limiting our ability to borrow additional funds (including the ability to issue equity as part of such borrowing) and increasing the cost of any such borrowing; |
● | diluting our investors in the event such existing borrowings are converted into shares of Class A Common Stock; and |
● | limiting our ability to refinance existing borrowings absent the consent of certain of our creditors. |
In addition, as our indebtedness matures, or if we are unable to service our high level of indebtedness, we may need to restructure or refinance all or a portion of our indebtedness, sell material assets or operations or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms, or at all, and these actions may not be sufficient to meet our capital requirements. Furthermore, we may not be able to invest in our business and as a result, we may not be able to achieve our forecasted results of operations.
The interest rates under our existing indebtedness are significant LIBOR plus 9.5% for our term loan, 15.0% for our subordinated term loan and SOFR plus 5.6% for our revolving credit facility bears interest. Our ability to make payments on debt (including interest), to repay existing or future indebtedness when due, to fund operations and significant planned capital expenditures and to support our growth strategy will depend on our ability to generate cash in the future. Our ability to produce cash from operations is, and will be, subject to a number of risks, including those described above in “Risks Related to Our Business and Industry” and elsewhere in this prospectus. Our ability to repay debt will also depend on external factors that are outside of our control, including economic, financial, competitive, legislative, regulatory and other factors. If we are unable to make required interest and principal payments on our indebtedness, it would result in an event of default under the agreements governing such indebtedness, which may result in the acceleration of some or all of our outstanding indebtedness and foreclosure on the assets that secure such indebtedness.
Although our debt agreements contain restrictions on the incurrence of additional indebtedness, the amount of indebtedness that could be incurred in the future in compliance with these restrictions could be substantial, thereby exacerbating the risks associated with our high level of indebtedness. For example, under our credit facility, we may borrow up to $20.0 million in the form of a term loan and, subject to outstanding letters of credit, up to $60.0 million under our revolving credit facility.
Any of the foregoing risks could adversely affect our business, financial condition and results of operations. For additional information on our indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources” and Note 19, Liquidity, and Note 20, Subsequent Events, in our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
29 |
The terms and covenants in our existing indebtedness restrict our ability to engage in some business and financial transactions, which could adversely affect our business.
Our credit facility has restrictive covenants that limit our and our subsidiaries’ ability to, among other things:
● | pay dividends, redeem capital stock and make other restricted payments and investments; |
● | sell assets or merge, consolidate, or transfer all or substantially all of our subsidiaries’ assets; |
● | engage in certain transactions with affiliates; |
● | amend or otherwise modify our governing documents; |
● | incur or guarantee additional debt; |
● | impose dividend or other distribution restrictions on our subsidiaries; and |
● | create liens on our subsidiaries’ assets. |
In addition, our credit facility contains financial maintenance covenants that, among other things, require us to maintain minimum qualified billed and unbilled receivables and to not exceed a specified borrowing base or net leverage ratio tested at the end of each quarter. Among other things, we may not be able to borrow money under our credit facility if we are unable to comply with the financial and other covenants included therein. Our credit facility also contains certain customary representations and warranties, affirmative covenants and events of default with acceleration rights (including, among other things, an event of default upon a material adverse change in our business condition (financial or otherwise), operations, properties or prospects, change of management, or change of control). If an event of default occurs, our lenders will be entitled to take various actions, including the acceleration of amounts due under our credit facility and all actions permitted to be taken by a secured creditor. Our revolving credit facility also includes a lockbox arrangement, which provides for receipts to be swept daily to reduce borrowings outstanding at the discretion of the lender. Our term loan also includes a qualified equity contributions requirement of $50.0 million during the period on or prior to June 30, 2022 and, because the Mergers did not occur prior to this date, we did not satisfy the equity contributions requirement, giving the lender the right to use our available funds under our revolving credit facility as term loan collateral.
The YA SPA contains restrictive covenants that limit our ability to, among other things:
● | amend our governing documents in any manner that materially and adversely affects any rights of the holders of the YA Convertible Debentures; |
● | make any payments with respect to indebtedness owed to affiliates; |
● | amend, supplement, restate, withdraw, terminate or otherwise modify certain of our existing loan facilities or extensions thereof in a manner that would be materially adverse to the Yorkville Investor’s interests; |
● | amend, supplement, restate, withdraw, terminate or otherwise modify our termination of the Forward Purchase Agreement and related obligations pursuant to the FPA Termination Agreements in a manner that would be materially adverse to the Yorkville Investor’s interests; | |
● |
effect Advances (as defined in the SEPA) pursuant to the SEPA in certain circumstances; or |
● | enter into certain Variable Rate Transactions (as defined in the YA SPA). |
30 |
The YA Warrant and YA Convertible Debentures also contain certain customary representations and warranties, affirmative covenants and events of default with acceleration rights (including, among other things, upon cross-defaults under other loan documents, bankruptcy or insolvency, and delisting of the Class A Common Stock). If an event of default occurs, the Yorkville Investor will be entitled to take various actions, which include the ability to (i) declare the full unpaid principal amount of the YA Convertible Debentures, together with interest and other amounts owing in respect thereof, immediately due and payable in cash and (ii) force Rubicon to purchase the YA Warrant in whole from the Yorkville Investor by paying to the Yorkville Investor a cash amount equal to the product of (a) $20.0 million, multiplied by (b) the quotient of (y) the number of YA Warrant Shares called for by the YA Warrant as of the date such payment is made divided by (z) the original number of YA Warrant Shares underlying the YA Warrant (plus any increase required pursuant to the terms thereof), which amount will be paid within 20 trading days of the date of notice from the Yorkville Investor.
Any future debt that we incur may contain additional and more restrictive negative covenants and financial maintenance covenants. These restrictions could limit our ability to obtain debt financing, repurchase stock, pay dividends, refinance or pay principal on our outstanding debt, complete acquisitions for cash or debt or react to changes in our operating environment or the economy.
Our failure to comply with our obligations or the agreements governing any future indebtedness may result in an event of default under the applicable agreement. A default, if not cured or waived, may permit acceleration of some or all of our other indebtedness and trigger other termination and similar rights under other contracts. We cannot be certain that we will be able to remedy any defaults and, if our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all, any of which could have a material adverse effect on our business, financial condition and results of operations.
The required interest payments on our indebtedness under the credit facility may be impacted by reforms related to the London Interbank Offered Rate (“LIBOR”). The variable interest rates applicable under the credit facility are linked to LIBOR as the benchmark rate for establishing such rates. Recent national, international, and other regulatory guidance and reform proposals regarding LIBOR are requiring certain LIBOR tenors to be discontinued or become unavailable by the end of 2021 and LIBOR to be fully discontinued or become unavailable as a benchmark rate by June 2023. Although one or more of our credit facilities includes mechanics to facilitate the adoption by us and our lenders of an alternative benchmark rate for use in place of LIBOR, no assurance can be made that such alternative benchmark rate will perform in a manner similar to LIBOR or result in interest rates that are at least as favorable to us as those that would have resulted had LIBOR remained in effect, which could result in an increase in our interest expense and other debt service obligations. In addition, the overall credit market may be disrupted as a result of the replacement of LIBOR or in the anticipation thereof, which could have an adverse impact on our ability to refinance, reprice, or amend our existing indebtedness or incur additional indebtedness on favorable terms or at all.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 19, Liquidity, and Note 20, Subsequent Events, in our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
31 |
Risks Related to Ownership of Our Securities
Certain existing shareholders purchased securities in Rubicon at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors in Rubicon may not experience a similar rate of return.
Certain shareholders in Rubicon acquired and may acquire shares of Class A Common Stock (or Class B Units) or Private Warrants at prices below, in some cases considerably below, the current trading price of our Class A Common Stock or for no cash consideration at all and may experience a positive rate of return based on the current trading price.
Additionally, the Yorkville Investor acquired the Yorkville Commitment Shares for no cash consideration and may acquire additional Class A Common Stock at a discount to the current trading price in the case of any other shares of Class A Common Stock to be issued pursuant to the SEPA, YA Convertible Debentures and YA Warrant. The Insider Investors may acquire additional Class A Common Stock at a discount to the current trading price in the event that the Insider Convertible Debentures are converted to shares of Class A Common Stock. Given the relatively lower purchase prices that some of our shareholders paid to acquire securities and exercise prices that some of our shareholders may pay to exercise Private Warrants to acquire shares of Class A Common Stock compared to the current trading price of our shares of Class A Common Stock, these shareholders, some of whom are Selling Securityholders pursuant to this or other registration statements we are obligated to file to register the resale of shares of Class A Common Stock, in some instances will earn a positive rate of return on their investment, which may be a significant positive rate of return, depending on the market price of our shares of Class A Common Stock at the time that such shareholders choose to sell their shares of Class A Common Stock. Investors who purchased units in Founder SPAC’s initial public offering, who purchased Founder Class A Shares on the NYSE following the IPO or who purchase our Class A Common Stock and Public Warrants on the NYSE following the Business Combination may not experience a similar rate of return on the securities they purchase due to differences in the purchase prices and the current trading price. Based on the last reported sale price of our shares of Class A Common Stock on February 7, 2023 of $1.45 and their respective purchase prices, the Selling Securityholders may receive potential profits up to $1.45 per share. See the section titled “Summary—Information Related to Offered Securities” for additional information regarding the prices paid by and potential profits the Selling Securityholders may earn on sales of the securities registered hereunder.
Substantial future sales of shares of Class A Common Stock could cause the market price of our shares of Class A Common stock to decline.
We have agreed, at our expense, to prepare and file this and other registration statements with the SEC providing for the resale of shares of Class A Common Stock. The shares of Class A Common Stock being offered for resale in this prospectus represent approximately 26.3% of our total outstanding shares of Common Stock as of the date of this prospectus.
After this registration statement and any others we file in respect of the resale of shares of Class A Common Stock become effective, and until such time that they are no longer effective, these registration statements will permit the resale of the applicable securities.
Potential new issuances of Class A Common Stock include (a) the exercise of all Warrants, (b) the vesting of all RSU and DSU awards, (c) the utilization of the SEPA, (d) conversion of the YA Convertible Debentures, (e) exercise of the YA Warrant, (f) settlement of the Deferred Fee Arrangements in stock, (g) satisfaction of the Vellar Termination Agreement in stock, and (h) conversion of the Insider Convertible Debentures:
32 |
Obligation | When Issuable(1) | Class A Common Stock Issuable(2), (3) |
Percentage of Total Shares of Common Stock(4) |
|||||||
Warrants (5) | Currently exercisable at the discretion of the holder | 30,016,851 | 14.9 | % | ||||||
RSUs and DSUs (6) | February 10-11, 2023 | 10,174,128 | 5.6 | % | ||||||
SEPA(7) | Upon an effective registration statement for the resale of securities issuable thereunder | 100,000,000 | 36.9 | % | ||||||
YA Convertible Debentures (8) | Any time after issuance | 8,500,000 | 4.7 | % | ||||||
YA Warrant (8), (9) | Earlier of (a) nine months after the issuance date or (b) the full conversion or repayment of the YA Convertible Debentures | 10,000,000 | 5.5 | % | ||||||
Deferred Fee Arrangements (8), (9) | Upon an effective registration statement for the resale of the securities issuable thereunder | 3,877,750 | 2.0 | % | ||||||
Vellar Termination Agreement (8), (9) | Earlier of May 30, 2024 or six months following the conversion of 90% or more of the YA Convertible Debentures | 1,000,000 | 0.6 | % | ||||||
Insider Convertible Debentures (8), (9) | Currently exercisable at the discretion of the holder | 8,996,754 | 4.7 | % |
(1) | Represents the date on which Rubicon may issue shares of Class A Common Stock or the securityholder may obligate Rubicon to issue such number of shares of Class A Common Stock. The above does not purport to detail all of the conditions of such exercise or issuance obligations and you are encouraged to read the terms and conditions of each of the agreements set forth above. | |
(2) | Does not give effect to any interest or penalties accrued under such obligation. | |
(3) | Where such issuance is to be made based on a variable future rate (e.g., VWAP), the above assumes a $2.00 VWAP without any discounts, as applicable. | |
(4) | Represents such issuance’s percentage of the total number of shares of Common Stock, after giving effect to such issuance, as of February 7, 2023. | |
(5) | Assumes the cash exercise of all Warrants. 28,435,601 of 30,016,851 such shares of Class A Common Stock underlying such Warrants were registered for resale pursuant to that Form S-1/A registration statement (Registration No. 333-267010) filed by Rubicon with the SEC on January 26, 2023, which was declared effective by the SEC on February 1, 2023. | |
(6) | Represents only those shares issued pursuant to RSUs and DSUs registered for resale pursuant to that Form S-1/A registration statement (Registration No. 333-267010) filed by Rubicon with the SEC on January 26, 2023, which was declared effective by the SEC on February 1, 2023. | |
(7) | Assumes issuance without giving effect to the SEPA Exchange Cap. | |
(8) | Represents 3,877,750 shares of Class A Common Stock (the “Jefferies Deferred Fee Shares”) issued to Jefferies, pursuant to the terms of the Amended Underwriting Agreement, in satisfaction of outstanding amounts owed to Jefferies for financial advisory services provided in connection with the Business Combination (the “Jefferies Deferred Fee Arrangement”). For purposes of the Deferred Fee Arrangements, figures do not include the prior issuances of (i) 443,341 shares of Class A Common Stock (the “Cowen Deferred Fee Shares”) issued to Cowen Investments II LLC (“Cowen”) in satisfaction of outstanding amounts owed to Cowen and Company, LLC for financial advisory services provided in connection with the Business Combination, comprised of (a) 440,529 shares of Class A Common Stock issued to Cowen on November 18, 2022 and (b) 2,812 shares of Class A Common Stock issued to Cowen on December 6, 2022 (the “Cowen Deferred Fee Arrangement”), (ii) 4,373,210 shares of Class A Common Stock (the “Moelis Deferred Fee Shares”) issued to Moelis & Company Group LP (“Moelis”) on December 13, 2022 in satisfaction of outstanding amounts owed to Moelis & Company LLC for financial advisory services provided in connection with the Business Combination (the “Moelis Deferred Fee Arrangement”), and (iii) 2,485,604 shares of Class A Common Stock (the “Cohen Deferred Fee Shares”) issued to J.V.B. Financial Group, LLC (“Cohen”) on December 19, 2022 in satisfaction of outstanding amounts owed to Cohen for financial advisory services provided in connection with the Business Combination (the “Cohen Deferred Fee Arrangement”). | |
(9) | Shares issuable pursuant to these obligations are not being registered for resale pursuant to this registration statement and prospectus and will be issued as restricted securities. |
33 |
The resale, or expected or potential resale, of a substantial number of our shares of Class A Common Stock in the public market could adversely affect the market price for our shares of Class A Common Stock and make it more difficult for you to sell your shares of Class A Common Stock at times and prices that you feel are appropriate. In particular, as a result of the SEPA, the Yorkville Investor is an “underwriter” as such term is defined in Section 2(a)(11) of Securities Act, and the SEPA contemplates that the Yorkville Investor expects to resell any shares of Class A Common Stock we may issue and sell pursuant thereto. The FPA Sellers may also resell a significant number of shares of Class A Common Stock in the market with respect to the shares that they retained pursuant to the FPA Termination Agreements and that may be issued in the future pursuant to the Vellar Termination Agreement. Furthermore, we expect that, because there will be a large number of shares registered pursuant to this and other registration statements, the applicable selling securityholders will continue to offer such covered securities for a significant period of time, the precise duration of which cannot be predicted. Accordingly, the adverse market and price pressures resulting from an offering pursuant to a registration statement may continue for an extended period of time.
In addition, because the current market price of our Class A Common Stock is higher than the price certain selling securityholders paid for their securities, there is more likelihood that selling securityholders holding shares of Class A Common Stock will sell their shares as soon as the applicable registration statement is declared effective and any applicable lock-up restrictions expire.
See the section entitled “Certain Financing Transactions” for additional information regarding the SEPA, the YA Convertible Debentures, the YA Warrant, the Forward Purchase Agreement, the FPA Termination Agreements, the Insider Convertible Debentures, and the Deferred Fee Arrangements.
The issuances of additional shares of Class A Common Stock under certain of our contracts and arrangements may result in dilution of holders of Class A Common Stock and have a negative impact on the market price of the Class A Common Stock.
Pursuant to the Vellar Termination Agreement, Rubicon may issue Vellar up to $2.0 million of shares of Class A Common Stock (“Settlement Shares”) on the earlier of May 30, 2024 or the six month anniversary of the conversion of 90% or more of the YA Convertible Debentures into shares of Class A Common Stock (the “Vellar Lock-Up Date”) or pay such obligation in cash, in each case on the terms and subject to the conditions set forth therein. The number of Settlement Shares issuable pursuant to the Vellar Termination Agreement will be determined based on the average daily VWAP of the Class A Common Stock over the ten scheduled trading days preceding such share issuance. Without giving effect to the exercise of any other potential future issuance, and assuming that (a) the full $2.0 million obligation set forth above is paid in Class A Common Stock, and (b) the VWAP at which we issue Settlement Shares is $5.00, such additional issuances would represent in the aggregate approximately 400,000 additional shares of Class A Common Stock or approximately 0.2% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuance. If the 10 day VWAP price is $2.00, such additional issuances would represent in the aggregate approximately 1 million additional shares of Class A Common Stock or approximately 0.6% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuance. The timing, frequency, and the price at which we issue shares of Class A Common Stock are subject to market prices and management’s decision to repay such amount in equity, if at all. Any shares of Class A Common Stock issued pursuant to the Vellar Termination Agreement will need to be registered for resale on a Form S-1 or Form S-3 (as applicable) registration statement. For more information, see “Certain Financing Transactions—FPA Termination Agreements.”
Pursuant to certain deferred fee arrangements entered into with certain of our advisors in connection with the consummation of the Business Combination, we issued 443,341, 4,373,210, 2,485,604, and 3,877,750 shares of Class A Common Stock pursuant to the Cowen Deferred Fee Arrangement, Moelis Deferred Fee Arrangement, Cohen Deferred Fee Arrangement, and Jefferies Deferred Fee Arrangement respectively, (together with the Cowen Deferred Fee Arrangement, the Moelis Deferred Fee Arrangement, the Cohen Deferred Fee Arrangement, and the Jefferies Deferred Fee Arrangement, the “Deferred Fee Arrangements”). Without giving effect to any other potential future issuance or the issuance of the Cowen Deferred Fee Shares, Moelis Deferred Fee Shares, Cohen Deferred Fee Shares, and Jefferies Deferred Fee Shares and assuming that the VWAP at which we issue shares is $5.00, such additional issuances would represent in the aggregate approximately 1.4 million additional shares of Class A Common Stock or approximately 0.8% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuance. If the 10 day VWAP price is $2.00, such additional issuances would represent in the aggregate approximately 3.5 million additional shares of Class A Common Stock or approximately 2.0% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuance. The timing, frequency, and the price at which we issue shares of Class A Common Stock are subject to market prices and management’s decision to repay such amount in equity, if at all. Any shares of Class A Common Stock issued pursuant to these arrangements will need to be registered for resale on a Form S-1 registration statement.
34 |
Pursuant to the SEPA, we may issue and sell up to $200.0 million of shares of Class A Common Stock to the Yorkville Investor. The price at which we may issue and sell shares will be at 97% of the lowest daily VWAP of the Class A Common Stock during the three trading days following a notice to sell to the Yorkville Investor, provided that we are subject to certain caps on the amount of shares of Class A Common Stock that we may sell on any single day. Without giving effect to the SEPA Exchange Cap (as defined below) or any other potential future issuance other than pursuant to the SEPA (although the Yorkville Investor may acquire and resell additional shares of Class A Common Stock pursuant to the YA Convertible Debentures and the YA Warrant, as discussed below), and assuming that (a) we issue and sell the full $200.0 million of shares of Class A Common Stock under the SEPA to the Yorkville Investor, (b) the beneficial ownership limitations set forth in the SEPA are waived, and (c) the issue price for such sales is $5.00 per share, such additional issuances would represent in the aggregate approximately 40 million additional shares of Class A Common Stock or approximately 19.0% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuance. If the per share issue price is $2.00, such additional issuances would represent in the aggregate approximately 100 million additional shares of Class A Common Stock or approximately 36.9% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuance. If the beneficial ownership limitations are not waived, at a $5.00 and $2.00 issue price per share of Class A Common Stock, such issuances would represent approximately 17.9 million additional shares of Class A Common Stock, or approximately 9.99% of the total number of shares of Common Stock outstanding at Closing. The timing, frequency, and the price at which we issue shares of Class A Common Stock are subject to market prices and management’s decision to sell shares of Class A Common Stock, if at all. The registration statement of which this prospectus forms a part registers for resale all shares of Class A Common Stock issued or otherwise issuable to the Yorkville Investor under the SEPA (subject to the SEPA Exchange Cap). For more information, see “Certain Financing Transactions—SEPA.”
Pursuant to the YA Convertible Debentures and YA Warrant, we have agreed to issue up to $37.0 million of shares of Class A Common Stock upon the conversion of the YA Convertible Debentures or exercise of the YA Warrant, as applicable. Without giving effect to any other potential future issuance other than pursuant to the YA Convertible Debentures and YA Warrant and assuming that (a) the full amounts with respect to the conversion or exercise, as applicable, of the YA Convertible Debentures and YA Warrant are paid in Class A Common Stock (without giving effect to the interest and fees accrued thereunder), and (b) the VWAP at which we issue shares is $5.00, such issuances would represent in the aggregate approximately 7.4 million additional shares of Class A Common Stock or approximately 4.2% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuances. If the VWAP price at which we issue shares is $2.00, such issuances would represent in the aggregate approximately 18.5 million additional shares of Class A Common Stock or approximately 9.8% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuances. The timing, frequency, and the price at which we issue shares of Class A Common Stock are subject to market prices, management’s decision to pay such obligations in cash (if at all) and the Yorkville Investor’s decision to convert the YA Convertible Debentures into, and exercise the YA Warrant for, shares of Class A Common Stock. Any shares of Class A Common Stock issued pursuant to the YA Warrant will need to be registered for resale on a Form S-1 or Form S-3 (as applicable) registration statement. For more information, see “Certain Financing Transactions—YA Convertible Debentures” and “Certain Financing Transactions—YA Warrant.”
Pursuant to the Insider SPAs, Rubicon has agreed to issue and sell to the Insider Investors Insider Convertible Debentures in the aggregate principal amount of up to $17.0 million, net of an aggregate original issuance discount of $2.0 million, which are convertible into shares of Class A Common Stock. Without giving effect to any other potential future issuance other than pursuant to the Insider Convertible Debentures and assuming that (a) the full amounts with respect to the conversion of the Insider Convertible Debentures are paid in Class A Common Stock (without giving effect to the interest and fees accrued thereunder), and (b) the VWAP at which we issue shares is $5.00, such issuances would represent in the aggregate approximately 3.4 million additional shares of Class A Common Stock or approximately 2.0% of the total number of shares of Common Stock outstanding as of February 3, 2023 after giving effect to only such issuances. If the VWAP price at which we issue shares is $2.00, such issuances would represent in the aggregate approximately 8.5 million additional shares of Class A Common Stock or approximately 4.7% of the total number of shares of Common Stock outstanding as of February 3, 2023, after giving effect to only such issuances. The timing, frequency, and the price at which we issue shares of Class A Common Stock are subject to market prices and the Insider Investors’ decision to convert the Insider Convertible Debentures into shares of Class A Common Stock. Any shares of Class A Common Stock issued pursuant to the Insider Convertible Debentures will need to be registered for resale on a Form S-1 or Form S-3 (as applicable) registration statement. Further, the Insider Convertible Debentures may be converted into shares of Class A Common Stock at an initial conversion price equal to the lower of 110% of: (i) the average closing price of Class A Common Stock for the five (5) trading days immediately preceding the date of the respective closing or (ii) the closing price of Class A Common Stock immediately preceding the date of the respective closing, subject to adjustments as further specified in the Insider Convertible Debentures. The Insider Convertible Debentures will be fully repayable in cash upon maturity. The Insider SPAs contained customary representations, warranties, and covenants for the sale and purchase of the Insider Convertible Debentures. For more information, see “Certain Financing Transactions – Insider Convertible Debentures.”
35 |
If and when we issue securities, such recipients, upon effectiveness of a Form S-1 or Form S-3 (as applicable) registration statement registering such securities for resale, may resell all, some or none of such shares in their discretion and at different prices subject to the terms of the applicable agreement. As a result, investors who purchase shares from such recipients at different times will likely pay different prices for those shares, and so may experience different levels of dilution (and in some cases substantial dilution) and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase as a result of future issuances or issuances and sales made by Rubicon to such aforementioned parties or others at prices lower than the prices such investors paid for their shares. In addition, if we issue a substantial number of shares to such parties, or if investors expect that we will do so, the actual sales of shares or the mere existence of an arrangement with such parties may adversely affect the price of our securities or make it more difficult for us to sell equity or equity-related securities in the future at a desirable time and price, or at all.
The issuance, if any, of Class A Common Stock would not affect the rights or privileges of Rubicon’s existing stockholders, except that the economic and voting interests of existing stockholders would be diluted, potentially substantially. Although the number of shares of Class A Common Stock that existing stockholders own would not decrease as a result of these additional issuances, the shares of Class A Common Stock owned by existing stockholders would represent a smaller percentage of the total outstanding shares of Class A Common Stock after any such issuance, potentially significantly smaller.
See the section entitled “Certain Financing Transactions” for additional information regarding the SEPA, the Insider Convertible Debentures, the YA Convertible Debentures, the YA Warrant, the Forward Purchase Agreement, the FPA Termination Agreements, and the Deferred Fee Arrangements.
The Warrants are exercisable for Class A Common Stock, which may increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
Rubicon has an aggregate of 30,016,851 Warrants issued and outstanding, representing the right to purchase an equivalent number of shares of Class A Common Stock in accordance with the terms of the Warrant Agreement. The exercise price of the Warrants is $11.50 per share. Without giving effect to the issuance of any shares of Class A Common Stock pursuant to the FPA Termination Agreements, the Deferred Fee Arrangements (other than the Cowen Deferred Fee Shares, the Moelis Deferred Fee Shares, the Cohen Deferred Fee Shares, and the Jefferies Deferred Fee Shares), the Insider Convertible Debentures, the SEPA (other than the Yorkville Commitment Shares), the YA Convertible Debentures or the YA Warrant, assuming full exercise of all Warrants, the shares of Class A Common Stock issued upon such exercises would represent approximately 14.9% of the total number of shares of Common Stock outstanding on February 3, 2023, after giving effect to such exercises. To the extent such Warrants are exercised, additional shares of Class A Common Stock will be issued, which will result in dilution to Rubicon’s existing stockholders and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such Warrants may be exercised could adversely affect the market price of Class A Common Stock. However, there is no guarantee that the Warrants will ever be in the money prior to their expiration, and as such, the Warrants may expire worthless.
The Public Warrants may never be in the money, and they may expire worthless and the terms of such Public Warrants may be amended in a manner adverse to a holder if holders of at least a majority of the then-outstanding Public Warrants approve of such amendment.
The Public Warrants were issued in registered form pursuant to the Warrant Agreement. The Warrant Agreement provides that the terms of the Public Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval of the holders of at least a majority of the then-outstanding Public Warrants to make any change that adversely affects the interests of the registered holders of Public Warrants. Accordingly, we may amend the terms of the Public Warrants in a manner adverse to a holder if holders of at least a majority of the then-outstanding Public Warrants approve of such amendment. Notwithstanding the foregoing, any amendment to the terms of the Private Warrants only requires the consent of the Company and the holders of a majority of the Private Warrants.
36 |
We may redeem your unexpired Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Warrants worthless.
Rubicon may redeem outstanding Warrants prior to their exercise at a time that is disadvantageous to you, thereby significantly impairing the value of such warrants. Rubicon has the option to redeem not less than all of the outstanding Warrants at any time during the exercise period, at a price of $0.01 per Warrant, upon not less than 30 days’ prior written notice of redemption to each Warrant holder, (i) provided that the last reported sale price of the Class A Common Stock equals or exceeds $18.00 per share on each of 20 trading days within a 30 trading day period commencing after the Warrants become exercisable and ending on the third trading day prior to the notice of redemption to Warrant holders, and (ii) provided that there is an effective registration statement with respect to the Class A Common Stock underlying such Warrants, and a current prospectus relating thereto, available throughout the 30-day redemption or Rubicon has elected to require the exercise of the Warrants on a “cashless basis.”
If and when the Warrants become redeemable by Rubicon, it may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Warrants could force you (i) to exercise your Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Warrants at the then-current market price when you might otherwise wish to hold your Warrants, or (iii) to accept the nominal redemption price which, at the time that the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of your Warrants.
The value received upon exercise of the Warrants (1) may be less than the value the holders would have received if they had exercised their Warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the Warrants.
As of February 7, 2023, the last reported sale of price of the Class A Common Stock was $1.45 per share, which is below the threshold required for redemption.
In the event we elect to redeem the outstanding Warrants, we will mail notice of redemption by first class mail, postage prepaid, not less than thirty days prior to the redemption date to the registered holders of the Warrants to be redeemed at their last addresses as they appear on the registration books. Any notice mailed in such manner will be conclusively presumed to have been duly given whether or not the registered holder received such notice. If you do not exercise your Warrants prior to the redemption date, you would only receive the nominal redemption price for your Warrants upon surrender thereof.
There can be no assurance that we will continue to comply with the continued listing standards of NYSE.
Our Class A Common Stock and Public Warrants are currently listed on NYSE. If NYSE delists Rubicon’s securities for failure to meet the continued listing standards, Rubicon and its stockholders could face significant material adverse consequences including:
● | a limited availability of market quotations for our securities; |
● | reduced liquidity for our securities; |
● | a determination that Class A Common Stock are a “penny stock” which would require brokers trading in Class A 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; |
37 |
● | 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 Class A Common Stock and Public Warrants are listed on the NYSE, they are covered securities. Although the states are preempted from regulating the sale of our 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. Further, if Rubicon was no longer listed on the NYSE, its securities would not be covered securities and it would be subject to regulation in each state in which it offers its securities.
Under certain circumstances, holders of Rubicon Interests will be entitled to Earn-Out Interests, which will increase the number of shares eligible for future resale in the public market and result in dilution of our stockholders.
After the Closing, subject to the terms and conditions set forth in the Merger Agreement, the holders of Rubicon Interests (excluding, for the avoidance of doubt, Rubicon Phantom Unitholders and Rubicon Management Rollover Holders), as applicable, have a right to receive their pro rata portion of a number of Earn-Out Interests (subject to equitable adjustment for share splits, share dividends, combinations, recapitalizations and the like after the Closing, including to account for any equity securities into which such shares are exchanged or converted) as additional consideration based on the performance of the Class A Common Stock during the five (5) year period after the Closing. Blocked Unitholders immediately before the Closing will be entitled to receive a pro rata portion of 1,488,519 Earn-Out Class A Shares and Rubicon Continuing Unitholders immediately before the Closing will be entitled to receive a pro rata portion of 8,900,840 Earn-Out Units and an equivalent number of Earn-Out Class V Shares.
Certain holders of Rubicon Interests will be entitled to a contingent right to receive Earn-Out Interests that is conditioned on specific circumstances, of which the occurrence is uncertain, and the failure of any of such circumstances to occur could create potential negative effects such as an increased risk of litigation.
Subject to the terms and conditions set forth in the Merger Agreement, the holders of Rubicon Interests (excluding, for the avoidance of doubt, Rubicon Phantom Unitholders and Rubicon Management Rollover Holders), as applicable, will be entitled to receive their pro rata portion of a number of Earn-Out Interests (subject to equitable adjustment for share splits, share dividends, combinations, recapitalizations and the like after the Closing, including to account for any equity securities into which such shares are exchanged or converted) as additional consideration based on the performance of the Class A Common Stock during the five (5) year period after the Closing (the “Earn-Out Period”), as set forth below upon satisfaction of any of the following conditions (each, an “Earn-Out Condition”):
(1) 50% of the Earn-Out Interests if the VWAP of the Class A Common Stock equals or exceeds $14.00 per share (as adjusted for stock splits, stock dividends, reorganizations, and recapitalizations) for twenty (20) of thirty (30) consecutive trading days during the Earn-Out Period;
(2) 50% of the Earn-Out Interests if the VWAP of the Class A Common Stock equals or exceeds $16.00 per share (as adjusted for stock splits, stock dividends, reorganizations, and recapitalizations) for twenty (20) of any thirty (30) consecutive trading days during the Earn-Out Period.
Whether the Earn-Out Conditions will be met is uncertain and depends on factors that may be out of Rubicon’s direct control, such as market conditions and its stock price. The failure of either Earn-Out Condition to occur could give rise to potential litigation and other negative effects because of management’s business decisions, which may negatively impact Rubicon’s stock price.
38 |
A significant portion of the total outstanding shares of Class A Common Stock (or shares of Class A Common Stock that may be issued in the future pursuant to an exchange or redemption of Class B Units) are subject to lock-up restrictions, but may be sold into the market in the near future. This could cause the market price of our securities to drop significantly.
Pursuant to the Sponsor Agreement, the Sponsor and each Insider agreed not to transfer any Founder Class B Shares or Founder Private Placement Warrants (or any shares of Class A Common Stock issuable upon conversion or exercise thereof) until the earlier of (i) February 11, 2023 (180 days after the Closing Date) and (ii) the date after the Closing on which Rubicon completes a liquidation, merger, or similar transaction that results in all of Rubicon’s stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property. Sponsor holds 6,746,250 shares of Class A Common Stock (after accounting for the forfeiture of 160,000 Founder Class B Shares pursuant to the Rubicon Equity Investment Agreement and 1,000,000 Founder Class B Shares pursuant to the Sponsor Forfeiture Agreement) and 12,623,125 Private Warrants (exercisable into 12,623,125 shares of Class A Common Stock).
Pursuant to the Lock-Up Agreements, each holder agreed to certain transfer restrictions with respect to its Class A Common Stock and/or Class B Units received as transaction consideration pursuant to the Merger Agreement, until the earlier of (i) February 11, 2023 (180 days after the Closing Date) and (ii) the date after the Closing on which Rubicon completes a liquidation, merger, or similar transaction that results in all of Rubicon’s stockholders having the right to exchange their equity holdings for cash, securities or other property. The holders of Rubicon Interests further agreed pursuant to the Lock-Up Agreements not to exchange Class B Units for Class A Common Stock during this restricted period. As of the Closing Date, there are approximately 138.5 million shares of Class A Common Stock (or Class B Units otherwise exchangeable for shares of Class A Common Stock) subject to these restrictions.
Pursuant to the Atalaya Termination Agreement, 500,000 shares of Class A Common Stock held by the ACM Seller are restricted from transfer until May 30, 2024. Pursuant to the Vellar Termination Agreement, the 1,640,848 Previously Owned Shares are restricted from transfer until the earlier of May 30, 2024 or the six month anniversary of the conversion of 90% or more of the YA Convertible Debentures into shares of Class A Common Stock.
Pursuant to the Insider Lockup Agreement, all Insider Conversion Shares are subject to transfer restrictions, whereby the resale of the Insider Conversion Shares is subject to a lock-up period that shall be the earlier of (i) 18 months and (ii) such date as the Yorkville Investor notifies Rubicon that it has sold all shares of Class A Common Stock underlying the YA Convertible Debentures issued pursuant to the YA SPA.
We entered into the following agreements whereby we issued or have agreed to issue unregistered securities that would require an effective registration statement on Form S-1 or Form S-3 (as applicable) for the resale thereof:
● | Pursuant to the Subscription Agreements, Rubicon issued 12.1 million shares of Class A Common Stock to the PIPE Investors. |
● | Pursuant to the Rubicon Equity Investment Agreement, Rubicon issued 160,000 shares of Class A Common Stock to the New Equity Holders. |
● | Pursuant to the Vellar Termination Agreement, Rubicon may issue up to $2.0 million of shares of Class A Common Stock to Vellar. |
● | Pursuant to the Deferred Fee Arrangements, Rubicon has issued 11,179,905 shares of Class A Common Stock. | |
● | Pursuant to the SEPA, Rubicon issued 200,000 shares of Class A Common Stock to the Yorkville Investor as an initial commitment fee and may issue up to $200.0 million of Class A Common Stock to the Yorkville Investor pursuant to the terms thereof. | |
● | Pursuant to the DSUs, Rubicon will issue 815,032 shares of Class A Common Stock to certain Phantom Unitholders and Rubicon Management Rollover Holders who were no longer employed by Rubicon or its subsidiaries at the time of the DSU award. |
39 |
● | Pursuant to the YA Convertible Debentures, Rubicon may issue up to $17.0 million (plus any interest or amounts accrued thereunder) of shares of Class A Common Stock to the Yorkville Investor. |
● |
Pursuant to the YA Warrant, Rubicon may issue up to $20.0 million of shares of Class A Common Stock to the Yorkville Investor, subject to certain adjustments thereunder. | |
● | Pursuant to the Insider Convertible Debentures, Rubicon may issue up to $17.0 million, net of an original issuance discount of $2.0 million, of shares of Class A Common Stock to the investors party thereto. |
Once these shares are registered for resale or in a primary offering, they can be sold in the public market upon issuance, subject to Rule 144 limitations applicable to affiliates and vesting restrictions.
See the section entitled “Certain Financing Transactions” for additional information regarding the SEPA, the YA Convertible Debentures, the YA Warrant, the Forward Purchase Agreement, the FPA Termination Agreements, the Insider Convertible Debentures, and the Deferred Fee Arrangements.
The market price and trading volume of Class A Common Stock has been and may continue to be volatile and has declined and could further decline significantly following the Business Combination.
Stock markets, including the NYSE, the NYSE Amex and the Nasdaq Capital Market, have from time to time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading market develops and is sustained for our Class A Common Stock and Public Warrants, the market price of Class A Common Stock and Public Warrants may be volatile and could decline significantly. In addition, the trading volume in Class A Common Stock and Public Warrants may fluctuate and cause significant price variations to occur. If the market price of Class A Common Stock and Public Warrants declines significantly, you may be unable to resell your shares and warrants at or above the market price of Class A Common Stock and Public Warrants as of the date of the consummation of the Business Combination. We cannot assure you that the market price of Class A Common Stock and Public Warrants will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:
● | the realization of any of the risk factors presented in this prospectus; |
● | actual or anticipated differences in our estimates, or in the estimates of analysts, for the Company’s revenues, results of operations, level of indebtedness, liquidity or financial condition; |
● | additions and departures of key personnel; |
● | failure to comply with the requirements of NYSE; |
● | failure to comply with the Sarbanes-Oxley Act or other laws or regulations; |
● | future issuances, sales or resales, or anticipated issuances, sales or resales, of Class A Common Stock; |
● | perceptions of the investment opportunity associated with Class A Common Stock relative to other investment alternatives; |
● | the performance and market valuations of other similar companies; |
● | future announcements concerning Rubicon’s business or its competitors’ businesses; |
● | broad disruptions in the financial markets, including sudden disruptions in the credit markets; |
40 |
● | speculation in the press or investment community; |
● | actual, potential or perceived control, accounting or reporting problems; |
● | changes in accounting principles, policies and guidelines; |
● | general economic and political conditions, such as the effects of the COVID-19 outbreak, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism, including the outbreak of war in Ukraine; and | |
● |
future issuances of Class A Common Stock at or below then-current trading prices, including pursuant to the YA Convertible Debentures, the Insider Convertible Debentures, YA Warrant, and SEPA. |
In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their securities. This type of litigation could result in substantial costs and divert Rubicon’s management’s attention and resources, which could have a material adverse effect on Rubicon.
If securities or industry analysts do not publish research, publish inaccurate or unfavorable research or cease publishing research about us, our share price and trading volume could decline significantly.
The market for Class A Common Stock will depend in part on the research and reports that securities or industry analysts publish about Rubicon or its business. Securities and industry analysts do not currently, and may never, publish research on Rubicon. If no securities or industry analysts commence coverage of Rubicon, the market price and liquidity for Class A Common Stock could be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover Rubicon downgrade their opinions about Class A Common Stock, publish inaccurate or unfavorable research about Rubicon, or cease publishing about Rubicon regularly, demand for Class A Common Stock could decrease, which might cause its share price and trading volume to decline significantly.
Future issuances of debt securities and equity securities may adversely affect us, including the market price of Class A Common Stock, and may be dilutive to existing stockholders.
There is no assurance that Rubicon will not incur debt or issue equity ranking senior to Class A Common Stock such as the YA Convertible Debentures or the Insider Convertible Debentures. Those securities will generally have priority upon liquidation. Such securities also may be governed by an indenture or other instrument containing covenants restricting Rubicon’s operating flexibility. Additionally, any convertible or exchangeable securities that Rubicon issues in the future may have rights, preferences and privileges more favorable than those of Class A Common Stock. Because Rubicon’s decision to issue debt or equity in the future will depend on market conditions and other factors beyond Rubicon’s control, it cannot predict or estimate the amount, timing, nature or success of Rubicon’s future capital raising efforts. As a result, future capital raising efforts may reduce the market price of Class A Common Stock and be dilutive to existing stockholders.
We do not intend to pay cash dividends for the foreseeable future.
Subject to its obligations under the Tax Receivable Agreement, Rubicon currently intends to retain its future earnings, if any, to finance the further development and expansion of its business (including by re-investing such future earnings in Rubicon) and does not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be subject to the Tax Receivable Agreement, A&R LLCA, and at the discretion of the board of directors of Rubicon (the “Board”) and will depend on Rubicon’s financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as the Board deems relevant.
41 |
Rubicon is a holding company with no material assets other than its interest in Holdings LLC. We intend to cause Holdings LLC to make distributions to holders of Class A Units and Class B Units such that the total cash distribution from Holdings LLC to the holders is sufficient to enable each holder to pay all applicable taxes on taxable income allocable to such holder (the “Tax Distributions”). Rubicon will use the Tax Distributions to pay any taxes it owes and satisfy its obligations under the Tax Receivable Agreement. In addition, Holdings LLC is expected to reimburse Rubicon for corporate and other overhead expenses.
The A&R LLCA provides that the Tax Distributions will be made to holders of Class A Units and Class B Units (including Rubicon) at the highest combined effective U.S. federal, state, and local marginal rate of tax applicable to an individual resident in the U.S. for the fiscal year. Rubicon anticipates that the Tax Distributions it will receive from Holdings LLC may, in certain periods, exceed Rubicon’s actual tax liabilities and obligations to make payments under the Tax Receivable Agreement. The Board, in its sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, which may include, among other uses, to pay dividends on the Class A Common Stock or to re-invest in Holdings LLC. Rubicon will have no obligation to distribute such cash (or other available cash other than any declared dividend) to its stockholders. We also expect, if necessary, to undertake ameliorative actions, which may include pro rata or non-pro rata reclassifications, combinations, subdivisions or adjustments of outstanding Class A Units pursuant to the A&R LLCA, to maintain one-for-one parity between Class A Units held by Rubicon and shares of Class A Common Stock.
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of Class A Common Stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. Rubicon may be the target of this type of litigation in the future. Securities litigation against Rubicon could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm its business.
Other Risks Related to Operating as a Public Company
Our management does not have prior experience in operating a public company.
Our management does not have prior experience in managing a publicly traded company. As such, the management team may encounter difficulties in successfully or effectively managing Rubicon’s transition to a public company and in complying with its reporting and other obligations under federal securities laws and other regulations and in connection with operating as a public company. Their lack of prior experience in dealing with the reporting and other obligations and laws pertaining to public companies could result in the management of Rubicon being required to devote significant time to these activities which may result in less time being devoted to the management and growth of Rubicon. Additionally, Rubicon will be required to hire additional personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or internal controls over financial reporting required of public companies. Rubicon may be required to incur significant expense in connection with these efforts.
Rubicon will depend on distributions from Holdings LLC to pay any taxes and other expenses, including payments under the Tax Receivable Agreement.
Rubicon is a holding company and its only business is to act as the managing member of Holdings LLC, and its only material assets are Class A Units representing approximately 32.7% of the membership interests of Holdings LLC. Rubicon does not have any independent means of generating revenue. We anticipate that Holdings LLC will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to the members of Holdings LLC. Accordingly, Rubicon will be required to pay income taxes on its allocable share of any net taxable income of Holdings LLC. We intend to cause Holdings LLC to make pro rata distributions to each of its members, including Rubicon, in an amount intended to enable each member to pay all applicable taxes on taxable income allocable to such member and to allow Rubicon to make payments under the Tax Receivable Agreement. In addition, Holdings LLC will reimburse Rubicon for corporate and other overhead expenses. If the amount of tax distributions to be made exceeds the amount of funds available for distribution, Rubicon shall receive a tax distribution payment before the other members of Holdings LLC receive any distribution and the balance, if any, of funds available for distribution shall be distributed to the other members of Holdings LLC pro rata in accordance with their assumed tax liabilities. To the extent that Rubicon needs funds, and Holdings LLC is restricted from making such distributions under applicable laws or regulations, or is otherwise unable to provide such funds, it could materially and adversely affect Rubicon’s ability to pay taxes and other expenses, including payments under the Tax Receivable Agreement, and affect our liquidity and financial condition. Although we do not currently expect to pay dividends, such restrictions could also affect Rubicon’s ability to pay any dividends (if declared) in the future.
42 |
Rubicon is required to pay to the TRA Holders most of the tax benefits Rubicon receives from tax basis step-ups (and certain other tax benefits) attributable to its acquisition of Legacy Rubicon Units in connection with the Business Combination and in the future, and the amount of those payments is expected to be substantial.
Rubicon has entered into the Tax Receivable Agreement with the TRA Holders. The Tax Receivable Agreement provides for payment by Rubicon to the TRA Holders of 85% of the amount of the net cash tax savings, if any, that Rubicon realizes (or, under certain circumstances, is deemed to realize) as a result of (i) increases in tax basis (and utilization of certain other tax benefits) resulting from Rubicon’s acquisition of preferred and common units of Holdings LLC (the “Legacy Rubicon Units”) in connection with the Business Combination and in Class B Unit future exchanges, (ii) certain favorable tax attributes (such as net operating losses attributable to pre-merger tax periods) Rubicon acquired in the Blocker Mergers and (iii) any payments Rubicon makes to the TRA Holders under the Tax Receivable Agreement (including tax benefits related to imputed interest). Rubicon will retain the benefit of the remaining 15% of these net cash tax savings.
The term of the Tax Receivable Agreement commenced upon the completion of the Business Combination and will continue until all tax benefits that are subject to the Tax Receivable Agreement have been utilized or have expired, unless we exercise our right to terminate the Tax Receivable Agreement (or it is terminated due to a change in control or our breach of a material obligation thereunder), in which case Rubicon will be required to make the termination payment specified in the Tax Receivable Agreement. In addition, payments we make under the Tax Receivable Agreement will be increased by any interest accrued from the due date (without extensions) of the corresponding tax return.
The actual tax benefit, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, as further set forth in this prospectus. For the sake of illustration, assuming all outstanding Class B Units are exchanged for shares of Class A Common Stock, the estimated tax benefits to Rubicon subject to the Tax Receivable Agreement would be approximately $394.7 million and the related undiscounted payment to the TRA Holders equal to 85% of the benefit would be approximately $335.5 million, assuming (i) exchanges occurred on the same day, (ii) a share price of $10.00 per share of Class A Common Stock, (iii) no material changes in relevant tax law, (iv) a constant combined effective income tax rate of 24.017% and (v) that we have sufficient taxable income in each year to realize on a current basis the increased depreciation, amortization and other tax benefits that are the subject of the Tax Receivable Agreement. The actual future payments to the TRA Holders will vary based on the factors discussed below, and estimating the amount and timing of payments that may be made under the Tax Receivable Agreement is by its nature imprecise, as the calculation of amounts payable depends on a variety of factors and future events. We expect to receive distributions from Holdings LLC in order to make any required payments under the Tax Receivable Agreement. However, we may need to incur debt to finance payments under the Tax Receivable Agreement to the extent such distributions or our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise.
The actual tax benefit, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending on a number of factors, including the price of our Class A Common Stock at the time of the exchange; the timing of future exchanges; the extent to which exchanges are taxable; the amount and timing of the utilization of tax attributes; the amount, timing and character of Rubicon’s income; the U.S. federal, state and local tax rates then applicable; the depreciation and amortization periods that apply to the increases in tax basis; the timing and amount of any earlier payments that Rubicon may have made under the Tax Receivable Agreement; and the portion of Rubicon’s payments under the Tax Receivable Agreement that constitute imputed interest or give rise to depreciable or amortizable tax basis. As a result of the increases in the tax basis (including actual and deemed increases) of the tangible and intangible assets of Holdings LLC attributable to the initial acquisitions and exchanged Holdings LLC interests, the Blocker Mergers, and certain other tax benefits, the payments that Rubicon will be required to make to the beneficiaries under the Tax Receivable Agreement will be substantial. There may be a material negative effect on our financial condition and liquidity if, as described below, the payments under the Tax Receivable Agreement exceed the actual benefits Rubicon receives in respect of the tax attributes subject to the Tax Receivable Agreement and/or distributions to Rubicon by Holdings LLC are not sufficient to permit Rubicon to make payments under the Tax Receivable Agreement.
43 |
In certain circumstances, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual tax benefits, if any, that Rubicon actually realizes.
The Tax Receivable Agreement provides that if (i) Rubicon exercises its right to early termination of the Tax Receivable Agreement in whole (that is, with respect to all benefits due to all beneficiaries under the Tax Receivable Agreement) or in part (that is, with respect to some benefits due to all beneficiaries under the Tax Receivable Agreement), (ii) Rubicon experiences certain changes in control, (iii) the Tax Receivable Agreement is rejected in certain bankruptcy proceedings, (iv) Rubicon fails (subject to certain exceptions) to make a payment under the Tax Receivable Agreement within 180 days after the due date, or (v) Rubicon materially breaches its obligations under the Tax Receivable Agreement, Rubicon will be obligated to make an early termination payment to holders of rights under the Tax Receivable Agreement equal to the present value of all payments that would be required to be paid by Rubicon under the Tax Receivable Agreement. The amount of such payments will be determined on the basis of certain assumptions in the Tax Receivable Agreement, including (i) the assumption that Rubicon would have enough taxable income to fully utilize the tax benefit resulting from the tax assets that are the subject of the Tax Receivable Agreement, (ii) the assumption that any item of loss, deduction, or credit generated by a basis adjustment or imputed interest arising in a taxable year preceding the taxable year that includes an early termination will be used by Rubicon ratably from such taxable year through the earlier of (x) the scheduled expiration of such tax item or (y) 15 years; (iii) the assumption that any non-amortizable assets are deemed to be disposed of in a fully taxable transaction on the fifteenth anniversary of the earlier of the basis adjustment and the early termination date; (iv) the assumption that U.S. federal, state and local tax rates will be the same as in effect on the early termination date, unless scheduled to change; and (v) the assumption that any exchangeable units of Holdings LLC (other than those held by Rubicon) outstanding on the termination date are deemed to be exchanged for an amount equal to the market value of the corresponding number of shares of Class A Common Stock on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates. The amount of the early termination payment is determined by discounting the present value of all payments that would be required to be paid by Rubicon under the Tax Receivable Agreement at a rate equal to the lesser of (a) 6.5% and (b) LIBOR (as defined in the Tax Receivable Agreement), plus 400 basis points.
Moreover, as a result of an elective early termination, a change in control or Rubicon’s material breach of its obligations under the Tax Receivable Agreement, Rubicon could be required to make payments under the Tax Receivable Agreement that exceed its actual cash savings. Thus, Rubicon’s obligations under the Tax Receivable Agreement could have a substantial negative effect on its financial condition and liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, or other forms of business combinations or changes of control. We cannot assure you that we will be able to finance any early termination payment. It is also possible that the actual benefits ultimately realized by us may be significantly less than were projected in the computation of the early termination payment. We will not be reimbursed if the actual benefits ultimately realized by us are less than were projected in the computation of the early termination payment.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we will determine and the Internal Revenue Service (“IRS”) or another tax authority may challenge all or part of the tax basis increases, as well as other related tax positions we take, and a court could sustain such challenge. If any tax benefits that have given rise to payments under the Tax Receivable Agreement are subsequently disallowed, Rubicon would be entitled to reduce future amounts otherwise payable to a holder of rights under the Tax Receivable Agreement to the extent the holder has received excess payments. However, the required final and binding determination that a holder of rights under the applicable Tax Receivable Agreement has received excess payments may not be made for a number of years following commencement of any challenge, and Rubicon will not be permitted to reduce its payments under the Tax Receivable Agreement until there has been a final and binding determination, by which time sufficient subsequent payments under such Tax Receivable Agreement may not be available to offset prior payments for disallowed benefits. Rubicon will not be reimbursed for any payments previously made under the Tax Receivable Agreement if the basis increases described above are successfully challenged by the IRS or another taxing authority. As a result, in certain circumstances, payments could be made under the Tax Receivable Agreement that are significantly in excess of the benefit that Rubicon actually realizes in respect of the increases in tax basis (and utilization of certain other tax benefits) and Rubicon may not be able to recoup those payments, which could adversely affect Rubicon’s financial condition and liquidity.
44 |
In certain circumstances, Holdings LLC will be required to make distributions to us and the continuing members of Holdings LLC, and the distributions that Holdings LLC will be required to make may be substantial.
Holdings LLC is expected to continue to be treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, taxable income will be allocated to its members, including Rubicon. Pursuant to the A&R LLCA, Holdings LLC will make pro rata tax distributions to its members, including Rubicon, which generally will be pro rata based on the ownership of Holdings LLC units, calculated using an assumed tax rate, to enable each of the members to pay taxes on that member’s allocable share of Holdings LLC’s net taxable income. Under applicable tax rules, Holdings LLC is required to allocate net taxable income disproportionately to its members in certain circumstances. Because tax distributions will be determined based on assumptions, including an assumed tax rate that is the highest combined effective marginal tax rate applicable to an individual resident in the U.S. for the taxable year, but will be made pro rata based on ownership of Holdings LLC units, Holdings LLC will be required to make tax distributions that, in the aggregate, will likely exceed the aggregate amount of taxes payable by its members with respect to the allocation of Holdings LLC’s income.
Funds used by Holdings LLC to satisfy its tax distribution obligations will generally not be available for reinvestment in its business and these the tax distributions Holdings LLC will be required to make may be substantial.
As a result of potential differences in the amount of net taxable income allocable to us and to other members of Holdings LLC, as well as the use of an assumed tax rate in calculating Holdings LLC’s Tax Distribution obligations, we may receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. We may choose to manage these excess distributions through a number of different approaches, including through the payment of dividends to our holders of Class A Common Stock or by applying them to other corporate purposes.
The IRS might challenge the tax basis step-ups and other tax benefits we receive in connection with the Business Combination and the related transactions and in connection with future acquisitions of Class B Units.
The Rubicon Continuing Unitholders may exchange Class B Units for shares of our Class A Common Stock in the future or, at the election of Rubicon in its sole discretion, for cash. The Blocker Mergers and exchanges by Rubicon Continuing Unitholders in the future may result in increases in the tax basis of the assets of Holdings LLC that otherwise would not have been available. These increases in tax basis are expected to increase, or deemed to increase (for U.S. tax purposes) Rubicon’s depreciation and amortization and, together with other tax benefits, reduce the amount of tax that Rubicon would otherwise be required to pay, although it is possible that the IRS might challenge all or part of these tax basis increases or other tax benefits, and a court might sustain such a challenge. Rubicon’s ability to achieve benefits from any tax basis increases or other tax benefits will depend upon a number of factors, as discussed below, including the timing and amount of our future income. We will not be reimbursed for any payments previously made under the Tax Receivable Agreement if the basis increases or other tax benefits described above are successfully challenged by the IRS or another taxing authority (other than by an off-set against future payments under the Tax Receivable Agreement). As a result, in certain circumstances, payments could be made under the Tax Receivable Agreement in excess of our ultimate cash tax savings.
We may incur tax and other liabilities attributable to Blocked Unitholders as a result of certain reorganization transactions.
In connection with the Blocker Mergers, Rubicon issued Blocked Unitholders shares of Class A Common Stock as merger consideration. As the successor to these merged entities, Rubicon generally will succeed to and be responsible for any outstanding or historical tax or other liabilities of the Blocker Companies, including any liabilities incurred as a result of the Blocker Mergers. Any such liabilities for which Rubicon is responsible could have an adverse effect on our liquidity and financial condition.
45 |
Future changes to tax laws or our effective tax rate could materially and adversely affect our company and reduce net returns to our stockholders.
Our tax treatment is subject to the enactment of, or changes in, tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in various jurisdictions, all of which could change on a prospective or retroactive basis. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid, or the taxation of partnerships and other passthrough entities. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future, reduce post-tax returns to our stockholders, and increase the complexity, burden and cost of tax compliance.
Our businesses are subject to income taxation in the United States. Tax rates at the federal, state and local levels in the United States may be subject to significant change. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Our effective income tax rate can vary significantly between periods due to a number of complex factors, including projected levels of taxable income in each jurisdiction, tax audits conducted and settled by various tax authorities, and adjustments to income taxes upon finalization of income tax returns.
We may be required to pay additional taxes because of the U.S. federal partnership audit rules and potentially also state and local tax rules.
Under the U.S. federal partnership audit rules, subject to certain exceptions, audit adjustments to items of income, gain, loss, deduction, or credit of an entity (and any holder’s share thereof) are determined, and taxes, interest, and penalties attributable thereto, are assessed and collected at the entity level. Holdings LLC (or any of its applicable subsidiaries or other entities in which Holdings LLC directly or indirectly invests that are classified as partnerships for U.S. federal income tax purposes) may be required to pay additional taxes, interest and penalties as a result of an audit adjustment, and Rubicon, as a member of Holdings LLC (or such other entities), could be required to indirectly bear the economic burden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. Audit adjustments for state or local tax purposes similarly could result in Holdings LLC (or any of its applicable subsidiaries or other entities in which Holdings LLC directly or indirectly invests) being required to pay or indirectly bear the economic burden of state or local taxes and associated interest and penalties.
Under certain circumstances, Holdings LLC or an entity in which Holdings LLC directly or indirectly invests may be eligible to make an election to cause members of Holdings LLC (or such other entity) to take into account the amount of any understatement, including any interest and penalties, in accordance with such member’s share in Holdings LLC in the year under audit. We will decide whether or not to cause Holdings LLC to make this election (subject to the terms of the A&R LLCA); however, there are circumstances in which the election may not be available and, in the case of an entity in which Holdings LLC directly or indirectly invests, such decision may be outside of our control. If Holdings LLC or an entity in which Holdings LLC directly or indirectly invests does not make this election, the then-current members of Holdings LLC (including Rubicon) could economically bear the burden of the understatement.
If Holdings LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, Rubicon and Holdings LLC might be subject to potentially significant tax inefficiencies, and Rubicon would not be able to recover payments previously made by it under the Tax Receivable Agreement, even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.
We intend to operate such that Holdings LLC does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. A “publicly traded partnership” is an entity that otherwise would be treated as a partnership for U.S. federal income tax purposes, the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof. From time to time the U.S. Congress has considered legislation to change the tax treatment of partnerships and there can be no assurance that any such legislation will not be enacted or if enacted will not be adverse to us.
If Holdings LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, significant tax inefficiencies might result for Rubicon and Holdings LLC, including as a result of Rubicon’s inability to file a consolidated U.S. federal income tax return with Holdings LLC. In addition, Rubicon may not be able to realize tax benefits covered under the Tax Receivable Agreement and would not be able to recover any payments previously made by it under the Tax Receivable Agreement, even if the corresponding tax benefits (including any claimed increase in the tax basis of Holdings LLC’s assets) were subsequently determined to have been unavailable.
46 |
USE OF PROCEEDS
All of the Class A Common Stock offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. The Company will not receive any of the proceeds from these sales.
The Selling Securityholders will pay any underwriting discounts and commissions and expenses incurred by the Selling Securityholders for brokerage, accounting, tax or legal services or any other expenses incurred by the Selling Securityholders in disposing of the securities covered by this prospectus; provided, however, that pursuant to (i) the SEPA, we will bear the costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including all registration and filing fees, NYSE listing fees and fees and expenses of our counsel and our independent registered public accounting firm, and certain fees incurred in connection with a Selling Securityholder’s exercise of certain block trade and underwritten offering rights, and (ii) pursuant to the Insider SPAs, we will bear all expenses incurred by Rubicon in complying with its obligations in connection with the registration and disposition of registrable securities, including, without limitation, all registration, listing and qualifications fees, printers, fees and expenses of Rubicon’s counsel and accountants (except legal fees of the Insider Investors’ counsel associated with the review of the registration statement). See “Securities Eligible for Future SaleRegistration Rights” for additional information regarding these obligations.
47 |
DIVIDEND POLICY
We have not paid any cash dividends on Common Stock to date. The Board may from time to time consider whether or not to institute a dividend policy. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of the Board, subject to restrictions under Delaware law. The Company’s ability to declare dividends will also be limited by restrictive covenants pursuant to existing and any future debt financing.
We are a holding company with no material assets other than our interest in Holdings LLC. We intend to cause Holdings LLC to make distributions to holders of Class A Units and Class B Units in amounts such that the total cash distributions from Holdings LLC to the holders are sufficient to enable each holder to pay all applicable taxes on taxable income allocable to such holder and other obligations under the Tax Receivable Agreement as well as any cash dividends declared by us.
The A&R LLCA generally provides that pro rata cash Tax Distributions will be made to holders of Class A Units and Class B Units (including Rubicon) at certain assumed tax rates. We anticipate that the distributions we will receive from Holdings LLC may, in certain periods, exceed our actual tax liabilities and obligations to make payments under the Tax Receivable Agreement. The Board, in its sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, which may include, among other uses, to pay dividends on the Class A Common Stock. We will have no obligation to distribute such cash (or other available cash other than any declared dividend) to our stockholders. We also expect, if necessary, to undertake ameliorative actions, which may include pro rata or non-pro rata reclassifications, combinations, subdivisions or adjustments of outstanding Class A Units pursuant to the A&R LLCA, to maintain one-for-one parity between Class A Units held by us and shares of Class A Common Stock.
See “Description of SecuritiesCapital Stock.”
48 |
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Capitalized terms used but not defined herein shall have the meanings ascribed to them in this prospectus.
We are providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Mergers. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes.
The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2022 combines the historical unaudited statement of operations of Founder for the six months ended June 30, 2022 with the historical unaudited consolidated statement of operations of Rubicon for the nine months ended September 30, 2022. The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2021 combines the historical audited statement of operations of Founder for the period from April 26, 2021 (inception) through December 31, 2021 with the historical audited consolidated statement of operations of Holdings LLC for the fiscal year ended December 31, 2021. The unaudited pro forma statements of operations give effect to the Mergers as if they had been consummated on January 1, 2021. As the Mergers were consummated on August 15, 2022, Rubicon’s historical unaudited condensed statement of operations for the nine months ended September 30, 2022 includes revenues and expenses attributable to Founder for the period August 16, 2022 through September 30, 2022.
The Mergers were consummated on August 15, 2022, and Founder assets and liabilities are included in the historical balance sheet of Rubicon as of September 30, 2022. Therefore, no pro forma adjustments will be presented related to the Mergers. The unaudited pro forma condensed combined balance sheet as of September 30, 2022 combines the historical unaudited balance sheet of Rubicon as of September 30, 2022, giving effect to certain material financing activities completed subsequent to the balance sheet date as if they had been consummated on that date.
The unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the following historical financial statements and the accompanying notes, which are included elsewhere in and/or incorporated by reference into the prospectus to which this Unaudited Pro Forma Condensed Combined Financial Information is attached:
● | The historical unaudited financial statements of Founder as of and for the six months ended June 30, 2022, and the historical audited consolidated financial statements of Founder as of and for the period from April 26, 2021 (inception) through December 31, 2021; and |
● | The historical unaudited condensed financial statements of Rubicon as of and for the nine months ended September 30, 2022, and the historical audited condensed financial statements of Holdings LLC as of and for the fiscal year ended December 31, 2021. |
The foregoing historical financial statements have been prepared in accordance with GAAP.
The unaudited pro forma condensed combined financial information should also be read together with the audited and unaudited historical condensed financial statements of each of Rubicon, Holdings LLC, and Founder and the accompanying notes, as well as the disclosures contained in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and other financial information included elsewhere in and/or incorporated by reference into this prospectus.
Description of the Mergers
On December 15, 2021, Founder entered into the Merger Agreement with Merger Sub, Holdings LLC, and the other parties thereto, whereby, among other things, (i) Founder, a Cayman Islands exempted company, redomesticated as a Delaware corporation, and in connection therewith was renamed “Rubicon Technologies, Inc.” and (ii) Merger Sub merged with and into Holdings LLC, with Holdings LLC surviving the merger as a wholly owned subsidiary of Rubicon. Immediately prior to the redomestication, Holdings LLC changed its name to “Rubicon Technologies Holdings, LLC.”
49 |
Pursuant to the Merger Agreement, in consideration of the transactions set forth above, Holdings LLC equity holders received Class A Common Stock, Class V Common Stock and/or Class B Units, in each case as set forth in the Merger Agreement and as further described elsewhere in this prospectus. The aggregate merger consideration issued to Holdings LLC equity holders at Closing was 19,846,915 shares of Class A Common Stock at a deemed value of $10.00 per share and 118,677,877 contingently redeemable Class B Units (and an equivalent number of Class V Common Stock) at a deemed value of $10.00 per share, for an aggregate merger consideration of $1,385.3 million. Of these, 577,190 contingently redeemable Class B Units (and an equivalent number of Class V Common Stock) are held in reserve by Rubicon to be issued to certain former Holdings LLC equity holders as merger consideration upon completion of the requisite letters of transmittal and related documentation, in each case, as required by the Merger Agreement.
In connection with Closing, Rubicon issued 160,000 shares of Class A Common Stock to certain investors pursuant to the Rubicon Equity Investment Agreement, and 160,000 Founder Class B Shares were forfeited by Sponsor immediately prior to the Closing. In addition, pursuant to the Sponsor Forfeiture Agreement, Sponsor forfeited an additional 1,000,000 Founder Class B Shares immediately prior to the Closing. After giving effect to this forfeiture and the forfeiture under the Rubicon Equity Investment Agreement, Sponsor held 6,746,250 Founder Class B Shares, which converted to 6,746,250 shares of Class A Common Stock at the time of the Domestication. In connection with the Closing, Rubicon issued to the PIPE Investors an additional 12,100,000 shares of Class A Common Stock (at a price of $10.00 per share), for a total aggregate purchase price of $121.0 million.
Accounting for the Mergers
The Mergers will be accounted for akin to a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. The Mergers will not be treated as a change in control of Holdings LLC as RGH, Inc. controlled (x) Holdings LLC through its rights to nominate the majority of the members of the board of managers of Holdings LLC under Holdings LLC’s existing operating agreement and (y) Rubicon through its control of the board of managers of Holdings LLC and, pursuant to Section 8.7(a)(i) of the Merger Agreement, such board’s right prior to Closing to nominate seven of the nine initial directors to be appointed to the Board effective upon the Closing (the “Rubicon Nominees”). Pursuant to Section 8.7(a)(i) of the Merger Agreement, effective at the Closing, one of the Rubicon Nominees serves as the chairman of the Board and all Rubicon Nominees continue to control and serve on the Board until at least the 2023 annual shareholder meeting of Rubicon. Under the guidance in ASC 805 for transactions between entities under common control, the assets, liabilities, and noncontrolling interests of Holdings LLC and Founder are recognized at their carrying amounts on the date of the Mergers.
Under this method of accounting, Founder will be treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Mergers will be treated as the equivalent of Holdings LLC issuing stock for the net assets of Founder, accompanied by a recapitalization. The net assets of Founder will be stated at their historical value within the pro formas with no goodwill or other intangible assets recorded.
Basis of Pro Forma Presentation
The historical financial information has been adjusted to give pro forma effect to the transaction accounting required for the Mergers and the PIPE Financing. The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the combined entity upon the Closing.
The unaudited pro forma condensed combined financial information is for illustrative purposes only and does not necessarily reflect what Rubicon’s financial condition or results of operations would have been had the Mergers occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of Rubicon. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed. Founder and Holdings LLC have not had any historical relationship prior to the Mergers. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
50 |
Unaudited Pro Forma Condensed Balance Sheet
As of September 30, 2022
(In thousands)
Rubicon Technologies, Inc. (as reported) |
Transaction Adjustments | Pro Forma Combined | ||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 4,464 | (6,000 | )(a) | 9,424 | ||||||||
4,960 | (b) | |||||||||||
6,000 | (c) | |||||||||||
Accounts receivable, net | 58,662 | 58,662 | ||||||||||
Contract assets | 62,805 | 62,805 | ||||||||||
Prepaid expenses | 11,755 | 11,755 | ||||||||||
Other current assets | 1,835 | 1,835 | ||||||||||
Total current assets | 139,521 | 4,960 | 144,481 | |||||||||
Property and Equipment, net | 2,741 | 2,741 | ||||||||||
Other Assets | ||||||||||||
Operating right-of-use assets | 3,119 | 3,119 | ||||||||||
Other noncurrent assets | 2,661 | 2,040 | (b) | 4,701 | ||||||||
Goodwill | 32,132 | 32,132 | ||||||||||
Intangible assets, net | 11,685 | 11,685 | ||||||||||
Total assets | 191,859 | 7,000 | 198,859 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | 58,498 | 58,498 | ||||||||||
Line of credit | 30,095 | 30,095 | ||||||||||
Accrued expenses and other current liabilities | 162,428 | 162,428 | ||||||||||
Deferred compensation | 1,250 | 1,250 | ||||||||||
Contract liabilities | 4,461 | 4,461 | ||||||||||
Operating lease liabilities, current | 1,832 | 1,832 | ||||||||||
Warrant liabilities | 100 | 20,000 | (c) | 20,100 | ||||||||
Total current liabilities | 258,664 | 20,000 | 278,664 | |||||||||
Long-Term Liabilities | ||||||||||||
Deferred income taxes | 219 | 219 | ||||||||||
Operating lease liabilities, noncurrent | 2,340 | 2,340 | ||||||||||
Long-term debt, net of issuance costs | 69,543 | 7,000 | (b) | 76,543 | ||||||||
Forward option derivative | 8,205 | (8,205 | )(a) | - | ||||||||
Earn-out liabilities | 7,000 | 7,000 | ||||||||||
Other long-term liabilities | 517 | 2,000 | (a) | 2,517 | ||||||||
Total Long-Term Liabilities | 87,824 | 795 | 88,619 | |||||||||
Total Liabilities | 346,488 | 20,795 | 367,283 | |||||||||
Commitments and Contingencies | ||||||||||||
Members / Shareholders’ equity: | ||||||||||||
Class A common stock | 5 | 5 | ||||||||||
Class V Common Stock, $0.0001 par value; 118,593,980 issued and outstanding | 12 | 12 | ||||||||||
Treasury stock | - | (8,112 | )(a) | (8,112 | ) | |||||||
Additional Paid-in capital | 11,805 | 9,912 | (d) | 21,717 | ||||||||
Accumulated deficit | (327,216 | ) | 8,317 | (a) | (332,899 | ) | ||||||
(14,000 | )(c) | |||||||||||
Total members / shareholders’ equity attributable to Rubicon Technologies, LLC / Rubicon Technologies, Inc. | (315,394 | ) | (3,883 | ) | (319,277 | ) | ||||||
Non-Controlling Interests | 160,765 | (9,912 | )(d) | 150,853 | ||||||||
Total members’ / stockholders’ equity | (154,629 | ) | (13,795 | ) | (168,424 | ) | ||||||
Total liabilities, preferred units, and shareholders’ equity | 191,859 | 7,000 | 198,859 |
51 |
Unaudited Pro Forma Condensed Statement of Operations
For the Nine Months Ended September 30, 2022
(In thousands, except share and per share amounts)
For the Six Months Ended June 30, 2022 |
For the Nine Months Ended September 30, 2022 |
|||||||||||||||
Founder SPAC (as reported) |
Rubicon Technologies, Inc. (as reported) |
Transaction Adjustments |
Pro Forma Combined |
|||||||||||||
Revenue | ||||||||||||||||
Service | - | 437,755 | - | 437,755 | ||||||||||||
Recyclable commodity | - | 71,640 | - | 71,640 | ||||||||||||
Total Revenue | - | 509,395 | - | 509,395 | ||||||||||||
Costs and Expenses | ||||||||||||||||
Cost of revenue (exclusive of amortization and depreciation) | ||||||||||||||||
Service | - | 423,382 | - | 423,382 | ||||||||||||
Recyclable commodity | - | 65,856 | - | 65,856 | ||||||||||||
Total cost of revenue (exclusive of amortization and depreciation) | - | 489,238 | - | 489,238 | ||||||||||||
Sales and marketing | - | 13,336 | - | 13,336 | ||||||||||||
Product development | - | 28,336 | - | 28,336 | ||||||||||||
General and administrative | - | 212,520 | 12,053 | (ii) | 224,573 | |||||||||||
Amortization and depreciation | - | 4,331 | - | 4,331 | ||||||||||||
Formation and operating costs | 1,059 | - | - | 1,059 | ||||||||||||
Total Costs and Expenses | 1,059 | 747,761 | 12,053 | 760,873 | ||||||||||||
Loss from operations | (1,059 | ) | (238,366 | ) | (12,053 | ) | (251,478 | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Interest earned | 248 | 1 | (248 | )(gg) | 1 | |||||||||||
Gain (loss) on change in fair value of warrant liabilities | - | (436 | ) | - | (436 | ) | ||||||||||
Gain (loss) on change in fair value of earn-out liabilities | - | 67,100 | - | 67,100 | ||||||||||||
Gain (loss) on change in fair value of forward purchase option derivative | - | (76,919 | ) | - | (76,919 | ) | ||||||||||
Excess fair value over the consideration received for SAFE | - | (800 | ) | - | (800 | ) | ||||||||||
Other expense | - | (1,994 | ) | - | (1,994 | ) | ||||||||||
Interest expense | - | (12,264 | ) | - | (12,264 | ) | ||||||||||
Total Other Income (Expense) | 248 | (25,312 | ) | (248 | ) | (25,312 | ) | |||||||||
Income before income taxes | (811 | ) | (263,678 | ) | (12,301 | ) | (276,790 | ) | ||||||||
Income tax expense (benefit) | - | 60 | 60 | |||||||||||||
Net income (loss) | (811 | ) | (263,738 | ) | (12,301 | ) | (276,850 | ) | ||||||||
Net loss attributable to Holdings LLC unitholders prior to the Mergers | - | (228,997 | ) | - | (228,997 | ) | ||||||||||
Net loss attributable to noncontrolling interests | - | (16,933 | ) | (8,838 | )(dd) | (25,771 | ) | |||||||||
Net Income attributable to Rubicon Technologies, Inc. | (811 | ) | (17,808 | ) | (3,463 | ) | (22,082 | ) | ||||||||
Basic and diluted loss per share - Class A redeemable common stock | (0.02 | ) | ||||||||||||||
Weighted average shares outstanding of Class A redeemable common stock | 31,625,000 | |||||||||||||||
Basic and diluted loss per share - Class B common stock | (0.02 | ) | ||||||||||||||
Weighted average shares outstanding of Class B common stock | 7,906,250 | |||||||||||||||
Basic and diluted loss per share, non-redeemable Class A common stock | (0.37 | ) | (0.45 | )(kk) | ||||||||||||
Weighted average shares outstanding, Class A common stock | 48,670,776 | 48,670,776 | (kk) |
52 |
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended December 31, 2021
(In thousands, except share and per share amounts)
Founder SPAC | Rubicon Technologies, LLC (as reported) |
Transaction Adjustments |
Pro Forma Combined |
|||||||||||||
Revenue | ||||||||||||||||
Service | - | 500,911 | 500,911 | |||||||||||||
Recyclable commodity | - | 82,139 | 82,139 | |||||||||||||
Total Revenue | - | 583,050 | - | 583,050 | ||||||||||||
Costs and Expenses | ||||||||||||||||
Cost of revenue (exclusive of amortization and depreciation) | ||||||||||||||||
Service | - | 481,642 | 481,642 | |||||||||||||
Recyclable commodity | - | 77,030 | 77,030 | |||||||||||||
Total cost of revenue (exclusive of amortization and depreciation) | - | 558,672 | - | 558,672 | ||||||||||||
Sales and marketing | - | 14,457 | 14,457 | |||||||||||||
Product development | - | 22,485 | 22,485 | |||||||||||||
General and administrative | - | 52,915 | 2,283 | (aa) | 270,065 | |||||||||||
77,524 | (ee) | |||||||||||||||
1,124 | (ee) | |||||||||||||||
31,892 | (ff) | |||||||||||||||
88,256 | (hh) | |||||||||||||||
16,071 | (ii) | |||||||||||||||
Amortization and depreciation | - | 7,128 | 7,128 | |||||||||||||
Formation and operating costs | 938 | - | 938 | |||||||||||||
Total Costs and Expenses | 938 | 655,657 | 217,150 | 873,745 | ||||||||||||
Loss from operations | (938 | ) | (72,607 | ) | (217,150 | ) | (290,695 | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Interest earned | 22 | 2 | (22 | )(gg) | 2 | |||||||||||
Gain on forgiveness of debt | - | 10,900 | 10,900 | |||||||||||||
Change in fair value of warrants | - | (606 | ) | (606 | ) | |||||||||||
Other expense | - | (1,055 | ) | 8,317 | (cc) | (6,738 | ) | |||||||||
(14,000 | )(jj) | |||||||||||||||
Interest expense | - | (11,455 | ) | (11,455 | ) | |||||||||||
Total Other Expense | 22 | (2,214 | ) | (5,705 | ) | (7,897 | ) | |||||||||
Income before income taxes | (916 | ) | (74,821 | ) | (222,855 | ) | (298,592 | ) | ||||||||
Income tax expense (benefit) | - | (1,670 | ) | 76 | (bb) | (1,594 | ) | |||||||||
Net income (loss) | (916 | ) | (73,151 | ) | (222,931 | ) | (296,998 | ) | ||||||||
Net income (loss) attributable to non-controlling interests, net of tax | - | - | (213,389 | )(dd) | (213,389 | ) | ||||||||||
Net Income attributable to Rubicon Technologies, Inc. | (916 | ) | (73,151 | ) | (9,542 | ) | (83,609 | ) | ||||||||
Basic and diluted loss per share - Class A redeemable common stock | 0.02 | |||||||||||||||
Weighted average shares outstanding of Class A redeemable common stock | 9,271,586 | |||||||||||||||
Basic and diluted loss per share - Class B common stock | (0.14 | ) | ||||||||||||||
Weighted average shares outstanding of Class B common stock | 7,906,250 | |||||||||||||||
Basic and diluted loss per share, non-redeemable Class A common stock | (2.21 | ) | (1.72 | )(kk) | ||||||||||||
Weighted average shares outstanding, Class A common stock | 33,048,809 | 48,670,776 | (kk) |
53 |
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
The pro forma adjustments have been prepared as if the Mergers had been consummated on January 1, 2021, in the case of the unaudited pro forma condensed combined statement of operations, as this is the beginning of the earliest period presented in the unaudited pro forma condensed combined statements of operations.
The Mergers were consummated on August 15, 2022, and Founder assets and liabilities are included in the historical balance sheet of Rubicon as of September 30, 2022. Therefore, no pro forma adjustments will be presented related to the Mergers. The unaudited pro forma condensed combined balance sheet as of September 30, 2022 combines the historical unaudited balance sheet of Rubicon as of September 30, 2022, giving effect to certain material financing activities completed subsequent to the balance sheet date as if they had been consummated on that date.
The unaudited pro forma condensed combined financial information has been prepared assuming the following methods of accounting in accordance with GAAP.
The Mergers will be accounted for as a common control transaction, with no goodwill or other intangible assets recorded, in accordance with GAAP. As the Mergers represent a common control transaction from an accounting perspective, the Mergers will be treated similar to a reverse recapitalization. Holdings LLC has been determined to be the predecessor to the combined entity.
Under this method of accounting, Founder will be treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Mergers will be treated as the equivalent of Holdings LLC issuing stock for the net assets of Founder, accompanied by a recapitalization. The net assets of Founder will be stated at their historical value within the pro formas with no goodwill or other intangible assets recorded.
The pro forma adjustments represent management’s estimates based on information available as of the date of this prospectus and are subject to change as additional information becomes available and additional analyses are performed. Management considers this basis of presentation to be reasonable under the circumstances.
The unaudited pro forma condensed combined financial information does not give effect to any tax impacts associated with the pro forma adjustments. There is no expectation that the related tax benefit would be realizable, and Rubicon currently records a full valuation allowance.
2. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Consolidated Combined Balance Sheet
The adjustments included in the unaudited pro forma condensed consolidated combined balance sheet as of September 30, 2022 are as follows:
(a) | Represents the extinguishment of the forward purchase option recorded pursuant to terminating the Forward Purchase Agreement. The gain on extinguishment was recorded via adjustment (cc). The recognition of the extinguishment of the forward purchase option was preliminary as of the filing of this prospectus. |
(b) | Reflects the issuance of convertible notes to the Yorkville Investor on November 30, 2022. As part of this issuance, the redemption option associated with the convertible notes was determined to represent an embedded derivative, which was valued at $0.9 million and is included in other assets, along with a commitment asset associated with the convertible notes. The valuation of the derivative was preliminary as of the filing of this prospectus. |
(c) | Reflects the issuance of prepaid warrants to the Yorkville Investor on November 30, 2022. The nonrecurring loss associated with this issuance was expensed via adjustment (jj). |
(d) | Immediately following the Mergers, the economic interests held by the noncontrolling interest (comprising the Class B Units issued at Closing) were approximately 71.8%. This percentage was applied to the impact of all other pro forma balance sheet adjustments on net assets to arrive at an incremental adjustment to the noncontrolling interest of ($9.9) million. |
54 |
3. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Statement of Operations
The adjustments included in the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2022 and for the fiscal year ended December 31, 2021 are related to the Mergers:
(aa) | Reflects the pro forma adjustment to record nonrecurring stock based compensation expense related to Legacy Rubicon Phantom Units that were held by Holdings LLC employees immediately prior to the Mergers and were exchanged for RSUs following the Closing and will vest on February 11, 2023. |
(bb) | Reflects the adjustment for the income tax provision related to the year ended December 31, 2021 of $0.1 million expense, for the combined entities on a pro forma basis. The proforma effective tax rate of 0.66% differs from the statutory rate due primarily to the full valuation allowance at Rubicon, the allocation of income taxes to the noncontrolling interest, and additional entity level state taxes at the Holdings LLC partnership level. Any adjustment to the tax provision for the nine months ended September 30, 2022 was determined to be immaterial. Additionally, for the year ended December 31, 2021, a majority of the proforma adjustments related to additional compensation did not result in a tax benefit due to the limitation under IRC section 162(m). |
(cc) | Reflects the nonrecurring gain on extinguishment associated with the elimination of the forward purchase option recorded pursuant to the Forward Purchase Agreement. The recognition of the extinguishment of the forward purchase option was preliminary as of the filing of this prospectus. |
(dd) |
Immediately following the Mergers, the economic interests held by the noncontrolling interest (comprising the Class B Units issued at Closing) were approximately 71.8%.
For the nine months ended September 30, 2022, the pro forma adjustment related to net losses attributable to the contingently redeemable noncontrolling interest were $8.8 million (i.e., 71.8% of the pro forma adjustment to net loss of ($12.3) million).
For the year ended December 31, 2021, net losses attributable to the contingently redeemable noncontrolling interest were $213.4 million (i.e., 71.8% of net losses of $297.0 million). |
(ee) | Reflects the pro forma adjustment to record nonrecurring stock based compensation expense as of Closing related to Legacy Rubicon Incentive Units that are vested as of the Mergers. Compensation related to these awards will be recognized over a period beginning at the grant date and extending through Closing. |
(ff) | Reflects the pro forma adjustment to record nonrecurring management incentive compensation expense as of Closing related to the transaction. | |
(gg) | Reflects the elimination of interest income earned on the Founder trust account. | |
(hh) | Reflects the pro forma adjustment to record nonrecurring stock based compensation expense related to new RSU and DSU awards granted to both current and former employees of Rubicon following the Closing, which will vest on February 11, 2023. | |
(ii) | Reflects the pro forma adjustment to record recurring stock based compensation expense related to a new RSU award to be granted to Nate Morris, which will vest on February 10, 2023. | |
(jj) | Reflects the nonrecurring loss on issuance of prepaid warrants issued to the Yorkville Investor on November 30, 2022. |
(kk) |
Pro forma basic earnings per share is computed by dividing the net income (loss) available to holders of Class A Common Stock by the weighted-average shares of Class A Common Stock outstanding during the period. Shares of our Class V Common Stock do not share in the earnings or losses of Rubicon and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class V Common Stock under the two-class method has not been presented. Potentially dilutive shares have been excluded from the computations of diluted earnings per share of Class A Common Stock because the effect would have been anti-dilutive under the if-converted method. |
55 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, all references in this section to “Holdings LLC”, “we”, “us” or “our” refer to the business and operations of Rubicon Technologies Holdings, LLC (formerly known as Rubicon Technologies, LLC) and its subsidiaries, including those periods prior to the consummation of the Business Combination. References to “Rubicon” refer to the business and operations of Rubicon Technologies, Inc., following the consummation of the Business Combination. You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and the related notes appearing elsewhere in this prospectus. Certain statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks, uncertainties and assumptions, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are a digital marketplace for waste and recycling services. Underpinning this marketplace is a cutting-edge, modular platform that powers a modern, digital experience and delivers data-driven insights and transparency for our customers and hauling and recycling partners. We provide our waste generator customers with a platform that delivers pricing transparency, self-service capabilities, and a seamless customer experience while helping them achieve their environmental goals; we enhance our hauling and recycling partners’ economic opportunities and help them optimize their businesses; and we help governments provide more advanced waste and recycling services that allow them to serve their local communities more effectively.
Over the past decade, this value proposition has allowed us to scale our platform considerably. Our digital marketplace now services over 8,000 customers, including numerous large, blue-chip customers such as Apple, Dollar General, Starbucks, Walmart, Chipotle, and FedEx, and encompasses over 8,000 hauling and recycling partners across North America. We have also deployed our technology in over 70 municipalities within the United States and operate in 20 countries. Furthermore, we have secured a robust portfolio of intellectual property, having been awarded more than 50 patents, with over 100 pending, and 20 trademarks.
We operate as one segment. See Note 1, Nature of operations and summary of significant accounting policies, to our consolidated financial statements included elsewhere in this prospectus for our discussion about segments.
COVID-19 Update
On January 30, 2020, the World Health Organization declared the coronavirus “COVID-19” outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared it to be a pandemic. COVID-19 and actions taken to mitigate it such as travel bans and restrictions, limitations on business activity, quarantines, work-from-home directives and shelter-in-place orders have had and are expected to continue to have an adverse impact on certain businesses and industries and the economies and financial markets regionally and globally, including the geographical areas in which we operate. The COVID-19 pandemic has created significant global economic uncertainty, adversely impacted the business of our customers and partners, impacted our business, results of operations and cash flows and could further impact our business, results of operations and our cash flows in the future.
In response to the COVID-19 pandemic, we have proactively taken steps to put our employees’, customers’ and partners’ needs first to ensure that we can provide our services safely and efficiently. Since the beginning of the outbreak, we took actions in response to the pandemic that focused on maintaining business continuity, supporting our employees, helping our customers and communities and preparing for the future and the long-term success of our business.
56 |
As a result of the pandemic, we experienced customer attrition during the second half of 2020 which caused a decline in service revenue during the first half of 2021 as compared to the same prior-year period; however, our revenues subsequently began to recover and for the second half of 2021, our service revenue increased by $21.7 million as compared to the second half of 2020. This trend has continued into 2022 with our service revenue increasing by $72.2 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Additionally, our sales and marketing activities and spend decreased during 2021 and 2020 as a result of pandemic-related cost-saving initiatives. Some sales and marketing activities, including hiring in the sales and marketing teams and team members’ attendance at business development conferences and meetings, resumed beginning in the first quarter of 2022, contributing to an additional $2.7 million in sales and marketing cost for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. In addition, several customers filed for bankruptcy during 2020 which resulted in $3.6 million of bad debt expenses related to these customers in 2020. Furthermore, we received loans under the Paycheck Protection Program (“PPP”), which was established under the CARES Act and is administered by the Small Business Administration (“SBA”), for an amount totaling $10.8 million, the full amount of which, along with associated accumulated interest, was forgiven during 2021.
The ultimate extent of the impact of the COVID-19 pandemic on our operational and financial performance depends on certain developments, including the duration of the pandemic and any resurgences, the severity of the disease, responsive actions taken by public health officials, the development, efficacy, distribution and public acceptance of treatments and vaccines, and the impacts on our customers, employees, partners, sales cycles and industry, all of which are uncertain and currently cannot be predicted with any degree of certainty. In addition, the global macroeconomic effects of the COVID-19 pandemic and related impacts on our customers’ business operations and their demand for our products and services may persist for an indefinite period, even after the COVID-19 pandemic has subsided. While it is unknown how long pandemic conditions will last and what the complete financial impact will be, we are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and are unable at this time to predict the impact that COVID-19 will have on our business, financial position, and operating results in future periods due to numerous uncertainties.
Mergers
On August 15, 2022, we consummated the Mergers. Pursuant to the Merger Agreement, Merger Sub merged with and into Holdings LLC, with Holdings LLC surviving as a wholly-owned subsidiary of Rubicon. In connection with the Closing, Founder changed its name to Rubicon Technologies, Inc. and Holdings LLC changed its name to Rubicon Technologies Holdings, LLC.
The Mergers were accounted for akin to a reverse recapitalization. We were deemed the accounting predecessor and Rubicon is the successor SEC registrant to Founder, meaning that our financial statements for previous periods are included in this prospectus and will be disclosed in Rubicon’s future periodic reports and registration statements filed with the SEC. Under this method of accounting, Founder is treated as the acquired company for financial statement reporting purposes. As a result of consummation of the Mergers, the most significant changes in our financial position was a net increase in cash of approximately $73.8 million after accounting for transaction and other costs ($25.3 million), payments under the Forward Purchase Agreement ($68.7 million), the PIPE Investment ($121.0 million), Founder shareholder redemptions in connection with the Merger ($246.0 million), and the Cash Transaction Bonuses ($28.9 million). See “Unaudited Pro Forma Condensed Combined Financial Information”.
As a result of the Mergers, Rubicon became the successor to Founder as a publicly traded company and is listed on NYSE, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company, particularly as compared to the expenses reflected in our financial statements prior to the Mergers, for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal and administrative resources.
In connection with the Mergers, we entered into a Tax Receivable Agreement with certain of our legacy investors. We may be required to make significant payments in the future under this agreement depending on the extent of certain tax benefits and other factors and these payments could have a material impact on our results of operations and liquidity. See “—Tax Receivable Agreement” below for additional information.
57 |
Forward Purchase Agreement
On August 4, 2022, Founder, Holdings LLC and ACM Seller entered into the Forward Purchase Agreement (as novated to the FPA Sellers), pursuant to which, prior to the Closing, the FPA Sellers purchased an aggregate of 7,082,616 Founder Class A Shares from Redeeming Holders, and upon such purchase, the FPA Sellers waived their redemption rights with respect to such securities, resulting in additional net proceeds to Rubicon of approximately $4.0 million at Closing. On November 30, 2022, we terminated the Forward Purchase Agreement and related obligations pursuant to the Atalaya Termination Agreement and Vellar Termination Agreement. See “Liquidity and Capital ResourcesOther Financing Arrangements” below and “Certain Financing TransactionsForward Purchase Agreement” for additional information.
SEPA
On August 31, 2022, we entered into the SEPA with the Yorkville Investor pursuant to which (a) we issued the Yorkville Investor the Yorkville Commitment Shares, which 200,000 shares of Class A Common Stock represented an initial up-front commitment fee, and (b) assuming satisfaction of certain conditions and subject to the limitations set forth in the SEPA, we have the right, from time to time to issue and sell to the Yorkville Investor up to $200.0 million in shares of Class A Common Stock until the earlier of September 1, 2025 (the first day of the month next following the 36-month anniversary of the date of the SEPA) or the date on which the facility has been fully utilized, in each case, with such sales first subject to the SEC declaring effective a registration statement covering the resale of such shares of Class A Common Stock. Upon its effectiveness, the registration statement of which this prospectus forms a part will register all shares of Class A Common Stock issued or otherwise issuable to the Yorkville Investor under the SEPA (subject to the SEPA Exchange Cap). See “Liquidity and Capital ResourcesOther Financing Arrangements” below and “Certain Financing TransactionsSEPA” for additional information.
Insider SPAs
On December 16, 2022, Rubicon entered into the First Closing Insider SPA with various investors comprised of members of Rubicon’s management team and board of directors, the First Closing Insider Investors. Pursuant to the First Closing Insider SPA, Rubicon agreed to issue and sell to the First Closing Insider Investors the First Closing Insider Convertible Debentures in the aggregate principal amount of up to $17.0 million, net of an original issuance discount of $2.0 million, which are convertible into shares of Class A Common Stock, which First Closing Insider Convertible Debentures may be purchased by the First Closing Insider Investors over the course of more than one closing. The First Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the First Closing Insider Convertible Debentures. Upon its effectiveness, the registration statement of which this prospectus forms a part will register all shares of Class A Common Stock issued to the First Closing Insider Investors. See “Liquidity and Capital ResourcesOther Financing Arrangements” below and “Certain Financing TransactionsInsider SPAs” for additional information.
On February 1, 2023, Rubicon entered into the Second Closing Insider SPA with various Second Closing Insider Investors. Pursuant to the Second Closing Insider SPA, Rubicon agreed to issue and sell to the Second Closing Insider Investors the Second Closing Insider Convertible Debentures with an aggregate value of no less than $4.0 million, subject to an original issuance discount, which are convertible into shares of Class A Common Stock. The Second Closing Insider Convertible Debentures were purchased by the Second Closing Insider Investors at the second of two closings. The Second Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the Second Closing Insider Convertible Debentures. Upon its effectiveness, the registration statement of which this prospectus forms a part will register all shares of Class A Common Stock issued to the Second Closing Insider Investors. See “Liquidity and Capital ResourcesOther Financing Arrangements” below and “Certain Financing TransactionsInsider SPAs” for additional information.
Yorkville Convertible Debentures
On November 30, 2022, Rubicon entered into the YA SPA with the Yorkville Investor, whereby we agreed to issue and sell to the Yorkville Investor (i) the YA Convertible Debentures in the aggregate principal amount of up to $17.0 million, which are convertible into YA Conversion Shares, and (ii) the YA Warrant, which is exercisable for $20.0 million of YA Warrant Shares, on the terms and subject to the conditions set forth therein.
On November 30, 2022, upon signing the YA SPA, we (i) issued and sold to the Yorkville Investor (a) the First YA Convertible Debenture in the principal amount of $7.0 million for a purchase price of $7.0 million and (b) the YA Warrant for a prefunded purchase price of $6.0 million, and (ii) paid the Yorkville Investor a commitment fee equal to $2.04 million, with such amount being deducted from the proceeds of the First YA Convertible Debenture. Pursuant to the YA SPA, the parties further agreed that we would issue and sell to the Yorkville Investor and the Yorkville Investor would purchase from us the Second YA Convertible Debenture in the principal amount of $10.0 million for a purchase price of $10.0 million, upon the satisfaction of, among other things, (a) the Initial Registration Statement (as defined below) being declared effective by the SEC and (b) our consummation of a securities offering consisting of equity or debt securities that are convertible into Class A Common Stock, provided that such offering is not a Variable Rate Transaction (as defined in the YA SPA), the holders of such securities are subject to a customary lock-up until January 1, 2024 and we receive gross proceeds of at least $15.0 million. On February 3, 2023, following satisfaction of these conditions, we issued and sold to the Yorkville Investor the Second YA Convertible Debenture in the principal amount of $10.0 million for a purchase price of $10.0 million.
In connection with the YA SPA, Rubicon and Yorkville Investor entered into the YA Registration Rights Agreement, pursuant to which we are required to register for resale all of the YA Conversion Shares and YA Warrant Shares.
Rodina Note
On February 2, 2023, Rubicon and Rodina entered into an Unsecured Promissory Note pursuant to which Rodina agreed to loan Rubicon the Rodina Principal in exchange for Rubicon’s promise to pay to Rodina, in cash, the full outstanding Rodina Principal, and in kind, all unpaid interest accrued thereon, which interest shall accrue at an annual rate of 16.0%, by July 1, 2024, the maturity date.
58 |
Future resales of our Class A Common Stock being offered in this prospectus by our shareholders
The registration statement of which this prospectus forms a part is being filed in respect of our obligation to register for resale (i) the Yorkville Commitment Shares, (ii) up to 31,810,075 shares of Class A Common Stock that we may, at our discretion, elect to issue and sell to the Yorkville Investor from time to time pursuant to the SEPA, (iii) up to 5,629,245 First Closing Insider Conversion Shares, (iv) up to 3,367,509 Second Closing Insider Conversion Shares (v) 3,877,750 shares of Class A Common Stock issued to Jefferies pursuant to the Amended Underwriting Agreement. See the section entitled “Securities Eligible for Future Sale.” The shares of Class A Common Stock being offered for resale in this prospectus represent, as of the date of this prospectus, approximately 26.3% of our total outstanding shares of our Common Stock as of the date of this prospectus. The sale of some or all of the securities being offered in this prospectus, following the satisfaction of any applicable conditions, could have adverse effects on the market for our Class A Common Stock, including increasing volatility, limiting the availability of an active market and/or resulting in a significant decline in the public trading price. Despite any potential adverse effects, the Selling Securityholders may still experience a positive rate of return on the securities they purchased due to the differences in the purchase prices at which they purchased or will purchase the securities described above. See the sections entitled “SummaryInformation Related to Offered Securities” and “Risk Factors Risks Related to Ownership of Our Securities.”
Key Factors Affecting Our Performance
Financial results from our operations and the growth and future success of our business are dependent upon many factors. While each of these factors presents significant opportunities for us, these factors also pose challenges that we must successfully address to sustain and grow our business. See also “—Key Metrics and Non-GAAP Financial Measures” below for a discussion of key business and non-GAAP metrics that we use to help manage and evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Industry trends and customers preference
The waste and recycling industry is highly regulated and complex, and public policy is increasingly focused on improving diversion from landfills and reducing emissions. Current policies tend to encourage and reward reductions in carbon dioxide emissions, and many major cities in the United States have promulgated climate action plans committing to achieve emissions reductions in line with the Paris Climate Accords. Additionally, the waste generators’ awareness of benefits achieved by improved diversion from landfills has been increasing which we believe is and will continue driving preference for recycling over landfills. We view these trends as an opportunity to accelerate the growth of our business, including our revenue and profitability.
Commodity nature of our recycling program
Through our recycling program, we market a variety of materials, including fibers such as old corrugated cardboard, old newsprint, aluminum, glass, pallets and other materials. Currently, old corrugated cardboard is the most significant material in our recycling program. Our recyclable commodity revenue is influenced by fluctuations in prices of the recyclable commodities. Periods of increasing prices generally provide the opportunity for higher revenue while periods of declining prices may result in declines in sales. For the reporting periods, the trend of the recyclable commodity prices was generally upward and contributed to higher recyclable commodity revenue in more recent periods. For the three months ended September 30, 2022 and 2021, our recyclable commodity revenue was $22.2 million and $22.0 million, respectively, and for the nine months ended September 30, 2022 and 2021, our recyclable commodity revenue was $71.6 million and $54.3 million, respectively. For the years ended December 31, 2021 and 2020, our recyclable commodity revenue was $82.1 million and $49.3 million, respectively.
See the sections titled “Qualitative and Quantitative Disclosures About Market Risk” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Risk Factors” included elsewhere in this prospectus for further discussion regarding recyclable commodity price risk.
Investment in products
We are actively investing in our business to support future growth and we expect this investment to continue. We have built a leading cloud-based digital marketplace that provides a transformational customer experience through an easy-to-use interface, where customers can manage services, track invoices, and view environmental outcomes. We believe that our platform is highly differentiated, and we expect to continue to invest in product development to further develop and enhance our platform’s features and functionality to further extend the adoption of our platform. For the three months ended September 30, 2022 and 2021, our product development cost was $9.8 million and $4.8 million, respectively, and for the nine months ended September 30, 2022 and 2021, our product development cost was $28.3 million and $13.4 million, respectively. For the years ended December 31, 2021 and 2020, our product development cost was $22.5 million and $14.9 million, respectively. While we continue to invest in product development, we are focusing on operational efficiencies and cost reduction measures, such as rationalizing redundancies across the organization. We expect product development costs to stay consistent as a percentage of total revenue in the next twelve months.
59 |
Components of Results of Operations
Revenue
We generate our revenue from waste removal, waste management and consultation services, platform subscriptions, and the purchase and sale of recyclable commodities.
Service revenue:
Service revenues are comprised of waste removal and consultation services provided to customers for waste, recycling and logistics solutions. Services include planning, consolidation of billing and administration, cost savings analyses, vendor procurement and performance management, and a suite of solutions providing insights into the customers’ waste streams.
Recyclable commodity revenue:
We recognize recyclable commodity revenue through the purchase and sale of old corrugated cardboard, old newsprint, aluminum, glass, pallets and other recyclable materials.
Cost of revenue, exclusive of amortization and depreciation
Cost of service revenues primarily consist of expenses related to delivering our service and providing support, including third-party hauler costs, costs of data center capacity, certain fees paid to various third parties for the use of their technology, services and data, and employee-related costs such as salaries and benefits.
As part of our services, we work with our customers to locate opportunities to reduce waste volume and service frequency with the intention to reduce costs for the customers which in turn leads to reduced costs for us. We are typically entitled to bill for a portion of such savings the customers realize as a result of our services in accordance with the terms of our customer contracts.
Sales and marketing
Sales and marketing expenses consist primarily of compensation costs, including salaries, bonuses, benefits and other incentives to our sales and marketing personnel, advertising expenses, digital marketing expenses, sales commissions and other promotional expenditures.
Product development
Product development expenses consist primarily of compensation costs, including salaries, bonuses and other benefits to our product development team, contract labor expenses and fees for software licenses, consulting, legal, and other services.
General and administrative
General and administrative expenses consist primarily of compensation and benefits related costs, including equity-based compensation expense for our general corporate functions. General and administrative costs also consist of third-party professional service fees for external legal, accounting, and other consulting services, insurance charges, hosting fees and overhead costs.
We expect that general and administrative expenses will decrease as a percentage of total revenues over the next several years as a result of our increased focus on operational efficiencies and planned cost reduction measures across the organization. We plan to eliminate redundancies across the organization, which were a byproduct of our growth and expansion phase the past few years. However, we expect certain incremental costs to incur as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange and expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC.
60 |
Equity-based compensation expense in the three and nine months ended September 30, 2022 was approximately $91.0 and $95.8 million, respectively, an increase of $90.2 million and $92.4 million compared to the three and nine months ended September 30, 2021, respectively. At the consummation of the Mergers, we incurred approximately $79.7 million of equity-based compensation expense due to the modification and vesting of the “Legacy Rubicon Incentive Units and Phantom Units,” which are those units we granted pursuant to the Holdings LLC Profits Participation Plan and Unit Appreciation Rights Plan (the “2014 Plan”) and additional $10.9 million for the RSUs granted to certain management members.
At the consummation of the Mergers, we also incurred approximately $47.6 million of one-time compensation costs associated with Rubicon management rollover consideration under the Merger Agreement, which is payable in cash or equity at our discretion. It is expected we will make certain RSU and deferred stock unit (“DSU”) awards as replacement awards for Rubicon management rollover consideration under the Merger Agreement. We expect to issue a variable number of RSUs and DSUs in such an amount equal to $47.6 million based on the fair market value of Class A Common Stock at the time of the awards. These RSUs and DSUs would be subject to certain vesting conditions and will vest into an equivalent number of shares of Class A Common Stock. While the terms of these awards have not yet been finalized, the anticipated equity-based compensation expense for these RSUs and DSUs issued in connection with the replacement awards is expected to be $47.6 million and offset the accrued compensation expenses associated with Rubicon management rollover consideration under the Merger Agreement.
On October 19, 2022, we granted certain RSU and DSU awards pursuant to the Merger Agreement as replacement awards for the Holdings LLC Phantom Units. The number of RSUs and DSUs issuable in exchange of Legacy Rubicon Phantom Units is expected to be approximately 970,389 and 540,032, respectively. These RSUs and DSUs will vest on February 11, 2023 into an equivalent number of Class A Common Stock. The equity-based compensation expense for the RSUs and DSUs issued in exchange for the Legacy Rubicon Phantom Units was approximately $2.2 million and recognized in general and administrative expense for the three months ended September 30, 2022. Accounting rules require immediate recognition of the equity-based compensation expense as a result of the non-substantive vesting period.
Additionally, certain of our employees received a one-time incentive cash payment upon closing of the Mergers. The aggregate Cash Transaction Bonuses paid by us in connection with the Mergers was approximately $28.9 million, as well as additional discretionary bonuses in the amount of $2.8 million paid following the Closing. Historically, we have paid annual cash-based bonuses to our employees. For the years ended December 31, 2021 and 2020, the annual cash-based bonuses we incurred were $6.8 million and $6.0 million, respectively. We expect that annual cash-based bonuses will continue to be a component of our employee compensation practices to ensure that we are able to attract and retain employee talent; however, we do not expect that additional cash-based bonuses of a size comparable to the Cash Transaction Bonuses will be awarded or payable in the ordinary course, outside of a change of control or similar significant transaction. Accordingly, our general and administrative expenses increased by the payment of the Cash Transaction Bonuses during the three- and nine-month periods ended September 30, 2022 (the periods in which the Mergers were consummated).
Additionally, pursuant to the CEO Transition Agreement, we will make a series of transition payments to Mr. Nate Morris, the Company’s former CEO, in the aggregate amount of $1.9 million through February 10, 2023 and a $0.7 million bonus with respect to his service in 2022 that will be paid by February 10, 2023. In lieu of any obligation to deliver RSUs to Mr. Morris pursuant to his employment agreement, we granted to Mr. Morris an award of 8,378,986 RSUs that will vest on February 10, 2023. See Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements as of and for the period ended September 30, 2022 included elsewhere in this prospectus for further information.
We expect that equity-based compensation will continue to be a substantial component of employee compensation practices of Rubicon; however, we do not expect that additional equity-based compensation of a size comparable to the grants made in respect of the Legacy Rubicon Incentive Units and Phantom Units or the CEO Transition Agreement will be awarded in the ordinary course, outside of a change of control or similar significant transaction or comparable management transitions. It is anticipated that such equity-based compensation expenses will likely increase our general and administrative expenses, dilute existing Rubicon stockholders, and reduce our earnings per share.
61 |
Amortization and depreciation
Amortization and depreciation consist of all depreciation and amortization expenses associated with our property and equipment, acquired intangible assets and customer acquisition costs.
Interest expense
Interest expense consists primarily of interest expense associated with our outstanding debt, including accretion of debt issuance costs.
Results of Operations
The following tables show our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.
Comparison of the three months ended September 30, 2022 and 2021
Three Months Ended September 30, |
||||||||||||||||
2022 | 2021 | Change $ | Change % | |||||||||||||
(in thousands, except changes in percentage) | ||||||||||||||||
Revenue | ||||||||||||||||
Service | $ | 162,789 | $ | 127,256 | $ | 35,533 | 27.9 | % | ||||||||
Recyclable commodity | 22,194 | 21,952 | 242 | 1.1 | % | |||||||||||
Total revenue | 184,983 | 149,208 | 35,775 | 24.0 | % | |||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue (exclusive of amortization and depreciation) | ||||||||||||||||
Service | 157,504 | 122,771 | 34,733 | 28.3 | % | |||||||||||
Recyclable commodity | 20,234 | 20,340 | (106 | ) | (0.5 | )% | ||||||||||
Total cost of revenue (exclusive of amortization and depreciation) | 177,738 | 143,111 | 34,627 | 24.2 | % | |||||||||||
Sales and marketing | 4,840 | 3,808 | 1,032 | 27.1 | % | |||||||||||
Product development | 9,803 | 4,827 | 4,976 | 103.1 | % | |||||||||||
General and administrative | 186,640 | 11,561 | 175,079 | NM | % | |||||||||||
Amortization and depreciation | 1,439 | 1,344 | 95 | 7.1 | % | |||||||||||
Total costs and expenses | 380,460 | 164,651 | 215,809 | 131.1 | % | |||||||||||
Loss from operations | (195,477 | ) | (15,443 | ) | (180,034 | ) | NM | % | ||||||||
Other income (expense): | ||||||||||||||||
Interest earned | 1 | - | 1 | NM | % | |||||||||||
Gain on change in fair value of warrants | 74 | - | 74 | NM | % | |||||||||||
Gain on change in fair value of earn-out liabilities | 67,100 | - | 67,100 | NM | % | |||||||||||
Loss on change in fair value of forward purchase option derivative | (76,919 | ) | - | (76,919 | ) | NM | % | |||||||||
Excess fair value over the consideration received for SAFE | - | - | - | NM | % | |||||||||||
Other expense | (1,307 | ) | (326 | ) | (981 | ) | 300.9 | % | ||||||||
Interest expense | (4,578 | ) | (2,611 | ) | (1,967 | ) | 75.3 | % | ||||||||
Total other income (expense) | (15,629 | ) | (2,937 | ) | (12,692 | ) | 432.1 | % | ||||||||
Loss before income taxes | (211,106 | ) | (18,380 | ) | (192,726 | ) | NM | % | ||||||||
Income tax expense (benefit) | 19 | (252 | ) | 271 | (107.5 | )% | ||||||||||
Net loss | (211,125 | ) | (18,128 | ) | (192,997 | ) | NM | % | ||||||||
Net loss attributable to Holdings LLC unitholders prior to the Mergers | (176,384 | ) | (18,128 | ) | (158,256 | ) | 873.0 | % | ||||||||
Net loss attributable to noncontrolling interests | (16,933 | ) | - | (16,933 | ) | NM | % | |||||||||
Net Loss Attributable to Class A Common Stockholders | (17,808 | ) | - | (17,808 | ) | NM | % |
NM – not meaningful
62 |
Revenue
Total revenue increased by $35.8 million, or 24.0%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
Service revenue increased by $35.5 million, or 27.9%, primarily due to $22.5 million generated from our new customers since the end of the prior year quarter and a $17.1 million increase driven by higher prices charged for the services provided to our existing customers, partially offset by a $3.9 million decrease as a result of lower volume and frequency of the services provided for the existing customers.
Revenues from sales of recyclable commodities increased by $0.2 million, or 1.1%, primarily due to a 64.2% increase in the sales price per unit for pallets compared to the three months ended September 30, 2021, which was partially offset by a 14.2% decrease in the price per ton of old corrugated cardboard.
Cost of revenue, exclusive of amortization and depreciation
Total cost of revenue increased by $34.6 million, or 24.2%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
Cost of service revenue increased by $34.7 million, or 28.3%, primarily attributable to a $20.8 million increase in connection with servicing our new customers including nonrecurring costs incurred for onboarding a new significant customer, and a $16.2 million increase driven by price increase for the services provided to our existing customers, partially offset by a $2.5 million decrease as a result of lower volume and frequency of the services provided to the existing customers.
Cost of recyclable commodity revenue decreased by $0.1 million, or 0.5%, primarily due to a decrease in prices of certain commodities, including old corrugated cardboard, during the three-month ended September 30, 2022 as compared to prior year quarter.
Sales and marketing
Sales and marketing expenses increased by $1.0 million, or 27.1%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to higher costs of $0.9 million for sales and marketing activities that we recommenced in 2022 following a temporary suspension as a result of the pandemic, including meetings, conferences and other business development activities.
Product development
Product development expenses increased by $5.0 million, or 103.1%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to higher product development support costs of $4.3 million, which was mainly driven by higher software subscription costs to support our product development team, and higher payroll related costs of $0.6 million, which increased primarily due to the headcount increase in our product development team to support our growth.
We expect product development costs to continue to be higher for next twelve months. The increase is expected to be driven by the Palantir Technologies, Inc. software services subscription, which provides advanced data analytics capabilities to enhance the data security, visibility, models, and algorithms of our digital platform. See “Contractual Obligations.” However, the increase from the Palantir Technologies, Inc. software services agreement is expected to be offset, at least partially, by planned cost reduction measures as a result of our increased focus on operational efficiencies. We also plan to eliminate any redundancies within the organization, including in product development, which were a byproduct of our growth and expansion phase the past few years.
63 |
General and administrative
General and administrative of $186.6 million expenses increased by $175.1 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to an increase of stock-based compensation expense by $90.2 million and cash payments and RSU and DSU issuances in connection with Rubicon management rollover consideration under the Merger Agreement increasing expense by $82.1 million. The majority of these stock-based compensation expenses were incurred in connection with vesting of Holdings LLC’s incentive units and phantom units granted under the 2014 Plan as well as bonuses and incentives in connection with the consummation of the Mergers. Additionally, payroll cost increased by $1.3 million due to headcount increases.
Amortization and depreciation
Amortization and depreciation expenses for the three months ended September 30, 2022 were relatively unchanged compared to the three months ended September 30, 2021.
Other income (expense)
Other expense increased by $12.7 million, or 432.1%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to a $76.9 million loss from change in fair value of forward purchase option derivative incurred in connection with the Forward Purchase Agreement and a $2.0 million increase in interest expense, partially offset by a $67.1 million gain from change in fair value of earn-out liabilities.
See Note 15, Fair Value Measurements, to our unaudited interim condensed consolidated financial statements as of and for the period ended September 30, 2022 included elsewhere in this prospectus for further information regarding the changes in fair value.
Income tax expense (benefit)
Income tax expense for the three months ended September 30, 2022 increased by $0.3 million compared to the three months ended September 30, 2021. The increase was primarily attributable to the current state tax expenses.
64 |
Comparison of the nine months ended September 30, 2022 and 2021
Nine Months Ended September 30, |
||||||||||||||||
2022 | 2021 | Change $ | Change % | |||||||||||||
(in thousands, except changes in percentage) | ||||||||||||||||
Revenue | ||||||||||||||||
Service | $ | 437,755 | $ | 365,511 | $ | 72,244 | 19.8 | % | ||||||||
Recyclable commodity | 71,640 | 54,251 | 17,389 | 32.1 | % | |||||||||||
Total revenue | 509,395 | 419,762 | 89,633 | 21.4 | % | |||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue (exclusive of amortization and depreciation) | ||||||||||||||||
Service | 423,382 | 351,287 | 72,095 | 20.5 | % | |||||||||||
Recyclable commodity | 65,856 | 51,098 | 14,758 | 28.9 | % | |||||||||||
Total cost of revenue (exclusive of amortization and depreciation) | 489,238 | 402,385 | 86,853 | 21.6 | % | |||||||||||
Sales and marketing | 13,336 | 10,604 | 2,732 | 25.8 | % | |||||||||||
Product development | 28,336 | 13,350 | 14,986 | 112.3 | % | |||||||||||
General and administrative | 212,520 | 34,968 | 177,552 | 507.8 | % | |||||||||||
Amortization and depreciation | 4,331 | 4,958 | (627 | ) | (12.6 | )% | ||||||||||
Total costs and expenses | 747,761 | 466,265 | 281,496 | 60.4 | % | |||||||||||
Loss from operations | (238,366 | ) | (46,503 | ) | (191,863 | ) | 412.6 | % | ||||||||
Other income (expense): | ||||||||||||||||
Interest earned | 1 | 2 | (1 | ) | (50.0 | )% | ||||||||||
Gain on forgiveness of debt | - | 10,900 | 10,900 | (100.0 | )% | |||||||||||
Loss on change in fair value of warrants | (436 | ) | - | (436 | ) | NM | % | |||||||||
Gain on change in fair value of earn-out liabilities | 67,100 | - | 67,100 | NM | % | |||||||||||
Loss on change in fair value of forward purchase option derivative | (76,919 | ) | - | (76,919 | ) | NM | % | |||||||||
Excess fair value over the consideration received for SAFE | (800 | ) | - | (800 | ) | NM | % | |||||||||
Other expense | (1,994 | ) | (730 | ) | (1,264 | ) | 173.2 | % | ||||||||
Interest expense | (12,264 | ) | (7,461 | ) | (4,803 | ) | 64.4 | % | ||||||||
Total other income (expense) | (25,312 | ) | 2,711 | (28,023 | ) | NM | % | |||||||||
Loss before income taxes | (263,678 | ) | (43,792 | ) | (219,886 | ) | 502.1 | % | ||||||||
Income tax expense (benefit) | 60 | (961 | ) | 1,021 | (106.2 | )% | ||||||||||
Net loss | (263,738 | ) | (42,831 | ) | (220,907 | ) | 515.8 | % | ||||||||
Net loss attributable to Holdings LLC unitholders prior to the Mergers | (228,997 | ) | (42,831 | ) | (186,166 | ) | 434.7 | % | ||||||||
Net loss attributable to noncontrolling interests | (16,933 | ) | - | (16,933 | ) | NM | % | |||||||||
Net Loss Attributable to Class A Common Stockholders | (17,808 | ) | - | (17,808 | ) | NM | % |
NM – not meaningful
65 |
Revenue
Total revenue increased by $89.6 million, or 21.4%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
Service revenue increased by $72.2 million, or 19.8%, primarily due to $41.1 million generated from our new customers since the end of the prior year period and an increase of $64.0 million driven by higher prices charged for the services provided to our existing customers, partially offset by a $32.9 million decrease as a result of lower volume and frequency of the services provided to the existing customers.
Revenues from sales of recyclable commodities increased by $17.4 million, or 32.1%, primarily due to an increase in the sales prices for recyclable commodities, especially old corrugated cardboard, which contributed to a $10.3 million increase driven by the higher average price per ton by 26.2%, and pallets, which contributed to a $6.0 million increase as a result of the higher average price per unit by 49.3%, in each case as compared to the average price in the prior year period.
Additionally, our total revenue for the nine months ended September 30, 2022 was $509.4 million and we currently do not project our revenue for the fiscal year 2022 to reach the projected revenues of $736.1 million set forth in the unaudited prospective financial information we prepared and provided to Founder’s board of directors and its certain financial advisors in connection with the evaluation of the Mergers. The discrepancy between such projected revenues and the actual revenues for 2022 primarily arose due to the fact that we did not complete acquisitions that were in our plan prior to the consummation of the Mergers and included in our projected revenues.
Cost of revenue, exclusive of amortization and depreciation
Total cost of revenue increased by $86.9 million, or 21.6%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
Cost of service revenue increased by $72.1 million, or 20.5%, primarily attributable to a $40.9 million increase in connection with servicing our new customers, including nonrecurring costs for onboarding a new significant customer, and a $63.6 million increase driven by price increase from our hauling and recycling partners for servicing our existing customers, partially offset by a $31.4 million decrease as a result of lower volume and frequency of the services provided for the existing customers.
Cost of recyclable commodity revenue increased by $14.8 million, or 28.9%, primarily attributable to cost increases driven by higher prices of recyclable commodities sold, especially old corrugated cardboard by $10.3 million and pallets by $4.8 million.
Sales and marketing
Sales and marketing expenses increased by $2.7 million, or 25.8%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to higher costs for sales and marketing activities that we recommenced in 2022 following a temporary suspension as a result of the pandemic, including meetings, conferences and other business development activities in the amount of $1.5 million and higher payroll related costs of $0.9 million due to headcount increases.
Product development
Product development expenses increased by $15.0 million, or 112.3%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to higher product development support costs of $12.9 million, which was mainly driven by higher software subscription costs to support our product development team, and higher payroll related costs of $1.9 million, which increased primarily due to the headcount increases in our product development team to support our growth.
66 |
We expect product development costs to continue to be higher for next twelve months. The increase is expected to be driven by the Palantir Technologies, Inc. software services subscription, which provides advanced data analytics capabilities to enhance the data security, visibility, models, and algorithms of our digital platform. See “Contractual Obligations.” However, the increase from the Palantir Technologies, Inc. software services agreement is expected to be offset, at least partially, by planned cost reduction measures as a result of our increased focus on operational efficiencies. We also plan to eliminate any redundancies within the organization, including in product development, which were a byproduct of our growth and expansion phase the past few years.
General and administrative
General and administrative expenses increased by $177.6 million, or 507.8%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to an increase of stock-based compensation expense by $92.4 million and cash payments and RSU and DSU issuances in connection with Rubicon management rollover consideration under the Merger Agreement increasing expense by $82.3 million. The majority of these stock-based compensation expenses were incurred in connection with vesting of Holdings LLC’s incentive units and phantom units granted under the 2014 Plan as well as bonuses and incentives in connection with the consummation of the Mergers. Additionally, an increase of outside services by $3.0 million including professional service fees to operate as a publicly traded company, an increase of $3.5 million in payroll cost due to the headcount increase, partially offset by a $5.2 million decrease in bad debt expense due to improved cash collection of amounts for which reserves had previously been established.
Amortization and depreciation
Amortization and depreciation expenses for the nine months ended September 30, 2022 were relatively unchanged compared to the nine months ended September 30, 2021.
Other income (expense)
Other expense of $25.3 million increased by $28.0 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to a $76.9 million loss on change in fair value of forward purchase option derivative incurred in connection with the Forward Purchase Agreement, a $10.9 million debt forgiveness in 2021 which did not repeat, a $4.8 million increase in interest expense, an $0.8 million loss related to the excess fair value over the consideration received for the SAFE executed in May 2022 and an $0.8 million expense incurred for commitment shares issued in connection of SEPA, partially offset by a $67.1 million gain on change in fair value of earn-out liabilities.
See Note 15, Fair Value Measurements, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for further information regarding the changes in fair value and “Liquidity and Capital ResourcesOther Financing Arrangements” below for further information regarding the SAFE.
Income tax expense (benefit)
Income tax expense for the nine months ended September 30, 2022 increased by $1.0 million compared to the nine months ended September 30, 2021. The increase was primarily attributable to the deferred tax expenses related to book and tax basis difference in goodwill and the current state tax expenses.
67 |
Comparison of years ended December 31, 2021 and 2020
Year Ended December 31, |
||||||||||||||||
2021 | 2020 | Change $ | Change % | |||||||||||||
(in thousands, except changes in percentage) | ||||||||||||||||
Revenue | ||||||||||||||||
Service | $ | 500,911 | $ | 490,122 | $ | 10,789 | 2.2 | % | ||||||||
Recyclable commodity | 82,139 | 49,251 | 32,888 | 66.8 | % | |||||||||||
Total revenue | 583,050 | 539,373 | 43,677 | 8.1 | % | |||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenue (exclusive of amortization and depreciation) | ||||||||||||||||
Service | 481,642 | 471,039 | 10,603 | 2.3 | % | |||||||||||
Recyclable commodity | 77,030 | 45,892 | 31,138 | 67.9 | % | |||||||||||
Total cost of revenue (exclusive of amortization and depreciation) | 558,672 | 516,931 | 41,741 | 8.1 | % | |||||||||||
Sales and marketing | 14,457 | 14,782 | (325 | ) | (2.2 | )% | ||||||||||
Product development | 22,485 | 14,857 | 7,628 | 51.3 | % | |||||||||||
General and administrative | 52,915 | 37,754 | 15,161 | 40.2 | % | |||||||||||
Amortization and depreciation | 7,128 | 6,450 | 678 | 10.5 | % | |||||||||||
Total costs and expenses | 655,657 | 590,774 | 64,883 | 11.0 | % | |||||||||||
Loss from operations | (72,607 | ) | (51,401 | ) | (21,206 | ) | 41.3 | % | ||||||||
Other income (expense): | ||||||||||||||||
Interest earned | 2 | 8 | (6 | ) | (75.0 | )% | ||||||||||
Gain on forgiveness of debt | 10,900 | - | 10,900 | NM | % | |||||||||||
Loss on change in fair value of warrants | (606 | ) | - | (606 | ) | NM | % | |||||||||
Other expense | (1,055 | ) | (427 | ) | (628 | ) | 147.1 | % | ||||||||
Interest expense | (11,455 | ) | (8,217 | ) | (3,238 | ) | 39.4 | % | ||||||||
Total other income (expense) | (2,214 | ) | (8,636 | ) | 6,422 | (74.4 | )% | |||||||||
Loss before income taxes | (74,821 | ) | (60,037 | ) | (14,784 | ) | 24.6 | % | ||||||||
Income tax expense (benefit) | (1,670 | ) | (1,454 | ) | (216 | ) | 14.9 | % | ||||||||
Net loss | (73,151 | ) | (58,583 | ) | (14,568 | ) | 24.9 | % |
NM – not meaningful
68 |
Revenue
Total revenue increased by $43.7 million, or 8.1%, for the year ended December 31, 2021, compared to the year ended December 31, 2020.
Service revenue increased by $10.8 million, or 2.2%, primarily due to a combination of sales to new customers in the amount of $6.5 million and increased service levels for existing customers in the amount of $4.3 million. During the first half of 2021, the service revenue decreased by $10.9 million as compared to the same prior-year period primarily due to the impact of decreased service levels from customer attrition in the second half of 2020, including in connection with customer bankruptcies. During the second half of 2021, service revenues began to recover and increased by $21.7 million as compared to the same prior-year period.
Revenues from sales of recyclable commodities increased by $32.9 million, or 66.8%, primarily due to an increase in the sales prices for recyclable commodities, especially old corrugated cardboard, whose average price per ton increased by 91.8%.
Cost of revenue, exclusive of amortization and depreciation
Total cost of revenue increased by $41.7 million, or 8.1%, for the year ended December 31, 2021, compared to the year ended December 31, 2020.
Cost of service revenue increased by $10.6 million, or 2.3%, primarily due to an increase in hauling-related costs corresponding to the service revenue increase as a result of service level increases to new and existing customers.
Cost of recyclable commodity revenue increased by $31.1 million, or 67.9%, primarily due to an increase in the cost of recyclable commodities sold mainly driven by the increase in the recyclable commodity prices.
Sales and marketing
Sales and marketing expenses for the year ended December 31, 2021 were relatively unchanged compared to the year ended December 31, 2020.
Product development
Product development expenses increased by $7.6 million, or 51.3%, for the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase was primarily attributable to higher product development support costs of $5.0 million, which was mainly driven by higher software subscription costs to support our product development team, and higher payroll related costs of $2.1 million, which increased primarily due to the headcount increase in our product development team to support our growth.
We expect the product development cost to continue to increase over the next twelve months. The increase is expected to be driven by the Palantir Technologies, Inc. software services subscription, which provides advanced data analytics capabilities to enhance the data security, visibility, models, and algorithms of our digital platform. See “Liquidity and Capital Resources” below for further information regarding the Palantir Technologies, Inc. software services subscription.
69 |
General and administrative
General and administrative expenses increased by $15.2 million, or 40.2%, for the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase was primarily attributable to higher equity compensation costs by $7.0 million, employee-related costs by $3.3 million, professional services costs by $3.0 million, and software license costs by $1.3 million, mainly to support our growth and preparation to operate as a publicly traded company.
Amortization and depreciation
Amortization and depreciation expenses for the year ended December 31, 2021 were relatively unchanged compared to the year ended December 31, 2020.
Other income (expense)
Other expense decreased by $6.4 million, or 74.4%, for the year ended December 31, 2021, compared to the year ended December 31, 2020. The decrease was primarily attributable to forgiveness of the PPP loans in the amount of $10.9 million during 2021 which was partially offset by an $3.2 million increase in interest expense due to higher borrowings under the Term Loan Facility (as defined in the “Debt” section) as compared to the prior year. In March 2021, Holdings LLC amended the Term Loan Facility (as defined below), increasing the principal amount of the facility from $40.0 million to $60.0 million. See Note 4, Debt, to our consolidated financial statements included elsewhere in this prospectus.
Income tax expense (benefit)
Income tax benefit for the year ended December 31, 2021 was relatively unchanged compared to the year ended December 31, 2020.
Key Metrics and Non-GAAP Financial Measures
In addition to the measures presented in our consolidated financial statements, we use the following key business and non-GAAP metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Revenue net retention
We believe our ability to retain customers is an indicator of the stability of our revenue base and the long-term value of our customer relationships. We calculate revenue net retention as a year-over-year comparison that measures the percentage of revenue recognized in the current quarter from customers retained from the corresponding quarter in the prior year. We believe that our revenue net retention rate is an important metric to measure overall client satisfaction and the general quality of our service offerings as it is a composition of revenue expansion or contraction within our customer accounts.
Our revenue net retention rate was 118.3% and 109.0% as of September 30, 2022 and 2021, respectively, 125.0% and 96.7% as of December 31, 2021 and 2020, respectively.
Adjusted gross profit and adjusted gross profit margin
Adjusted gross profit is a non-GAAP financial measure which is calculated by adding back amortization and depreciation for revenue generating activities and platform support costs to GAAP gross profit, the most comparable GAAP measurement. Adjusted gross profit margin is calculated as adjusted gross profit divided by total GAAP revenue.
70 |
We believe adjusted gross profit and adjusted gross profit margin are important measures and useful to investors because they show the progress in scaling our digital platform by quantifying the markup and margin we charge our customers that are incremental to our marketplace vendor costs. These measures demonstrate this progress because changes in these measures are driven primarily by our ability to optimize services for our customers, improve our hauling and recycling partners’ efficiency and achieve economies of scale on both sides of the marketplace. Our management team uses these non-GAAP measures as one of the means to evaluate the profitability of our customer accounts, exclusive of certain costs that are generally fixed in nature, and to assess how successful we are in achieving our pricing strategies. However, it is important to note that other companies, including companies in our industry, may calculate and use these measures differently or not at all, which may reduce their usefulness as a comparative measure. Further, these measures should not be read in isolation from or without reference to our results prepared in accordance with GAAP.
The following table shows the calculation of GAAP gross profit and a reconciliation of (i) GAAP gross profit to non-GAAP adjusted gross profit and GAAP gross profit margin to non-GAAP adjusted gross profit margin, (ii) amortization and depreciation for revenue generating activities to total amortization and depreciation and (iii) platform support costs to total cost of revenue (exclusive of amortization and depreciation) for each of the periods presented:
Three Months Ended September 30, |
Nine Months Ended September 30, |
Year Ended December 31, |
||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2021 | 2020 | |||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Total revenue | $ | 184,983 | $ | 149,208 | $ | 509,395 | $ | 419,762 | $ | 583,050 | $ | 539,373 | ||||||||||||
Less: total cost of revenue (exclusive of amortization and depreciation) | 177,738 | 143,111 | 489,238 | 402,385 | 558,672 | 516,931 | ||||||||||||||||||
Less: amortization and depreciation for revenue generating activities | 657 | 450 | 1,886 | 2,012 | 2,947 | 1,826 | ||||||||||||||||||
Gross profit | $ | 6,588 | $ | 5,647 | $ | 18,271 | $ | 15,365 | $ | 21,431 | $ | 20,616 | ||||||||||||
Gross profit margin | 3.6 | % | 3.8 | % | 3.6 | % | 3.7 | % | 3.7 | % | 3.8 | % | ||||||||||||
Gross profit | $ | 6,588 | $ | 5,647 | $ | 18,271 | $ | 15,365 | $ | 21,431 | $ | 20,616 | ||||||||||||
Add: amortization and depreciation for revenue generating activities | 657 | 450 | 1,886 | 2,012 | 2,947 | 1,826 | ||||||||||||||||||
Add: platform support costs | 6,884 | 5,787 | 19,761 | 16,026 | 22,556 | 19,844 | ||||||||||||||||||
Adjusted gross profit | $ | 14,129 | $ | 11,884 | $ | 39,918 | $ | 33,403 | $ | 46,934 | $ | 42,286 | ||||||||||||
Adjusted gross profit margin | 7.6 | % | 8.0 | % | 7.8 | % | 8.0 | % | 8.0 | % | 7.8 | % | ||||||||||||
Amortization and depreciation for revenue generating activities | $ | 657 | $ | 450 | $ | 1,886 | $ | 2,012 | $ | 2,947 | $ | 1,826 | ||||||||||||
Amortization and depreciation for sales, marketing, general and administrative activities | 782 | 894 | 2,445 | 2,946 | 4,181 | 4,624 | ||||||||||||||||||
Total amortization and depreciation | $ | 1,439 | $ | 1,344 | $ | 4,331 | $ | 4,958 | $ | 7,128 | $ | 6,450 | ||||||||||||
Platform support costs (1) | $ | 6,884 | $ | 5,787 | $ | 19,761 | $ | 16,026 | $ | 22,556 | $ | 19,844 | ||||||||||||
Marketplace vendor costs (2) | 170,854 | 137,324 | 469,477 | 386,359 | 536,116 | 497,087 | ||||||||||||||||||
Total cost of revenue (exclusive of amortization and depreciation) | $ | 177,738 | $ | 143,111 | $ | 489,238 | $ | 402,385 | $ | 558,672 | $ | 516,931 |
(1) | We define platform support costs as costs to operate our revenue generating platforms that do not directly correlate with volume of sales transactions procured through our digital marketplace. Such costs include employee costs, data costs, platform hosting costs and other overhead costs. |
(2) | We define marketplace vendor costs as direct costs charged by our hauling and recycling partners for services procured through our digital marketplace. |
71 |
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and GAAP net loss is its most comparable GAAP measurement. We define adjusted EBITDA as GAAP net loss adjusted to exclude interest expense and income, income tax expense and benefit, amortization and depreciation, equity-based compensation, phantom unit expense, gain or loss on change in fair value of warrant liabilities, gain or loss on change in fair value of earn-out liabilities, gain or loss on change in fair value of forward purchase option derivative, excess fair value over the consideration received for SAFE, other non-operating income and expenses, and unique non-recurring income and expenses.
We have included adjusted EBITDA because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses. Further, we believe it is helpful in highlighting trends in our operating results because it allows for more consistent comparisons of financial performance between periods by excluding gains and losses that are non-operational in nature or outside the control of management, as well as items that may differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. It is also often used by analysts, investors and other interested parties in evaluating and comparing our results to other companies within our industry. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of net loss or our other results as reported under GAAP. Some of these limitations are:
● | adjusted EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments; |
● | adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
● | adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; |
● | although amortization and depreciation are non-cash charges, the assets being amortized and depreciated will often have to be replaced in the future and adjusted EBITDA does not reflect any cash requirements for such replacements; |
● | adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items for which we may make adjustments in historical periods; and |
● | other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for each of the periods presented:
72 |
Three Months Ended September 30, |
Nine Months Ended September 30, |
Year Ended December 31, |
||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2021 | 2020 | |||||||||||||||||||
Total revenue | $ | 184,983 | $ | 149,208 | $ | 509,395 | $ | 419,762 | $ | 583,050 | $ | 539,373 | ||||||||||||
Net loss | $ | (211,125 | ) | $ | (18,128 | ) | $ | (263,738 | ) | $ | (42,831 | ) | $ | (73,151 | ) | $ | (58,583 | ) | ||||||
Adjustments: | ||||||||||||||||||||||||
Interest expense | 4.578 | 2,611 | 12,264 | 7,461 | 11,455 | 8,217 | ||||||||||||||||||
Interest earned | (1 | ) | - | (1 | ) | (2 | ) | (2 | ) | (8 | ) | |||||||||||||
Income tax expense (benefit) | 19 | (252 | ) | 60 | (961 | ) | (1,670 | ) | (1,454 | ) | ||||||||||||||
Amortization and depreciation | 1,439 | 1,344 | 4,331 | 4,958 | 7,128 | 6,450 | ||||||||||||||||||
Equity-based compensation | 88,793 | 122 | 88,977 | 486 | 543 | 468 | ||||||||||||||||||
Phantom unit expense | 2,213 | 641 | 6,783 | 2,907 | 7,242 | 271 | ||||||||||||||||||
Deferred compensation expense | 1,250 | - | 1,250 | - | - | - | ||||||||||||||||||
(Gain) Loss on change in fair value of warrant liabilities | (74 | ) | - | 436 | - | 606 | - | |||||||||||||||||
Gain on change in fair value of earn-out liabilities | (67,100 | ) | - | (67,100 | ) | - | - | - | ||||||||||||||||
Loss on change in fair value of forward purchase option derivative | 76,919 | - | 76,919 | - | - | - | ||||||||||||||||||
Excess fair value over the consideration received for SAFE | - | - | 800 | - | - | - | ||||||||||||||||||
Nonrecurring merger transaction expenses(3) | 80,712 | - | 80,712 | - | - | - | ||||||||||||||||||
Other expenses(4) | 1,307 | 326 | 1,994 | 730 | 1,055 | 427 | ||||||||||||||||||
Gain on forgiveness of debt | - | - | - | (10,900 | ) | (10,900 | ) | - | ||||||||||||||||
Adjusted EBITDA | $ | (21,070 | ) | $ | (13,336 | ) | $ | (56,313 | ) | $ | (38,152 | ) | $ | (57,694 | ) | $ | (44,212 | ) | ||||||
Net loss as a percentage of total revenue | (114.1 | )% | (12.1 | )% | (51.8 | )% | (10.2 | )% | (12.5 | )% | (10.9 | )% | ||||||||||||
Adjusted EBITDA as a percentage of total revenue | (11.4 | )% | (8.9 | )% | (11.1 | )% | (9.1 | )% | (9.9 | )% | (8.2 | )% |
(3) | Nonrecurring merger transaction expenses primarily consist of management bonus payments of $31.7 million, including $2.8 million bonuses paid subsequent to the Closing Date, accrual for Rubicon management rollover consideration under the Merger Agreement of $47.6 million, and related payroll tax expense of $1.2 million in connection with the Mergers. |
(4) | Other expenses primarily consist of foreign currency exchange gains and losses, taxes, penalties, commitment fee for SEPA, and gains and losses on sale of property and equipment. |
73 |
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows in the short- and long-term to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions and investments, and other commitments and contractual obligations. We consider liquidity in terms of cash flows from operations and other sources, and their sufficiency to fund our operating and investing activities.
Our principal sources of liquidity have been borrowings under our current and prior credit facilities, proceeds from the issuance of equity and warrant exercises and cash generated by operating activities. More recently, we received cash proceeds from the Mergers and the PIPE Investment, and have entered into the SEPA, YA Convertible Debentures, YA Warrant, the Insider Convertible Debentures, and Rodina Note to provide additional liquidity (see “Other Financing Arrangements” below). Additionally, we have extended the scheduled maturity of the Revolving Credit Facility to December 2025. Our primary cash needs are for day-to-day operations, to fund working capital requirements, to fund our growth strategy, including investments and acquisitions, to pay interest and principal on our indebtedness and to pay $34.3 million under our software subscription agreement with Palantir Technologies, Inc., through October 2024. See “Contractual Obligations” below.
Our principal uses of cash in recent periods have been funding operations and paying expenses associated with the Mergers, including amounts paid under the Forward Purchase Agreement. Our long-term future capital requirements will depend on many factors, including revenue growth rate, achieving higher profitability on our revenue contracts, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support investments, including research and development efforts and the continuing market adoption of our products, and the terms on which we refinance our existing indebtedness.
During the nine months ended September 30, 2022, and in each fiscal year since the Company’s inception, we have incurred losses from operations and generated negative cash flows from operating activities. We also have negative working capital and stockholders’ deficit as of September 30, 2022. Our total current liabilities as of September 30, 2022 are $258.7 million.
As of September 30, 2022, cash and cash equivalents totaled $4.5 million, accounts receivable totaled $58.7 million and unbilled accounts receivable totaled $62.8 million. Availability under our Revolving Credit Facility, which provides the ability to borrow up to $60.0 million, was $21.2 million. As of November 15, 2022, we had approximately $5.1 million in cash and cash equivalents and $23.8 million available under our Revolving Credit Facility. Our outstanding indebtedness includes the Revolving Credit Facility, the Term Loan and the Subordinated Term Loan, under which the principal of $36.2 million, $51.0 million and $20.0 million, respectively, were outstanding as of November 15, 2022 and were scheduled to mature in December 2023. Pursuant to the SEPA, we have the right to sell up to $200.0 million of shares of Class A Common Stock to the Yorkville Investor, subject to certain limitations and conditions set forth in the SEPA. However, because shares issued under the SEPA are sold at a discount to the then-current market price, in light of the current market price and the NYSE rules limiting the number of shares that can be issued without shareholder approval, the amount that could be raised pursuant to the SEPA is significantly lower than $200.0 million without first obtaining shareholder approval. Furthermore, the amended Term Loan agreement entered into on November 18, 2022 requires us to repay the Term Loan with any net proceeds provided by the SEPA until such time that the Term Loan is repaid in full. Additionally, our total revenue for the nine months ended September 30, 2022 was $509.4 million and we currently do not project our revenue for the fiscal year 2022 to reach the projected revenues of $736.1 million set forth in the unaudited prospective financial information we prepared and provided to Founder’s board of directors and its certain financial advisors in connection with the evaluation of the Mergers. The discrepancy between such projected revenues and the actual revenues for 2022 primarily arose due to the fact that we did not complete acquisitions that were in our plan prior to the consummation of the Mergers and included in our projected revenues.
We currently project that we will not have sufficient cash on hand or available liquidity under existing arrangements to meet our projected liquidity needs for the next 12 months. In the absence of additional capital, there is substantial doubt about our ability to continue as a going concern.
74 |
To address projected liquidity needs for the next 12 months, we have amended the Revolving Credit Facility and extended the scheduled maturity of the Revolving Credit Facility to December 2025. See “Debt” below for additional information regarding the amendments we entered into. In addition, we have begun to execute our plan to modify our operations to further reduce spending. Initiatives we have undertaken in the fourth quarter of 2022 include (i) increased focus on operational efficiencies and cost reduction measures, (ii) eliminating redundancies that have been the natural byproduct of our recent growth and expansion, (iii) evaluating our portfolio and less profitable accounts to better ensure we are deploying resources efficiently, and (iv) exercising strict capital discipline for future investments, such as requiring investments to meet minimum hurdle rates.
We believe that the extended scheduled maturity of the Revolving Credit Facility, additional financing facilities entered into during the fourth quarter of 2022 and the first quarter of 2023, including YA Convertible Debentures, YA Warrant, the Insider Convertible Debentures, and Rodina Note, cash on hand and available under the Revolving Credit Facility, and other cash flows from operations are expected to provide sufficient liquidity to meet our known liquidity needs for the next 12 months. We believe this plan is probable of being achieved and alleviates substantial doubt about our ability to continue as a going concern. In the longer-term, we intend to refinance indebtedness maturing in 2023 with new, longer-term debt facilities (the “New Debt Facilities”).
We may receive additional capital from the cash exercise of the Public and Private Warrants. However, the exercise price of our Warrants is $11.50 per warrant and the last reported sales price of our Class A Common Stock on February 7, 2023 was $1.45. The likelihood that Warrant holders will exercise their Warrants, and therefore the likelihood of any amount of cash proceeds that we may receive, is dependent upon the trading price of our Class A Common Stock and we do not currently expect to receive any cash proceeds from the exercise of Warrants in the short- to medium-term due to the trading price of our Class A Common Stock. If the trading price for our Class A Common Stock continues to be less than $11.50 per share, we do not expect Warrant holders to exercise their Warrants. Similarly, the Private Warrants may be exercised on a cashless basis and we will not receive any proceeds from such exercise, even if the Private Warrants are in-the-money. We will have broad discretion over the use of any proceeds from the exercise of such securities. Any proceeds from the exercise of such securities would increase our liquidity, but we are not currently budgeting for any cash proceeds from the exercise of Warrants when planning for our operational funding needs.
If we raise funds by issuing equity securities, including under the SEPA, dilution to stockholders will occur and may be substantial. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of common stock. If we raise funds by issuing debt securities, including the New Debt Facilities, these debt securities could have rights, preferences, and privileges senior to those of common stockholders. The terms of debt securities or borrowings, including the terms of the New Debt Facilities, could impose significant restrictions on our operations and will increase the cost of capital due to interest payment requirements. The capital markets have been very difficult and expensive to access in recent periods, which could impact the availability and cost of equity and debt financing under the New Debt Facilities or otherwise. It is possible that we will not enter into all of financing contemplated with respect to the New Debt Facilities and that no additional funding will be available at all in the capital markets. In addition, recent and anticipated future increases in federal fund rates set by the Federal Reserve, which serve as a benchmark for rates on borrowing, will impact the cost and availability of debt financing.
If we are unable to obtain adequate capital resources to fund operations, we will not be able to continue to operate our business pursuant to our current business plan, which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing, product development and other activities, which could have a material adverse impact on our operations and our ability to increase revenues, or we may be forced to discontinue our operations entirely. Similarly, in the longer-term, any inability to repay or refinance our indebtedness maturing in 2023 through the New Debt Facilities or otherwise would have similar effects on our business.
75 |
At the Mergers, holders of 24,178,161 Founder Class A Shares (or approximately 76.5% of the issued and outstanding Founder Class A Shares on such date) exercised their right to redeem those shares for cash at a price of approximately $10.176 per share, resulting in an aggregate redemption payment of approximately $246.0 million from Founder’s trust account. Following these redemptions, at the Closing we received approximately $75.8 million from Founder’s trust account, without accounting for the payment of transaction costs, payments under the Forward Purchase Agreement and Cash Transaction Bonuses. As a result of consummation of the Mergers and accounting for the foregoing redemption payments and receipt of funds from Founder’s trust account, we received approximately $73.8 million in net proceeds from the Mergers after accounting for our payment of approximately $25.4 million of transaction costs, aggregate payments of $68.7 million by us to the FPA Sellers under the Forward Purchase Agreement, net proceeds of $121.0 million from the PIPE Investment, and the payment by us of an aggregate of $28.9 million in Cash Transaction Bonuses.
In September 2021, we entered into a software subscription agreement with Palantir Technologies, Inc. (“Palantir”), including related support and update services. The agreement was subsequently amended in December 2021. The term of the amended agreement is through December 31, 2024. Pursuant to the agreement, as of September 30, 2022, we are to pay $15.5 million in the next 12 months and $18.8 million thereafter through October 2024, with payments scheduled on a quarterly basis. We expect the Palantir services will support, improve, and strengthen our platform, which increases its value to our customers and partners for the continued growth of our business.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30, |
Year Ended December 31, |
|||||||||||||||
2022 | 2021 | 2021 | 2020 | |||||||||||||
(in thousands) | ||||||||||||||||
Net cash used in operating activities | $ | (112,918 | ) | $ | (45,110 | ) | $ | (59,861 | ) | $ | (31,482 | ) | ||||
Net cash used in investing activities | (69,865 | ) | (1,344 | ) | (4,002 | ) | (1,506 | ) | ||||||||
Net cash provided by financing activities | 176,630 | 48,071 | 68,459 | 21,343 | ||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | (6,153 | ) | $ | 1,617 | $ | 4,596 | $ | (11,645 | ) |
Cash flows used in operating activities
Net cash used in operating activities increased by $67.8 million to $112.9 million for the nine months ended September 30, 2022 compared to $45.1 million for the nine months ended September 30, 2021. The increase in cash used in operating activities was driven by:
● | a $220.9 million increase in net loss. |
● | a $10.3 million increase in non-cash charges which was primarily attributable to a $10.9 million decrease a $112.1 million increase in non-cash charges which was primarily attributable to a $88.1 million increase in equity-based compensation, an increase of $76.9 million in loss from change in fair value of forward purchase option derivative, a $10.9 million decrease in gain of forgiveness of debt, a $3.9 million increase in phantom unit expense, a $1.4 million increase in amortization of debt issuance costs, a $1.3 million increase in deferred compensation expense, a $1.0 million increase in deferred tax income expense, partially offset by a $67.1 million increase in gain from change in fair value of earn-out liabilities and a $5.5 decrease in bad debt reserve. |
● | a $41.0 million favorable impact attributable to changes in operating assets and liabilities, primarily driven by an increase in favorable impact from accrued expenses by $46.6 million and contract assets by $6.0 million, partially offset by an increase in unfavorable impact from accounts receivable by $7.9 million and prepaid expense by $3.7 million. |
76 |
Net cash used in operating activities increased by $28.4 million to $59.9 million for the year ended December 31, 2021, compared to $31.5 million for the year ended December 31, 2020. The increase in cash used in operating activities was driven by:
● | a $14.6 million increase in net loss. |
● | a $11.1 million unfavorable impact attributable to changes in operating assets and liabilities, primarily driven by an increase in unfavorable impact from contract assets by $25.4 million, accounts payable by $9.5 million and prepaid expenses by 3.2 million, partially offset by an increase in favorable impact from accrued expenses by $17.5 million, accounts receivable by $7.7 million and other current assets by $1.7 million. |
● | a $2.8 million decrease in non-cash charges which was primarily attributable to a $10.9 million gain on forgiveness of the PPP loans during 2021, offset by a $7.0 million increase in phantom unit expense, a $0.7 million increase in amortization and depreciation and a $0.6 million increase in loss on change in fair value of warrants. |
Cash flows used in investing activities
Net cash used in investing activities increased by $68.5 million to $69.9 million for the nine months ended September 30, 2022 compared to $1.3 million for the nine months ended September 30, 2021. The increase in cash used in investing activities was primarily driven by payments made under the Forward Purchase Agreement.
Net cash used in investing activities increased by $2.5 million for the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase was primarily attributable to purchases of technology assets during 2021.
Cash flows from financing activities
Net cash provided by financing activities was $176.6 million for the nine months ended September 30, 2022, compared to $48.1 million for the nine months ended September 30, 2021. Net cash provided by financing activities for the nine months ended September 30, 2022 resulted primarily from net proceeds from the Mergers of $175.0 million and proceeds of $8.0 million from the SAFE, offset in part by $4.5 million repayments of long-term debt, and $2.0 million payments of financing costs. Net cash provided by financing activities was $48.1 million for the nine months ended September 30, 2021 resulted primarily from proceeds of $32.5 million from warrants exercised and $22.3 million from long-term debt, offset in part by net payment on line of credit of $4.4 million, repayments of long-term debt in the amount of $1.5 million and $0.8 million payments of financing costs.
Net cash provided by financing activities was $68.5 million for the year ended December 31, 2021 and $21.3 million for the year ended December 31, 2020. Net cash provided by financing activities for the year ended December 31, 2021 resulted primarily from proceeds of $42.3 million from long-term debt and proceeds of $32.5 million from exercise of warrants, offset in part by repayments of $3.0 million of long-term debt and payments of $2.8 million of financing costs and $1.1 million of deferred offering costs. Net cash provided by financing activities for the year ended December 31, 2020 resulted primarily from proceeds of $30.8 million from long-term debt, offset in part by net payments of $6.6 million of borrowings on the line of credit and repayments of $2.3 million of long-term debt.
Tax Receivable Agreement
In connection with the consummation of the Mergers, Rubicon entered into the Tax Receivable Agreement with the TRA Holders, whereby Rubicon is obligated to pay to the TRA Holders 85% of certain of Rubicon’s realized (or in certain cases, deemed realized) tax savings as a result of certain tax benefits related to the transactions contemplated by the Merger Agreement and future exchanges of Class B Units for Class A Common Stock or cash. Rubicon will benefit from the remaining 15% of such tax savings.
77 |
The actual future payments to the TRA Holders will vary, and estimating the amount of payments that may be made under the Tax Receivable Agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors and future events. The actual future payments under the Tax Receivable Agreement are dependent on a number of factors, including the price of Class A Common Stock at the time of the exchange; the timing of future exchanges; the extent to which exchanges are taxable; the amount and timing of the utilization of tax attributes; the amount, timing and character of our income; the U.S. federal, state and local tax rates then applicable; the depreciation and amortization periods that apply to the increases in tax basis; the timing and amount of any earlier payments that we may have made under the TRA; and the portion of our payments under the TRA that constitutes imputed interest or gives rise to depreciable or amortizable tax basis.
A significant portion of any potential future payments under the Tax Receivable Agreement is anticipated to be payable over 15 years, consistent with the period over which the associated tax deductions would be realized by Rubicon, assuming Holdings LLC generates sufficient income to utilize the deductions. If sufficient income is not generated by Holdings LLC, the associated taxable income of Rubicon will be affected and the associated tax benefits to be realized will be limited, thereby similarly reducing the associated Tax Receivable Agreement payments to be made. We may however still need to seek additional sources of financing depending on the given circumstances at the time any payments will be made.
While many of the factors that will determine the amount of payments that Rubicon will make under the Tax Receivable Agreement are outside of its control, Rubicon expects that the payments it will make under the Tax Receivable Agreement will be substantial. Rubicon generally expects to fund such distributions out of available cash of Holdings LLC, and as a result, such payments will reduce the cash provided by the tax savings generated from the relevant transactions that would otherwise have been available to Rubicon and Holdings LLC for other uses, including repayment of debt, funding day-to-day operations, reinvestment in the business or returning capital to holders of Class A Common Stock in the form of dividends or otherwise.
Rubicon may incur significant costs in addition to the due course obligations arising under the Tax Receivable Agreement described above. In particular, in the event that (a) Rubicon undergoes certain change of control events (e.g., certain mergers, dispositions and other similar transactions), (b) there is a material uncured breach under the Tax Receivable Agreement, or (c) Rubicon elects to terminate the Tax Receivable Agreement early, in each case, Rubicon’s obligations under the Tax Receivable Agreement would accelerate and become payable in a lump sum amount equal to the present value of the anticipated future tax savings calculated based on certain assumptions, as set forth in the Tax Receivable Agreement. In addition, the interest on the payments made pursuant to the Tax Receivable Agreement may significantly exceed Rubicon’s other costs of capital. In certain situations, including upon the occurrence of the events described above, Rubicon could be required to make payments under the Tax Receivable Agreement that exceed its actual cash savings, requiring it to seek funding from other sources, including incurring additional debt. Thus, Rubicon’s obligations under the Tax Receivable Agreement could have a substantial negative effect on its financial condition and liquidity.
Despite these potential costs, we do not believe that that the Tax Receivable Agreement will be a material detriment to Rubicon’s and Holdings LLC’s future results of operations and liquidity, as any payments required under the Tax Receivable Agreement will arise directly from realized (or in certain cases, deemed realized) tax savings of Rubicon as a result of certain tax benefits related to the Mergers and future exchanges of Class B Units for Class A Common Stock or cash and are expected to be made in lieu of income taxes otherwise payable by Rubicon. Additionally, Rubicon will receive the benefit of 15% of any such tax savings.
Debt
On December 14, 2018, we entered into a Revolving Credit Facility, which was subsequently amended, and which provides for borrowings of up to $60.0 million and, as recently amended, matures in December 2023. As of September 30, 2022, we had approximately $30.1 million of borrowings under the Revolving Credit Facility, resulting in an unused borrowing capacity of approximately $21.2 million. We may use the proceeds of future borrowings under the Revolving Credit Facility to finance our acquisition strategy and for other general corporate purposes. The Revolving Credit Facility bore interest at LIBOR plus 4.5% until an amended agreement entered on April 26, 2022, and since the amendment, it bore interest at SOFR plus 4.6%. We entered into an amended agreement on November 18, 2022, which extended the maturity of the Revolving Credit Facility and increased the interest rate thereafter to SOFR plus 5.6%. Additionally, pursuant to the amendment, we committed to raise $5.0 million from the Financing Commitment or a similar commitment by November 23, 2022, which was subsequently extended to November 30, 2022, and an additional $25.0 million from the issuance of equity by the earlier of (i) 5 business days after the date our S-1 filed with the SEC on August 22, 2022 becomes effective, or (ii) January 31, 2023 which was subsequently extended to February 3, 2023. We met these requirements with the issuance of the YA Warrant, the YA Convertible Debentures and the Insider Convertible Debentures. Our Revolving Credit Facility also includes a lockbox arrangement, which provides for receipts to be swept daily to reduce borrowings outstanding at the discretion of the lender.
78 |
On January 31, 2023, Rubicon entered into the Seventh Amendment to the Revolving Credit Facility. The Seventh Amendment amends that certain Revolving Credit Facility, dated as of December 14, 2018. Pursuant to the Seventh Amendment, Rubicon and the lender agreed (i) for Rubicon and the Term Loan lender to enter into that certain Acknowledgement and Consent, dated as of January 31, 2023, and (ii) amend the provisions of the Revolving Credit Facility to revise the defined term “S-1 Trigger Date.” On February 7, 2023, Rubicon entered into the Eighth Amendment to the Revolving Credit Facility. Pursuant to the Eighth Amendment, the parties thereto, among other revisions, revised (i) the defined term “S-1 Trigger Date” in addition to other definitions, (ii) increased the Maximum Revolving Facility Amount (as defined therein) by an additional $15.0 million, from $60.0 million to $75.0 million, and (iii) extended the maturity to the earlier of (i) December 14, 2025, (ii) 90 days prior to the maturity of the Term Loan and (iii) the maturity of the Subordinated Term Loan.
On March 29, 2019, we entered into a Term Loan agreement, which was subsequently amended, and which provides for $60.0 million of term loan secured by a second lien on all of our assets at an interest rate of LIBOR plus 9.5%. The Term Loan matures on the earlier of March 2024 or the maturity date under the Revolving Credit Facility. We did not meet the minimum equity raise requirement of $50.0 million by June 30, 2022, which if not met, the lender could reduce the Term Loan collateral by $20.0 million and require the use of available funds under the Revolving Credit Facility as additional Term Loan collateral. As a result of the $20.0 million reduction in the Term Loan collateral, the availability under the Revolving Credit Facility was reduced by approximately $8.7 million as of September 30, 2022. As of September 30, 2022, we had loans outstanding under the Term Loan agreement with a total carrying value of $49.9 million. On November 18, 2022 and November 30, 2022, we entered into amendments to the Term Loan agreement, in which the lender consented to the amendments to the Revolving Credit Facility agreement and the Subordinated Term Loan agreement. Additionally, we committed to raise $5.0 million from the Financing Commitment or a similar commitment by November 23, 2022, which was subsequently extended to November 30, 2022, pursuant to the November 30, 2022 amendment, and an additional $25.0 million from the issuance of equity by the earlier of (i) 5 business days after the date our S-1 filed with the SEC on August 22, 2022 becomes effective, which was subsequently amended to 5 business days after the date that our S-1 filed with the SEC on December 14, 2022 becomes effective, or (ii) January 31, 2023, which was subsequently extended to February 3, 2023, and to provide the Term Loan lender, on or before December 19, 2022, with a binding agreement with respect to a portion of such additional raise equal to at least $15.0 million. We met these requirements with the issuance of the YA Warrant, the YA Convertible Debentures and the Insider Convertible Debentures. The amended Term Loan agreement also requires us to cause the Yorkville Investor, subject to the terms and limitations of the SEPA Amendment and YA SPA which the Term Loan lender consented to pursuant to the November 30, 2022 amendment, to purchase the maximum amount of our equity interests available under the SEPA and to utilize the net proceeds from such drawdowns to repay the Term Loan until it is fully repaid. If we do not repay the Term Loan in full by March 27, 2023, we will be liable for additional fees.
Pursuant to the Acknowledgement and Consent, dated as of January 31, 2023, Rubicon and the Term Loan lender (i) intend to enter into the Seventh Amendment to the Term Loan agreement which would, among other things, extend the deadline for the Follow-on Contribution (as defined in the Term Loan agreement), and (ii) consent to an extension of the deadline for the Follow-On Contribution to February 3, 2023. On February 7, 2023, the parties thereto entered into the Seventh Amendment to the Term Loan agreement. Pursuant to the Seventh Amendment to the Term Loan agreement, the parties thereto, among other revisions, (i) revised the defined term “Applicable Margin,” “S-1 Trigger Date,” in addition to other definitions, and (ii) replaced LIBOR with SOFR.
We may not use the SEPA to fund the new equity financing commitments we agreed to in the amendments to the Revolving Credit Facility and Term Loan, and the financings used to satisfy the commitments under the Revolving Credit Facility amendment may be used to also satisfy the commitments under the Term Loan amendment.
On December 22, 2021, we entered into a Subordinated Term Loan agreement which provides for $20.0 million of term loan secured by a third lien on all of our assets at an interest rate of 15.0%. The Subordinated Term Loan, as recently amended, matures on December 31, 2023. As of September 30, 2022, we had term loans outstanding under the Subordinated Term Loan agreement with a total carrying value of $19.6 million. If we do not repay the Subordinated Term Loan on or before its maturity, the Subordinated Term Loan Warrants will become exercisable for additional Class A Common Stock until such time that the principal and interest are fully paid in cash. On November 18, 2022, we entered into an amendment to the Subordinated Term Loan agreement. The amendment extended the Subordinated Term Loan maturity through December 31, 2023. Concurrently, we entered into an amendment to the Subordinated Term Loan Warrants agreements, which (i) increased the number of Class A Common Stock the lender has the right to purchase with the Subordinated Term Loan Warrants to such number of Class A Common Stock worth $2.6 million ($2.0 million prior to the amendment), (ii) caused the Subordinated Term Loan Warrants to be immediately exercisable upon execution of the amended Subordinated Term Loan Warrants agreements, and (iii) increased the value of Class A Common Stock the Subordinated Term Loan Warrants will earn each additional full calendar month after March 22, 2023 to $0.25 million ($0.2 million prior to the amendment) until we repay the Subordinated Term Loan in full.
79 |
In addition, we received loans under the PPP, which was established under the CARES Act and is administered by the SBA, for an amount totaling $10.8 million. We elected to repay $2.3 million of the PPP loans during the year ended December 31, 2020. The SBA forgave the PPP loans in the full amount of $10.8 million along with associated accumulated interest during the year ended December 31, 2021, resulting in a refund of the $2.3 million of the PPP loans repaid. As of September 30, 2022 and December 31, 2021, we had no outstanding PPP loan balances. The SBA and other government communications have however indicated that all loans in excess of $2.0 million will be subject to audit and that those audits could take up to seven years to complete.
See Note 4, Debt, to our audited consolidated financial statements and Note 5, Debt, and Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements as of and for the period ended September 30, 2022 included elsewhere in this prospectus for a more detailed description of our indebtedness.
We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.
Other Financing Arrangements
On May 25, 2022, we entered into the Rubicon Equity Investment Agreement (“Simple Agreement for Future Equity” or “SAFE”) with Founder and certain investors, whereby the investors advanced us $8.0 million and, in connection with the consummation of the Mergers and in exchange for the advancements, (a) Holdings LLC issued 880,000 Class B Units to such investors, (b) Rubicon issued 160,000 shares of Class A Common Stock to such investors, and (c) Sponsor forfeited 160,000 shares of Class A Common Stock. All of the obligations thereunder were satisfied upon the Closing and the exchanges for the advancements discussed above.
On August 4, 2022, Founder entered into the Forward Purchase Agreement with the FPA Sellers. Pursuant to the Forward Purchase Agreement, prior to the Closing, the FPA Sellers purchased an aggregate of 7,082,616 shares of Class A Common Stock from Founder shareholders who, pursuant to the governing documents of Founder, elected to redeem such shares in connection with the Closing, and upon such purchase, the FPA Sellers waived their redemption rights with respect to such securities. The Forward Purchase Agreement resulted in an additional $4.0 million of cash at the Closing. On November 30, 2022, we terminated the Forward Purchase Agreement pursuant to those FPA Termination Agreements entered into with each of the FPA Sellers. For more information regarding the Forward Purchase Agreement and the FPA Termination Agreements, see the section entitled “Certain Financing TransactionsForward Purchase Agreement.”
On August 31, 2022, Rubicon entered into the SEPA with the Yorkville Investor. Pursuant to the SEPA, Rubicon has the right to sell to the Yorkville Investor, from time to time, up to $200.0 million of shares of our Class A Common Stock at a discounted per share price until the earlier of the 36 month anniversary of the SEPA or until the date on which the facility has been fully utilized, subject to certain limitations and conditions set forth therein. Any issuances and sales of Class A Common Stock to the Yorkville Investor under the SEPA, and the timing of any such sales, are at Rubicon’s option, and subject to Rubicon’s obligations under the Term Loan, Rubicon is under no obligation to sell any securities to the Yorkville Investor under the SEPA. Pursuant to the SEPA, on August 31, 2022, we issued the Yorkville Investor 200,000 shares of Class A Common Stock, which represented an initial up-front commitment fee. We have not sold any shares of Class A Common Stock under the SEPA during the period between August 31, 2022 and September 30, 2022. For more information regarding the SEPA, see the section entitled “Certain Financing TransactionsSEPA.”
On November 14, 2022, we entered into a binding Financing Commitment with certain existing investors, whereby the investors intend to provide us with up to $30.0 million of financing through the issuance by us of debt and/or equity securities (including, without limitation, shares of capital stock, securities convertible into or exchangeable for shares of capital stock, warrants, options, or other rights for the purchase or acquisition of such shares and other ownership or profit interests of the Company). Any debt issued pursuant to this letter would have a term of at least 12 months and any equity or equity linked securities issued under this letter would have a fixed price such that no other shareholder or other exchange approvals would be required. The amount the investors agreed to contribute under the Financing Commitment will be reduced on a dollar-for-dollar basis by the amount of any other equity capital we receive through January 15, 2023. See Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements as of and for the period ended September 30, 2022 included elsewhere in this prospectus for more information regarding the Financing Commitment.
80 |
On November 30, 2022, we entered into the First YA Convertible Debenture in the principal amount of $7.0 million and received approximately $4.96 million in net proceeds. The First YA Convertible Debenture is convertible into shares of Class A Common Stock at the option of the Yorkville Investor. It matures on May 30, 2024 and accrues interest at a rate of 4% per annum. For more information regarding the YA Convertible Debentures, see the section entitled “Certain Financing TransactionsYA Convertible Debentures.”
On November 30, 2022, we entered into the YA Warrant, which is exercisable at a price of $0.0001 per share for a number of shares of Class A Common Stock equal to the product of (a) $20.0 million divided by (b) the Market Price (as defined below), subject to certain adjustments pursuant to the terms set forth therein. We received approximately $6.0 million in proceeds from the issuance of the YA Warrant. For more information regarding the YA Warrant, see the section entitled “Certain Financing TransactionsYA Warrant.”
On December 16, 2022, Rubicon entered into the First Closing Insider SPA with various investors comprised of members of Rubicon’s management team and board of directors, the First Closing Insider Investors. Pursuant to the First Closing Insider SPA, Rubicon agreed to issue and sell to the First Closing Insider Investors the First Closing Insider Convertible Debentures in the aggregate principal amount of up to $17.0 million, net of an original issuance discount of $2.0 million, which are convertible into shares of Class A Common Stock, which First Closing Insider Convertible Debentures may be purchased by the First Closing Insider Investors over the course of more than one closing. The First Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the First Closing Insider Convertible Debentures. See “Certain Financing TransactionsInsider SPAs” for additional information.
On February 1, 2023, Rubicon entered into the Second Closing Insider SPA with various Second Closing Insider Investors. Pursuant to the Second Closing Insider SPA, Rubicon agreed to issue and sell to the Second Closing Insider Investors the Second Closing Insider Convertible Debentures with an aggregate value of no less than $4.0 million, subject to an original issuance discount, which are convertible into shares of Class A Common Stock. The Second Closing Insider Convertible Debentures were purchased by the Second Closing Insider Investors at the second of two closings. The Second Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the Second Closing Insider Convertible Debentures. See “Certain Financing TransactionsInsider SPAs” for additional information.
Rodina Note
On February 2, 2023, Rubicon and Rodina entered into an Unsecured Promissory Note pursuant to which Rodina agreed to loan Rubicon the Rodina Principal in exchange for Rubicon’s promise to pay to Rodina, in cash, the full outstanding Rodina Principal, and in kind, all unpaid interest accrued thereon, which interest shall accrue at an annual rate of 16.0%, by July 1, 2024, the maturity date.
Contractual Obligations
Our principal commitments consist of obligations under debt agreements and leases for office facilities. We have a substantial level of debt. For more information regarding our debt service obligations and our lease obligations, see Note 5, Debt and Note 16, Commitments and contingencies, to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. As of September 30, 2022, our agreement with Palantir requires us to pay an aggregate of $34.3 million through October 2024, $15.5 million of which is due through September 30, 2023. See Note 17, Related party transactions, to our unaudited interim condensed consolidated financial statements included elsewhere in our prospectus for more information regarding our agreement with Palantir. We could also be required to make certain significant payments under the Tax Receivable Agreement discussed above. Additionally, in connection with the Mergers, as of September 30, 2022, $44.2 million of fees for certain advisors have been recognized as accrued expenses on our unaudited interim condensed consolidated balance sheet included elsewhere in this prospectus. As disclosed in Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus, we settled with an advisor on the fees for certain professional services provided in connection with the Mergers on November 4, 2022, which reduced the total transaction costs by $10.7 million. These advisory fees are due on various dates on or before February 15, 2023, most of which are to be paid in cash or Class A Common Stock at our discretion, in accordance with the terms of the agreements with each of the advisors.
81 |
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Revenue recognition
We derive our revenue principally from waste removal, waste management and consultation services, platform subscriptions, and the purchase and sale of recyclable commodities. We recognize service revenue over time, consistent with efforts performed and when the customer simultaneously receives and consumes the benefits provided by our services. We recognize recyclable commodity revenue at the point in time when the ownership, risks and rewards are transferred.
Further, judgment is required in evaluating the presentation of revenue on a gross versus net basis based on whether we control the service provided to the end-user and are the principal in the transaction (gross), or we arrange for other parties to provide the service to the end-user and are the agent in the transaction (net). We have concluded that we are the principal in most arrangements as we control the waste removal service and are the primary obligor in the transactions. The assessment of whether we are considered the principal or the agent in a transaction could impact the timing and amount of revenue recognized.
Customer acquisition costs
We make certain expenditures related to acquiring contracts for future services. These expenditures are capitalized as customer acquisition costs and amortized in proportion to the expected future revenue from the customer, which in most cases results in straight-line amortization over the life of the customer. Amortization of these customer acquisition costs is presented within amortization and depreciation on our consolidated statements of operations. Subsequent adjustments to customer acquisition costs estimates are possible because actual results may differ from these estimates if conditions dictate the need to enhance or reduce customer acquisition costs.
Equity-based compensation
We account for equity-based compensation under the fair value recognition and measurement provisions, in accordance with applicable accounting standards, which require compensation expense for the grant-date fair value of equity-based awards to be recognized over the requisite service period.
Warrants
We have issued warrants to purchase shares of our Class A Common Stock. Warrants may be accounted for as either liability or equity instruments depending on the terms of the warrant agreements. We determine whether each of the warrants issued require liability or equity classification at their issuance dates. Warrants classified as equity are recorded at fair value as of the date of the issuance on our consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as liability are recorded at fair value as of the date of the issuance on our consolidated balance sheets and subsequently remeasured at each reporting period with changes being recorded as a component of other income (expense) on our consolidated statements of operations.
Following the consummation of the Mergers on August 15, 2022, we have both liability-classified and equity-classified warrants outstanding. See Note 9, Warrants, of the unaudited condensed consolidated financial statements included elsewhere in this prospectus.
82 |
Income taxes
Rubicon Technologies, Inc. is a corporation and is subject to U.S. federal as well as state income taxes including the income or loss allocated from its investment in Rubicon Technologies Holdings, LLC. Rubicon Technologies Holdings, LLC is taxed as a partnership for which the taxable income or loss is allocated to its members. Certain of the Rubicon Technologies Holdings, LLC operating subsidiaries are considered taxable Corporations for U.S. income tax purposes. Prior to the Mergers, Holdings LLC was not subject to U.S. Federal and certain state income taxes at the entity level.
We account for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute our business plans and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.
We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. The tax positions are reviewed on an ongoing basis and are adjusted as additional facts and information become available, including progress on tax audits, changes in interpretation of tax laws, developments in case law and closing of statutes of limitations. At September 30, 2022 or December 31, 2021, we have no tax positions that meet this threshold and, therefore, have not recognized any adjustments. While we believe our tax positions are fully supportable, they may be challenged by various tax authorities. If actual results were to be materially different than estimated, it could result in a material impact on our consolidated financial statements in future periods.
The provision for income taxes includes the impact of reserve provisions and changes to reserves as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.
Loss contingencies
In the ordinary course of business, we are or may be involved in various legal or regulatory proceedings, claims or purported class actions related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour and other claims. We record a provision for a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be reasonably estimated, we disclose the possible loss in the accompanying notes to the consolidated financial statements.
83 |
We review the developments in our contingencies that could affect the amount of the provisions that have been previously recorded, and the matters and related reasonably possible losses disclosed. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Significant judgment is required to determine both the probability and the estimated amount of loss. These estimates have been based on our assessment of the facts and circumstances at each balance sheet date and are subject to change based on new information and future events.
The outcomes of litigation and other disputes are inherently uncertain and subject to significant uncertainties. Therefore, if one or more of these matters were resolved against us for amounts in excess of management’s expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.
Leases
Leases with a term greater than one year are recognized on the consolidated balance sheet as right-of-use (“ROU”) assets and lease liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. As the interest rate implicit in lease contracts is typically not readily determinable, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
Recent Accounting Pronouncements
For information regarding recently issued accounting pronouncements and recently adopted accounting pronouncements, please see Note 2, Recent accounting pronouncements, to our consolidated financial statements included elsewhere in this prospectus.
The following are recently issued accounting pronouncements that would apply to us, but have not been adopted as of September 30, 2022:
● | In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. Rubicon is an emerging growth company that will take advantage of the extended transition period under the JOBS Act for complying with new or revised accounting standards. ASU 2016-13 will be effective for Rubicon for its 2023 fiscal year. ASU 2016-13 is currently in effect for non-emerging growth companies that are public business entities. |
● | In October 2021, the FASB issued ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. Rubicon is an emerging growth company that will take advantage of the extended transition period under the JOBS Act for complying with new or revised accounting standards. ASU 2021-08 will be effective for Rubicon for its 2024 fiscal year. ASU 2021-08 will be effective for non-emerging growth companies that are public business entities with fiscal years beginning after December 15, 2022. |
84 |
Qualitative and Quantitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risks, including changes in interest rates, certain commodity prices and foreign currency rates. Information relating to quantitative and qualitative disclosures about these market risks is described below.
Interest rate risk
Our exposures to market risk for changes in interest rates relate primarily to our Term Loan Facility and our Revolving Credit Facility. The Term Loan Facility and Revolving Credit Facility are floating rate loans and bear interest subject to LIBOR or SOFR. Therefore, fluctuations in interest rates will impact our consolidated financial statements. A rising interest rate environment will increase the amount of interest paid on these loans. A hypothetical 100 basis point increase or decrease in interest rates would not have a material effect on the results of our operations.
Recyclable commodity price risk
Through our recycling program, we market a variety of materials, including fibers such as old corrugated cardboard, old newsprint, aluminum, glass, pallets and other recyclable materials. We may use a number of strategies to mitigate impacts from recyclable commodity price fluctuations including, entering into purchase contracts indexed to the recyclable commodity price such that we mitigate the variability in cash flows generated from the sales of recycled materials at floating prices. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. As of September 30, 2022, we were not a party to any recyclable commodity hedging agreements. In the event of a decline in recyclable commodity prices, a 10% decrease in average recyclable commodity prices from the average prices in effect would have impacted our revenues by $7.2 million and $4.6 million for the nine months ended September 30, 2022 and 2021, respectively, and $8.2 million and $3.4 million for the years ended December 31, 2021 and 2020, respectively. A 10% decrease in average recyclable commodity prices from the average prices in effect would have impacted our operating loss by $0.6 million and $0.3 million for the nine months ended September 30, 2022 and 2021, respectively, and $0.5 million and $0.2 million for the years ended December 31, 2021 and 2020, respectively.
Foreign currency risk
To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements as the majority of our revenue has been generated in the United States. As we expand our presence in international markets, to the extent we are required to enter into agreements denominated in a currency other than the US dollar, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.
Inflation
To date, the impact of inflation on our business results has been primarily limited to increases of revenue and cost of revenue, such that the net effect has been immaterial to our gross profit, adjusted gross profit and net loss. We expect this trend to continue as most contracts with our waste generator customers allow us to adjust the applicable prices without any significant advanced notice requirement based on the economic environment where fees charged by our hauling and recycling partners are increasing, and recyclable commodity price fluctuations tend to impact both selling and purchasing sides in a similar manner. However, we may not be able to adjust prices quickly enough or sufficiently to offset the effect of certain other cost increases, such as labor costs, without negatively impacting customer demand.
85 |
BUSINESS
Business Overview
Mission
Founded in 2008, we are a digital marketplace for waste and recycling and provide cloud-based waste and recycling solutions to businesses and governments. As a digital challenger to status quo waste companies, we have developed and commercialized a proven, cutting-edge platform that brings transparency and environmental innovation to the waste and recycling industry, enabling customers and hauling and recycling partners to make data-driven decisions that can lead to more efficient and effective operations and yield more sustainable outcomes. Using proprietary technology in Machine Learning, Artificial Intelligence (“AI”), computer vision, and Industrial Internet of Things (“IoT”), for which we have secured more than 50 U.S. and international patents, we have built an innovative digital platform aimed at modernizing the outdated, approximately $2.1 trillion global waste and recycling industry. Fast Company named us to its annual list of the “World’s Most Innovative Enterprise Companies” for 2021.
Through our suite of cutting-edge solutions, we have driven innovation in the waste and recycling industry, reimagined the customer experience, and empowered a wide range of customers, from small businesses to Fortune 500 companies, to municipal and city agencies, to better optimize their waste handling and recycling programs. The implementation of our solutions enables customers to find economic value in their physical waste streams by improving business processes, reducing costs, and saving energy while helping those customers execute their sustainability goals.
Our Company
We are a leading provider of cloud-based waste and recycling solutions for businesses, governments, and organizations worldwide. Our platform brings new transparency to the waste and recycling industry empowering our customers and hauling and recycling partners to make data-driven decisions that can lead to more efficient and effective operations as well as more sustainable waste outcomes.
We believe we have built one of the world’s largest digital marketplaces for waste and recycling services. Underpinning this marketplace is a cutting-edge, modular platform that powers a modern, digital experience and delivers data-driven insights and transparency for our customers and hauling and recycling partners. We provide our waste generator customers with a digital marketplace that delivers pricing transparency, self-service capabilities, and a seamless customer experience while helping them achieve their environmental goals. We enhance our hauling and recycling partners’ economic opportunities by democratizing access to large, national accounts that typically engage suppliers at the corporate level. By providing telematics-based and waste-specific solutions as well as access to group purchasing efficiencies, we help large national accounts optimize their businesses. We help governments provide more advanced waste and recycling services that allow them to serve their local communities more effectively by digitizing their routing and back-office operations and using our computer vision technology to combat recycling material contamination at the source.
86 |
Over the past decade, this value proposition has allowed us to scale our platform considerably. Our digital marketplace now services over 8,000 customers, including numerous large, blue-chip customers such as Apple, Dollar General, Starbucks, Walmart, Chipotle, and FedEx, which together are representative of our broader customer base, which encompasses over 8,000 hauling and recycling partners across North America. We have also deployed our technology in over 70 municipalities within the United States and operate in 20 countries. Furthermore, we have secured a robust portfolio of intellectual property, having been awarded more than 50 patents, with over 100 pending, and 20 trademarks.
Our revenues have grown from approximately $359 million in 2018 to approximately $583 million in 2021.
Industry Background & Market Opportunity
Massive and fragmented market
The global waste and recycling industry is massive. Every human on the planet generates waste, and proper waste disposal is a key public service across the globe. In 2019, the waste and recycling market represented approximately $2.1 trillion on a global basis and was projected to grow at an approximately 5.3% compound annual growth rate (“CAGR”) between 2020 and 2027 in North America, according to Allied Market Research. The waste and recycling market in North America, our core operating territory, was approximately $208 billion in 2019 according to Allied Market Research.
87 |
(1) Allied Market Research, Statista ‘Waste Management Market Value Worldwide (2019-2027)’, July 2021; Technavio ‘Global Smart City Market’ report; World Bank Group ‘What a Waste 2.0’; (2) Allied Market Research; (3) FactSet as of 7/19/2022 (4) Waste Management, Republic Services, and Waste Connections
The waste and recycling industry is comprised of multiple segments, and there are many parties with different priorities operating across these segments, which we believe creates friction and inefficiencies for the broader ecosystem. Key segments within the industry include:
● | Collection: Involves collecting and transporting waste and recyclable materials from either commercial / industrial sites or residential communities to transfer stations, material recovery facilities (“MRFs”), or disposal sites. |
● | Transfer: The solid waste is then consolidated and compacted to reduce the volume and make the transport to disposal sites more efficient. |
● | Landfill: Landfills are municipal solid waste facilities that collect and bury whatever isn’t sent to MRFs and are the main depositories for solid waste in North America. |
● | Recycling: Facilities that extract reusable commodities out of waste to be repurposed for future use. |
● | Waste & Recycling Brokerage: Third parties that work on behalf of businesses to pair them with suitable waste hauling and recycling services. |
The waste and recycling industry in the United States is also highly fragmented. While Waste Management, Republic Services, and Waste Connections (the “Big 3”) are large, publicly traded players with substantial market share in the United States, approximately 85% of the North America waste and recycling market is comprised of non-Big 3 haulers. Furthermore, the Big 3 haulers have historically pursued acquisitions to drive some of their growth, but we believe this strategy will be less viable for them going forward due to increased regulatory scrutiny over large acquisitions.
88 |
Stable and Resilient Industry
In addition to being a massive industry, the waste and recycling services market is also incredibly stable and resilient. The disposal of waste is considered a mission-critical service in communities across the world. The United States has long been one of the largest waste-producing countries per capita. The United States ranks third highest in the world, with each person producing approximately 25.8 tons of waste per year according to the World Bank “What a Waste” global database.
These dynamics have also made the industry resilient against economic downturns. Over the past two U.S. recessions in 2001-2002 and 2008-2009, the contraction of U.S. GDP has been approximately 3.4 times greater than the contraction seen in the waste and recycling industry, based on data from the Bureau of Economic Analysis. Further, the industry has historically been very profitable, as evidenced by the reported EBITDA margins of the Big 3, which ranged from approximately 26-32% between 2002 and 2021 based on data from FactSet.
Industry Trends
While the waste and recycling market is massive and stable, several dynamics are driving significant changes in the industry and are creating opportunities to disintermediate the legacy business model.
The waste and recycling industry is highly regulated and complex, and public policy is increasingly focused on improving diversion from landfills and reducing emissions. Current policies tend to encourage and reward reductions in carbon dioxide emissions, and many major cities in the United States have promulgated climate action plans committing to achieve emissions reductions in line with the Paris Climate Accords.
Concurrently, traditional waste infrastructure is approaching capacity, and we believe large landfill owners are facing more and more hurdles to get regulatory approval to expand their sites or break ground on new sites. Without prospects for expansion, the average remaining life of landfill capacity is declining rapidly. A study conducted by Environmental Research & Education Foundation in 2015 stated at that time that seven states would likely run out of landfill space in the following five years, one state would reach capacity in five to 10 years, and three states had only 11 to 20 years of remaining capacity.
Historically, the United States has mitigated this infrastructure capacity issue in part by sending waste abroad. However, foreign countries that have historically accepted waste or recycling have recently begun to reduce or otherwise restrict their imports. For instance, China, which handled nearly half of the global recyclable waste for the past quarter-century according to Yale Environment360, recently instituted its National Sword policy, which bans the import of most plastics and other materials, making exportation into China extremely difficult.
In addition to the logistical problems associated with handling waste, today’s digital-first world has highlighted the industry’s historical under-investment in technology, which has plagued both customers and operators alike. While the large legacy players have been able to rely on their scale and incumbent position, independent operators have been particularly impacted by their inability to make technology investments that could help them optimize their operations and scale more profitably. Meanwhile, given most operators’ lack of technological infrastructure to collect data, customers have historically lacked visibility into pricing and their waste and recycling outcomes, compounding the antiquated, analog customer experience typical of the industry.
Challenges for Constituents in the Waste Value Chain
Challenges for Waste Generators
The preferences and demands of waste generators, who are the customers of the waste cycle, are shifting. They increasingly expect seamless digital customer experiences that provide ease of use and transparency, like those they are experiencing in many other industries and in their personal lives. Corporate consumers are also increasingly making environmentally conscious purchasing and operating decisions, and more and more are looking for greater information to manage and track their operations and hold their service providers accountable for their environmental impact.
Incumbent service offerings in the waste and recycling industry have long been outdated and misaligned with the needs and shifting preferences of their customers. We do not believe legacy players have embraced technology, limiting their ability to provide modern customer experiences that deliver efficiency, convenience, and transparency. Furthermore, we believe these players have made substantial investments in landfills, transfer stations, and other infrastructure, incentivizing them to fill and monetize landfills rather than to think creatively and identify alternative solutions, such as diverting waste streams elsewhere or creating circular solutions.
89 |
Challenges for Haulers and Recyclers
Independent waste haulers and recyclers face numerous competitive challenges. Given their limited operating footprint, they struggle to win large, enterprise-class hauling contracts. Without these contracts, the smaller independent players struggle to achieve economies of scale with respect to operating costs and cannot generate sufficient capital to make the substantial investments necessary to modernize their businesses, including the technology upgrades to optimize their operations or improve their customer service experience.
Challenges for Governments
Governments have long identified the impact waste disposal and recycling has on the environment, on climate change, and on community quality of life. There has never been a greater focus on eliminating waste as a means of slowing the rapid advance of climate change, and the COVID-19 pandemic has heightened the importance of public health and, consequently, waste management’s crucial supporting role. Sound waste management helps to keep communities healthy while, at the same time, helping to ensure that these communities can thrive, businesses can flourish, and families can live safely. For those communities that are taking tangible steps to make a difference, having credible data is essential for them to take actionable steps to improve the vital service of waste and recycling pick and disposal. With good data, public works departments can better determine where and when to direct human and financial resources to ensure equitable and adequate public services, drive meaningful positive outcomes, and then measure their progress towards limiting waste and achieving the reduction goals promulgated by government leaders.
Outside of waste management, municipalities have also struggled to manage budget constraints while still providing vital adequate public services and maintaining critical infrastructure.
Our Solution
Without owning any hauling, recycling or landfill infrastructure, our digital marketplace allows us to manage the full spectrum of waste and recycling services through an extensive network of more than 8,000 vendor and hauling and recycling partners. Our programs span cardboard (“OCC”), plastic, paper, metal, glass, pallets, electronics recycling, construction, and demolition (“C&D”), organics recycling (including food waste and composting services), grease and oil recycling, and single-stream recycling (“SSR”), among other adjacent services. Our subject matter experts manage recyclable commodity markets, zero-waste programs, and other sustainability offerings across our portfolio.
90 |
Underpinning our digital marketplace is a cutting-edge, modular, digital platform that allows us to deliver value, transparency, and seamless digital experiences to our customers and hauling and recycling partners. We leverage our technology to audit hauler invoices and match to landfill weight tickets or recyclable commodity bills of lading. We provide customers with dashboards and digital tools to manage and monitor their waste services, and we provide our hauling and recycling partners with technology tools that help them optimize their operations.
This platform has been packaged into solutions that we offer to various parties in the waste and recycling value chain. RUBICONSmartCity, an advanced smart city solution, helps municipalities achieve and maintain more efficient, effective, and sustainable waste and recycling operations. RUBICONPremier, an enterprise SaaS solution, allows haulers and recyclers to scale their operations into new geographies more efficiently.
Solutions for Waste Generators
Our cloud-based digital marketplace provides an innovative customer experience through an easy-to-use interface, where customers can order new services and manage existing services, track invoices, and view environmental outcomes. We provide commercial waste generatorssuch as commercial property owners, the hospitality and restaurant industries, retail services and logistics companiesan all-in-one waste and recycling solution that allows for enhanced visibility into our customers’ waste management services. This means deeper insights into their waste streams, informed decision making, and increasingly efficient action taken across locations. These features are designed to save time and minimize waste throughout the organization by reducing administrative support costs in managing complex waste and recycling programs, identifying waste reduction and landfill diversion opportunities, and designing and implementing solutions to deliver on them. We also empower customers to report on their environmental goals through data visibility and by aggregating waste diversion activities and generating custom reports on carbon emission reductions. These data and reports are then reviewed and substantiated by a third party.
91 |
Solutions for Haulers & Recyclers
We work with a network of more than 8,000 hauling and recycling partners. Through our extensive network, we provide our hauling and recycling partners with access to large, often national multi-location accounts that they can service within their local markets or with their narrower service capabilities. We have also developed products that enable haulers and recyclers to better scale their businesses and optimize their operations through several programs.
RUBICONPro App
The RUBICONPro App sits on the truck dashboard, providing drivers with route details, navigation, and alerts while collecting real-time service information as well as vehicle tracking and safety metrics. Drivers can safely interact with the app to record weight tickets, verify instances of service confirmation, report issues, and more in real time. Without our product, most, if not all, of this work would be done manually and on or through multiple disparate services. Our products can reduce truck repair costs with vehicle maintenance insights, which alert haulers and recyclers regarding everything from routine service needs to severe mechanical issues, creating opportunities to improve performance and operate more efficient fleets.
RUBICONPro Pod
The RUBICONPro Pod plugs into the existing diagnostics port inside the truck’s cab to automate service confirmations, recording the date and time of services and proactively communicating them to the waste generators. Our hardware and digital platform are compatible with virtually any truck with the requisite port, making this a useful solution for residential, commercial, cart, and roll-off services. Once the pod is installed, no further driver interaction is required.
RUBICONSelect
RUBICONSelect is a buying consortium program in which we have negotiated preferred rates with certain third-party customers specifically for the benefit of our partners that provide waste and recycling services on our behalf. The program empowers haulers and recyclers across the country with new business opportunities, savings, and tools they would otherwise not have access to, all through a user-friendly interface. Foremost is that we offer our hauling and recycling partners new business opportunities to service their own waste generator customers. Given that many of our customers have a national presence (if not international), we believe the only way a local supplier can get access to these important locations is often through us.
In addition to helping scale small and medium size business (“SMB”) haulers and recyclers, we leverage the scale of our business to negotiate better, “big-business” pricing and terms for our hauling and recycling partners. Leveraging our scale, which can provide the same buying power as some of the largest waste services companies, the haulers and recyclers in our network are better positioned to successfully compete by reducing their operating costs, thereby freeing up capital that they can invest in their businesses. We have numerous buying program partners, including Commercial Credit Group (CCG), ACE Equipment, Concorde Inc., Wastequip, and more. RUBICONSelect is recruiting new program partners daily to provide a wide breadth of offerings including financing, equipment purchase, rentals, insurance, maintenance, fuel, tires, and more.
We have not yet monetized RUBICONSelect but have plans to do so in the near term.
Solutions for Cities
In addition to working with commercial waste generators and commercial waste and recycling service providers, we have deployed our technology in more than 70 cities to help them manage their waste and recycling infrastructure and reach their sustainability goals. We use our proprietary technology to digitize trash and recycling routes, allowing collection crews to cover routes more effectively and efficiently while automating many reporting processes.
92 |
RUBICONSmartCity is a smart city technology suite that helps city governments everywhere run more efficient, effective, and sustainable operations. A software-as-a-service (“SaaS”) offering originally designed for waste and recycling fleets, this full-service solution can be deployed across virtually any fleet to help reduce costs, improve service, and contribute to an enhanced quality of life for citizens.
RUBICONSmartCity can help governments save tax dollars by transforming existing government-owned fleets into roaming data collection centers, delivering insights about specific conditions throughout the community. Waste-specific insights include recycling participation and overflowing containers, as well as insights about material contamination directly at the source. Examples of general city infrastructure assessment insights include identifying and indexing instances of road potholes, broken curbs, vacant homes, and graffiti. Our technology helps improve neighborhood streetscapes by monitoring vehicle health, improving driver behavior, and improving material collection efficiency, which can result in more sustainable, resilient, and equitable neighborhoods.
For the years ended December 31, 2022 and 2021, and the nine months ended September 30, 2022 and 2021, our revenue generated from sales to government entities is less than 5% of our total revenue.
Solutions for Global Fleets
Our various SaaS offerings help waste and recycling companies around the world to digitize their operations while equipping municipalities and businesses of all sizes to initiate or grow their waste collection capabilities with a digital cloud-based model. Our solutions allow companies to replicate our innovative, asset-light model by providing a third-party logistics technology backbone and by allowing services to be provided across a wider geographic coverage area than what may otherwise be covered by a vertically integrated asset footprint. Features within the product enable users to provide an enhanced experience for their own waste generator customers, the opportunity to restructure the cost of their collection operations, and the ability to enter new markets without massive investment.
Strengths and Competitive Advantages
Our business model provides a transparent marketplace that digitizes the waste and recycling sector for private companies and municipalities. We gain, maintain, and grow our customer relationships by providing what we believe are superior solutions that can help waste generators and government entities save money. We believe we have expertise and competitive advantages that will allow us to continue to maintain and grow our market share.
Cloud-Based Model Reduces Costs and Benefits from the Network Effect
Our business model is highly scalable because of its digital, cloud-based nature; it does not depend on owning any physical infrastructure such as trucks or waste facilities. Without any physical infrastructure and the working capital requirements inherent in those operations, we can efficiently and effectively deploy our platform around the world without the capital investment or the exposure that comes along with owning and operating this infrastructure.
Our platform also benefits from significant network effects. As more waste generator customers join our platform, increased waste and recycling volumes improve our ability to negotiate with haulers and recyclers. Increased waste and recycling volumes also create efficiencies within haulers’ and recyclers’ routes and operations, because the marginal cost of servicing additional locations within an existing route is comparatively low, which can improve service and pricing for our customers. Additionally, as the network expands, the amount of data we collect increases, allowing us to learn and further improve our solutions, benefiting all network participants. As our pricing improves with haulers and recyclers and as our expanding data asset improves its ability to deliver new circular solutions, our overall value proposition improves for our waste generator customers.
Business Model and Customer Interests are Aligned Benefiting Us and Providing Greater Value to Customers
Our platform provides service and cost transparency to both our customers and partners along with automated business processes, allowing them to make informed decisions based on their priorities, whether it’s business growth, cost savings, or environmental outcomes.
93 |
Our incentives are aligned with our customers, both economically and environmentally. Landfill owners and operators often generate revenues through collection volumes and tipping fees, so they are incentivized to collect bins more frequently than necessary even when they are not full. Because we do not own landfills, we are not motivated by maximizing volumes and / or tipping fees. Therefore, we can work with our customers to optimize service levels for their business needs. In practice, we advise our waste generator customers on the implementation of new source separated recycling programs and educate store-level employees on how to safely and efficiently manage such program implementation and execution. Additionally, we will work upstream with our customers to design and effect reverse supply chain programs to aggregate valuable waste stream materials at central locations, or even to design programs that create internalized, circular solutions or reduce waste at the source.
Further, using our proprietary computer vision-based technology and our team of subject matter experts to examine the contents of a waste stream, we can assess the material composition of the waste stream. This information provides multiple benefits, including providing more detailed information about the contents and allowing customers to identify opportunities to divert certain materials from landfills. Using this information, we and our customers can generate better environmental outcomes, and, to the extent we can sell the materials to recycling and processing facilities, we can also create significant economic benefits.
For RUBICONPro, RUBICONPremier, and RUBICONSmartCity, our SaaS offerings, the core of services is about maximizing the use of scarce resources. We do this by optimizing routes and full fleet operations, by providing data for preventative vehicle maintenance, and by focusing on improving driver safety and behavior, which can improve outcomes for all constituents: drivers, supervisors, governments officials, and residents.
Superior Technology
Our user-friendly platform is vertically integrated and gives us control of all critical operations and transaction elements, which facilitates a fast, simple, and consistent user experience. We believe our ground-breaking technology is what the industry has needed for many years.
Our technology can affect all parties within the waste and recycling ecosystem:
● | We service waste generators’ needs through our network of haulers and recyclers and with vendor management, compliance, invoicing, payments, and receipts managed on our digital platform. We service requests through our proprietary customer portal RUBICONConnect or directly from waste generators via FMS / OMS system integrations, with real-time confirmation of service. |
● | We equip haulers and recyclers with technology to detect location, load, and capacity. Haulers and recyclers digitally receive dispatched orders to be configured into their existing routes. |
● | Municipal fleets are equipped with telematics and AI cameras to collect data for asset optimization. The resultant operational efficiencies can drive taxpayer savings, turning a garbage truck into a “roaming data center” that can deliver critical infrastructure assessments for governments all while performing its primary functions. |
● | Our technology also helps implement advanced recycling programs, coordinating multiple vendors, directing the waste feedstock to specific processing facilities, and tracking end-destinations for traceability. |
● | We enable data-driven waste management for all our partners, and integrated landfill operators process volumes contracted to us. |
Depth & Quality of Hauling & Recycling Network Benefits All Constituent Parties
We work with a network of more than 8,000 hauling and recycling partners. The scale of our network means we have access to vastly more hauling and recycling options through our digital platform. Our ability to access this extensive network benefits our customers and enables us to mitigate business risks for our customers associated with sole sourcing, including labor shortages, cost offsets (overages, contamination, etc.), and unaccommodating supplier scheduling.
94 |
The stickiness of the supplier side of our marketplace is ensured by the valuable services we provide them. Foremost is that we offer our hauling and recycling partners new business opportunities to service our waste generator customers. Given that many of our customers have a national or even global presence, often the only way a local supplier can get access to these important locations is through us.
We also offer our hauling and recycling partners a digital platform that is simple and efficient and can help them improve their routing, fleet operations, and driver behavior.
Lastly, we offer the benefits of scale to even the smallest hauler/recycler through a buying consortium where haulers and recyclers can save money on items critical to their businesses (fuel, parts, tires, insurance, etc.). We have not yet monetized this buying consortium but have plans to do so in the near term.
Number of Blue-chip Customers Creating Barrier to Entry
Our platform has been validated by a diverse group of over 8,000 customers in businesses and governments, most of which are under long-term contracts. Our typical customer agreement has a term of 3 years, providing confidence in and visibility towards future revenue streams. Our large and national accounts have also attracted many haulers and recyclers to the platform. Some of our blue-chip customers include Apple, Starbucks, Walmart, Dollar General, Chipotle, and FedEx.
Our Growth Strategies
The foundation of our business is our digital marketplace platform where it seamlessly transacts with our customers and hauling and recycling partners. The majority of our revenue is generated via this digital marketplace, which allows us to capture additional revenue streams through solutions designed to modernize hauling and recycling operations. We believe we have multiple proven avenues for future growth, including through increasing our geographic reach and the depth of our customer, hauling, and recycling networks in those markets.
Organic Customer Growth Through New Customer and Contract Wins Based on the Strengths of our Solutions
We have built a first-class sales and marketing organization that has helped build our base of more than 8,000 customers. We combine cutting-edge and sorely needed technology solutions with deep subject matter expertise in a mission-critical sector. Our products are designed to save customers money, provide for a more transparent and seamless customer experience, and help customers achieve positive environmental outcomes. This differentiated proposition creates a strong product-market fit within an industry that is ripe for change.
Additionally, we are uniquely capable of providing a “one-stop-shop” solution for all the waste generator customers’ waste and recycling needs. We offer a tiered solution, beginning with simply auditing and administering an incumbent hauler’s existing program for waste generators, through to the creation and provisioning of a full zero-waste program.
Organic customer growth is expected to continue to be a core driver of growth for us for the foreseeable future as a result of these and other strengths.
Growing Revenues with Existing Customers
We have proven our ability to expand our customer relationships. This is achieved both by expanding our geographic penetration across a customer’s footprint over time as well as by working collaboratively with our customers to identify incremental services that can be offered to further enhance their waste and recycling programs. Our waste generator account managers are empowered and incentivized to expand our existing customer relationships. Underscoring our ability to expand our existing customer relationships, revenue net retention stood at approximately 118% as of September 30, 2022.
95 |
Adding More Service Capabilities
We have demonstrated our ability to expand our capabilities in the past. We have expanded our waste marketplace service capabilities to over 150 material types and multiple fleet types, and even beyond waste and recycling. We intend to continue to add service capabilities and invest in product development and have the platform, vision, and data to fuel growth.
From a customer perspective, we currently service national and SMB waste generator accounts, predominately within the U.S. market. Through our SaaS-based offerings, we have already expanded our footprint internationally and expect to continue this expansion first by leading with technology, then by building out digital marketplace offerings in these markets.
As our business expands in its breadth and depth, we will continue to refine how we monetize our products and relationships. Today we earn money from licensing our technology, from waste and recycling services within our digital marketplace, and by participating in recyclable commodity sales transactions. By servicing all the constituents within the waste and recycling ecosystem, we have gathered valuable datasets that we have begun and will continue to offer on their own as data subscriptions. Further, we expect to be a larger player in establishing recycling and recyclable commodity marketplaces.
International Expansion within Existing Markets and into New Markets
We believe we are a global innovator in the waste and recycling industry and have successfully deployed our solutions in 20 countries though we currently generate the vast majority of our revenue within the United States. We intend to continue selling our solutions globally.
Strategic Acquisitions
We intend to grow by acquiring other businesses and the customers they serve. We have proven our ability to identify and execute on attractive acquisition targets. We have acquired and successfully integrated multiple businesses and have established a repeatable process for identifying and integrating complementary companies. Furthermore, we have spent considerable efforts building relationships across the industry, helping to build a large pipeline of additional acquisition opportunities.
Human Capital Resources
Our People and Culture
We are passionate about our people, and work hard to attract, develop, and retain employees who share our core values and are committed to achieving our mission to end waste. As of September 30, 2022, we had 514 employees, 510 of whom were based in the United States. None of our employees is represented by a labor union, and we consider our relations with our employees to be very good. A strong commitment to diversity and inclusion is central to our core values in all that we do. We also support the following employee affinity groups: African American Affinity Group, Latin American and Caribbean Heritage Affinity Group, Asian and Pacific Islander Affinity Group, Veterans Affinity Group, LQBTQ+ Affinity Group, and Women in Leadership Affinity Group. The groups meet routinely to discuss matters important to them, host social events and volunteer opportunities, and make presentations at our All Hands meetings to share topics of interest with all our employees.
Our commitment to our employees and culture is reflected in the fact that we have earned a certification from Great Place to Work for five consecutive years (2018, 2019, 2020, 2021, and 2022). We believe that this certification is one of the most definitive “employer-of-choice” recognitions that companies aspire to achieve. It is the only recognition based entirely on what employees anonymously report about their workplace experience specifically, how consistently they experience a high-trust workplace.
As part of our measures to reduce spending and preserve cash available for the operations, on November 17, 2022, the Board of Directors committed to a reduction in force plan (the “Plan”). The Plan involves a reduction of 55 employees, which is approximately 11% of our workforce.
96 |
Benefits, Health, Safety & Wellbeing
We are proud to offer an employee benefits package that aligns with our commitment to being a Great Place to Work. This includes benefits such as 100% employer paid health insurance for the family unit, an employee assistance program for mental wellbeing, paid maternity and paternity leave, and unlimited vacation for exempt employees. We also focus on the financial wellbeing of our employees with competitive compensation, a 401(k) plan with employer match, and financial education programs.
We currently maintain four offices: a headquarters in Lexington, Kentucky; and offices in Atlanta, Georgia, New York, New York and Tinton Falls, New Jersey. In light of the ongoing challenges and risks posed by the COVID-19 pandemic, the remainder of our employees continue to work remotely.
The health and safety of our employees are of the utmost importance. Thus, we are committed to allowing our employees to “work from home” and are committed to providing them with a one-time home office stipend to ensure they have a comfortable and productive remote working environment.
Sales
The Commercial Sales organization is responsible for initiatives to drive growth, retention, and overall client satisfaction through new opportunity development, pipeline execution, account planning, and client service.
The Commercial Sales organization is separated into the below business units:
● | Key Account Sales: Responsible for sales development and closing new customer accounts with annual revenues over certain thresholds | |
● | Mid-Market Sales: Responsible for sales development and closing new multi-location customer accounts with annual revenues below certain thresholds | |
● | SMB Sales: Responsible for leading a highly digitized sales process for primarily single-location new customer accounts for small and medium size businesses | |
● | Launch and Implementation: Responsible for overseeing new account setup and expansion projects, irrespective of new customer account size |
97 |
● | Partnerships: Responsible for building an eco-system of referral partners and channel sales | |
● | Key Account Management: Responsible for managing and growing our existing key account customers |
We established a “land and expand” strategy within our existing book of business which we believe has delivered more reliable and substantial revenue growth on a year-over-year basis. This strategy means that we may initially acquire a small footprint of a customer account and over time expand the product offering through the RUBICONConnect platform.
Marketing
In order to market our services effectively, acquire new customers, and build brand awareness in key geographies, we deploy a multi-channel marketing strategy designed to reach prospects and expand our relationships with existing customers a “land and expand” strategy by communicating the operational benefits and value of our solutions. Our paid marketing campaigns, discussed in more detail below, are augmented by other unpaid/organic activities including regular social media updates and press/media placements. We also use a range of brand assets to further drive awareness of our products and services in high-value and high-visibility placements.
Digital Digital advertising, which includes website display ads, geo-targeted mobile advertising, pay-per-click, and paid search advertising such as Google and Bing, is a central component of our marketing strategy. Given this channel’s precise targeting capabilities, we can effectively and efficiently reach our ideal buyers wherever they are.
Social Media Our social channels are a key part of our marketing efforts. Using both paid and organic programs, we advertise on a number of different social media feeds and channels, including Twitter, LinkedIn, Instagram, and Facebook.
Offline Media We run offline advertising campaigns in markets where such opportunities are available and of demonstrable value, including billboards/out-of-home placements, and transit advertising.
Events We participate in many industry and industry-adjacent events identified by our marketing team in close consultation with our Commercial Sales Organization. We also have an enterprise webinar platform which is used to develop and co-host webinars with customers, prospects, thought-leaders, and officials on important waste and recycling industry topics such as food waste and labeling, plastic pollution, and environmental innovation.
Special Projects Each year, we run special projects intended to further our mission and build our profile in our industry and beyond. Two notable examples are: Trick or Trash our annual Halloween campaign targeted at schools and small businesses, which is designed to mitigate the waste that builds up over the course of the Halloween season, and Project Clear Constellation a program devised to confront the growing problem of space waste, in which U.S. colleges and universities are invited to submit design concepts for solutions to help clean up space debris.
Communications Programs We pursue media placements with industry and non-industry publications and actively pitches stories to journalists and media outlets to garner additional coverage.
Competition
Our industry is highly competitive, and we encounter intense competition from governmental, quasi-governmental and private sources in all aspects of our operations. Our platform and solutions address the needs of a variety of industry participants, including waste generators, haulers/recyclers, and varying levels of government, meaning we compete in a number of segments with a wide array of competitors, including some of our own customers. We principally compete with large national waste management companies such as Waste Management and Republic Services, counties and municipalities that maintain and manage their own waste collection and disposal operations, and regional and local companies of varying sizes and financial resources. Our industry also includes companies that specialize in certain discrete areas of waste management, operators of alternative disposal facilities, companies that seek to use parts of the waste stream as feedstock for renewable energy and other by-products, and other waste brokers that rely upon haulers in local markets to address customer needs.
We compete on a variety of factors, including quality of services, ease of doing business and price.
98 |
Product Development
We continue to make substantial investments in product development because we believe it is essential to improve and optimize our platform and underpins our goal to drive innovation in the waste and recycling industry. Our product development roadmap balances technology advances and new offerings with regular enhancements to existing solutions. We are continuously looking for ways to improve our proprietary platform and solutions, following a roadmap to build and deliver additional functionalities to our customers. Our allocation of product development resources is guided by management-established priorities, input from team members, and user and sales force feedback.
As of September 30, 2022, we had 57 employees focused on our product development activities. For the years ended December 31, 2021 and 2020, our product development spending was $22.5 million and $14.9 million, respectively, and, as a percentage of total revenues, was 3.9% and 2.8%, respectively. For the nine months ended September 30, 2022 and 2021, our product development spending was $28.3 million and $13.4 million, respectively, and, as a percentage of total revenues, was 5.6% and 3.2%, respectively. We intend to continue to invest in our product development capabilities to extend our platform.
Intellectual Property
Intellectual property rights are critical to our success. We rely on a combination of patents, copyright, trademark, and trade secrets in the United States and other jurisdictions, as well as confidentiality procedures, non-disclosure agreements with third parties, and other contractual protections, to protect our intellectual property rights, including our proprietary platform, software, know-how, and brand. As of September 30, 2022, we had more than 50 patents granted and over 100 patents pending in the United States and internationally. Among other things, our patents and published patent applications address hauler and vendor facing innovations that enable monitoring and management of waste hauling vehicles including service confirmation, load monitoring, vehicle weight determination, bin overflow detection, route determination, intelligent dispatching, unscheduled stop detection, and remote waste auditing; customer-facing innovations that allow customers to make on-demand service requests, remotely manage waste services, request bulk material removal, and track waste receptacles; innovations related to intelligent dispatching, remote auditing, route generation, and residential waste management systems; and smart cities innovations including systems for monitoring waste service regulation and compliance data, road condition detection, smart bins and sensors offering use-based incentives, and air quality-based waste management. In addition, from time to time we enter into collaboration arrangements and in-bound licensing agreements with third parties, including certain of our competitors, in order to expand the functionality and interoperability of our solutions. We are not substantially dependent upon any one of these arrangements, and we are not obligated to pay any material royalty or license fees with respect to them.
Our names, logos, website names, and addresses are owned by us or licensed by us. We reference herein trademarks, trade names, and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to herein may appear without the ®, TM, or SM symbols, but the lack of those references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names, and service marks. We do not intend our use or display of other parties’ trademarks, trade names, or service marks to imply - and such use or display should not be construed to imply - endorsement or sponsorship of us by these other parties.
Facilities
While most of our employee base operates remotely, we maintain four facilities for operations: our corporate headquarters are in Lexington, Kentucky and we maintain offices in Atlanta, Georgia, New York, New York, and Tinton Falls, New Jersey. We lease all our facilities. We believe that our current office space and facilities are adequate to meet our current needs.
99 |
Legal Proceedings
In the ordinary course of business, we are or may be involved in various legal or regulatory proceedings, claims or purported class actions related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour and other claims. In management’s opinion, resolution of all current matters is not expected to have a material adverse impact on our consolidated results of operations, cash flows or financial position.
Regulation
The waste and recycling industry is highly regulated with a complex array of laws, rules, orders and interpretations governing environmental protection, health, safety, land use, zoning, transportation and related matters. These regulations and related enforcement actions can significantly restrict operations of landfill operators and haulers by imposing: limitations on siting and constructing new or expanding existing waste disposal, transfer, recycling or processing facilities; limitations or levies on collection and disposal prices, rates and volumes; limitations or bans on disposal or transportation of out-of-state waste or certain categories of waste; mandates regarding management of solid waste, including requirements to recycle, divert or otherwise process certain waste, recycling and other streams; or limitations or restrictions on the recycling, processing or transformation of waste, recycling and other streams. Additionally, landfill operations emit anthropogenic methane, identified as a greenhouse gas, and vehicle fleets emit, among other things, carbon dioxide, which also is a greenhouse gas, and efforts to curtail the emission of these and other greenhouse gases and to ameliorate the effects of climate change continue to progress. Although passage of comprehensive, federal climate change legislation may not occur in the near term, any such legislation, if enacted, could significantly restrict and impose significant costs on the waste industry. Although we do not own or operate landfills or transfer stations nor do we operate as a hauler, many of our customers and third parties with whom we contract are in one or more of these categories, and therefore subject to the foregoing regulations.
MANAGEMENT
The following table sets forth, as of February 7, 2023, certain information regarding our directors and executive officers who are responsible for overseeing the management of our business.
Name | Age | Position | ||
Nate Morris | 42 | Founder, Chairman and Strategic Advisor | ||
Phil Rodoni | 50 | Chief Executive Officer and Director | ||
Kevin Schubert | 45 | President | ||
Michael Heller | 61 | Chief Administrative Officer | ||
Jevan Anderson | 53 | Chief Financial Officer | ||
Renaud de Viel Castel | 44 | Chief Operations Officer | ||
David Rachelson | 42 | Chief Sustainability Officer | ||
Dan Sampson | 46 | Chief Marketing & Communications Officer | ||
Tom Owston | 36 | Interim Chief Commercial Officer | ||
Osman Ahmed | 36 | Director | ||
Jack Selby | 48 | Director | ||
Ambassador Paula J. Dobriansky | 67 | Director | ||
Brent Callinicos | 57 | Director | ||
Barry Caldwell | 62 | Director | ||
Coddy Johnson | 46 | Director | ||
Andres Chico | 36 | Director | ||
Paula Henderson | 50 | Director |
100 |
Executive Officers and Directors
Nate Morris. Mr. Morris is our Founder, Chairman and Strategic Advisor. Mr. Morris served as our CEO until October 2022, founded Holdings LLC in 2008, and previously served as the CEO since 2010 and as the Chairman of Holdings LLC from December 2016 to the Closing in August 2022, and since the Closing, as our Chairman. In 2021, Holdings LLC was recognized as “One of the World’s Most Innovative Enterprise Companies” by Fast Company. Mr. Morris currently serves a member of Business Executives for National Security (BENS.org) since February 2021, the Trilateral Commission since February 2021, and the Council on Foreign Relations since March 2022. Mr. Morris has served on the Deans Advisory Council since October 2012 and as the Entrepreneur in Residence at the Gatton College of Business and Economics at the University of Kentucky since November 2016. Mr. Morris was inducted into the Kentucky Entrepreneur Hall of Fame in November 2019. Mr. Morris was recognized by Fortune Magazine on their “Fortune 40 Under 40” list in October 2014, and he served as a Young Global Leader at the World Economic Forum from February 2014 to February 2019. Mr. Morris graduated from George Washington University, with a Bachelor of Arts in Political Science, as a Scottish Rite Scholar, and was elected Phi Beta Kappa.
Phil Rodoni. Mr. Rodoni is our Chief Executive Officer and a member of our Board. Until October 2022, Mr. Rodoni served as our Chief Technology Officer and in this role at Holdings LLC since 2015, where he leads all of Rubicon’s technology innovation, product development, business intelligence, and research and development. From 2011 to 2015, Mr. Rodoni served as Vice President of Software Development at Esurance, where he enabled the company to expand its offerings and geographic footprint. From 2010 to 2011, Mr. Rodoni served as Vice President of Software Development at Travelzoo (Nasdaq: TZOO). Prior to that, Mr. Rodoni served as Vice President of eBusiness at Charles Schwab (NYSE: SCHW) from 1997 to 2009 and Senior Consultant at SEER Technologies from 1994 to 1997. Mr. Rodoni received a B.A in Economics from the University of California at Berkeley and an M.B.A. from the Haas School of Business.
Kevin Schubert. Mr. Schubert is our President as of November 2022 and previously served as our Chief Development Officer and Head of Investor Relations since August 2022. Prior to joining Rubicon, Mr. Schubert served as an executive/advisor to multiple companies, including as Chief Financial Officer of the Ocean Park Group, an early stage company focused on experiential hospitality, from August 2020 to August 2022, as a Consultant to Founder SPAC, the Company’s predecessor, from December 2021 to May 2022 and as Chief Operating Officer of Altitude Acquisition Corp. from December 2020 to August 2022. In addition, Mr. Schubert served as the Senior Vice President of Corporate Development and Strategy at Red Rock Resorts, Inc. from August 2017 to July 2020, where he led key initiatives in mergers and acquisitions, contract negotiation, and strategic planning, and as Vice President of Strategy and Operations and Associate General Counsel at Las Vegas Sands Corp. Mr. Schubert started his career as a consultant at Accenture and was trained as an attorney at Gibson, Dunn & Crutcher LLP, where he was a Corporate Finance Associate. Mr. Schubert received both a J.D. and an M.B.A. from The University of California, Los Angeles and a Bachelor of Science in Management Information Systems from The University of Arizona.
Michael Heller. Mr. Heller is our Chief Administrative Officer and previously served in this role at Holdings LLC since 2020, helping to lead strategic acquisitions and partnerships, as well as overseeing Rubicon’s Human Resources department and professional development. Additionally, Mr. Heller advises Rubicon’s management team in key areas, including risk and financing. From 2017 to 2020, Mr. Heller served as Holdings LLC’s Chief Risk & Corporate Development Officer. With more than 25 years of experience, including a background as a certified public accountant (CPA) and corporate and tax attorney, Mr. Heller brings a holistic view to relationships with Rubicon’s business partners. Prior to joining Rubicon, Mr. Heller was Director of Venture Capital Relations at Deloitte, associate attorney at Edwards & Angell, and associate attorney at Holland & Knight. In these roles, Mr. Heller worked in venture financing, buy and sell side transactions (venture/private equity), and strategic business partnership structuring. Mr. Heller earned a Bachelor of Science Management degree in Accounting from Tulane University, a Juris Doctor degree from American University Washington College of Law, and a Master of Laws in Taxation from New York University School of Law.
Jevan Anderson. Mr. Anderson is our Chief Financial Officer and previously served in this role at Holdings LLC since October 2021. Previously, Mr. Anderson was Chief Financial Officer and Treasurer of Finjan Holdings, Inc. (Nasdaq: FNJN), a company that focuses on the licensing of cybersecurity intellectual property, from June 2019-October 2021. At Finjan, Mr. Anderson was responsible for all financial and related operations of the company, including financial reporting, SEC filings, corporate development and investor relations. From May 2017-June 2019, Mr. Anderson was Senior Vice President of Corporate and Venture Relationships at Jones Lang LaSalle (NYSE: JLL), a commercial real estate brokerage, where he was responsible for leading strategic corporate and venture relationship development for the firm’s top commercial real estate brokerage office. Since 2016, Mr. Anderson has served as an advisory board member for HighGear Ventures, a venture capital secondary firm that provides liquidity to entrepreneurs, shareholders, limited partners, and venture capital firms. Mr. Anderson received a BS in Electrical Engineering from Lehigh University and a Masters of Business Administration from New York University’s Stern School of Business.
101 |
Renaud de Viel Castel. Mr. de Viel Castel is our Chief Operating Officer and previously served in this role at Holdings LLC since 2020, where his operational responsibilities include leading the Innovations and Vendor Relations department, overseeing the Customer Account department, Business Analytics and the Procurement teams, driving product use and adoption, as well as process automation and digitization of the company. Prior to his appointment as Chief Operating Officer, Mr. de Viel Castel served as Holdings LLC’s Senior Vice President for Global Expansion from 2019 to present, where he is presently also responsible for building international relationships with environmental solutions companies and developing innovative partnerships with commercial and government customers across the globe. Mr. de Viel Castel brings more than fifteen years of experience in leading operational teams. Before joining Rubicon, from 2005 to 2015, Mr. de Viel Castel was General Manager at Transdev North America, a leader in the transportation industry and the largest private sector provider of multiple modes of transportation in North America, and General Manager at Veolia Environment, a leading provider of environmental solutions. Mr. de Viel Castel received his bachelor at EDC Paris Business School with a major in Economics and a Master of Science in global management from Neoma Business School of Rouen.
David Rachelson. Since 2020, Mr. Rachelson has served as Rubicon’s Chief Sustainability Officer, spearheading the company’s sustainability efforts focused on achieving the company’s mission to end waste through increased landfill diversion and innovative circular economy solutions. Prior to this role, Mr. Rachelson served as Holdings LLC’s Vice President of Sustainability from 2017 to 2020 and Holdings LLC’s Director of Sustainability from 2015 to 2017. Mr. Rachelson serves on the Advisory Board of the Ray C. Anderson Center for Sustainable Business at Georgia Tech’s Scheller College of Business. Mr. Rachelson earned a B.A. from George Washington University and an M.B.A. from Emory University’s Goizueta Business School.
Dan Sampson. Mr. Sampson is our Chief Marketing & Communications Officer and previously served in this role at Holdings LLC, where he manages Rubicon’s enterprise marketing and communications programs, including digital and traditional marketing campaigns, social media, events, press and media, and all other external marketing and communications initiatives. Prior to joining Rubicon, Mr. Sampson was Director of Global Marketing Campaigns at IPSoft Inc. from March 2018 until August 2019, where he supported the sales, engineering and cognitive teams through enterprise and industry-focused marketing programs and led member engagement, event programming and communications for the AI Pioneers Forum, a global gathering of AI practitioners and thought leaders. Prior to IPSoft Inc., Mr. Sampson was Director of Marketing & Communications at the New York Stock Exchange from September 2014 until March 2018, where he devised and managed global integrated marketing programs for NYSE-listed companies and led external communications for the sales, client management and regulatory teams. Mr. Sampson received a B.A. in Communications and Information Technology from the University of East London School of Arts and Digital Industries.
Tom Owston. Mr. Owston is our interim Chief Commercial Officer and previously served in this role at Holdings LLC since June 2021, overseeing all U.S. accounts with a focus on retention, customer satisfaction, and growth. From September 2020-June 2021, Mr. Owston was Holdings LLC’s Vice President of Sales and Customer Relations. He rejoined Holdings LLC in September 2020, after two years at ADP (Nasdaq: ADP), where he served as District Manager for TotalSource and consulted with companies on HR solutions. Prior to ADP, Mr. Owston was Holdings LLC’s Director of Retail Business from 2015-2018. Previously, Mr. Owston worked as an Account Executive at Mercatus, a vertical SaaS platform built specifically for the renewable energy industry, and as a Strategic Account Director at Big Belly Solar, an Internet of Things trashcan hardware/software company. Mr. Owston received a B.S. in History with a minor in Business Administration from Northeastern University and currently serves as a member of the board of directors for Northeastern University’s Rowing Program.
Osman Ahmed. Mr. Ahmed has served as a member of our Board since August 2022 and previously served as the CEO and as a director of Founder. Mr. Ahmed is a managing director at 10X Capital, a multi-strategy technology investment firm. Mr. Ahmed has significant principal investment experience from origination through exit in B2C and B2B platforms. From 2015 to 2022, Mr. Ahmed was an investor at KCK Group. Mr. Ahmed was previously the CFO at Beehive3D, a KCK Group Portfolio company, and has held roles at Volition Capital, Scale Venture Partners, and Stifel Financial (NYSE: SF). Mr. Ahmed has served on the Board of Directors of Harvest Sherwood Food Distributors and KCK Frontier Investments Ltd. From 2018 to 2020, Mr. Ahmed served on the Board of Directors of Kaidee and, from 2015 to 2016, was a Board Observer at Hibernia Networks. Previously, Mr. Ahmed was a Board Observer at Yield Engineering Systems and Emerging Markets Property Group. Mr. Ahmed has led and participated in investment rounds for companies such as Axcient (acquired), Hibernia Networks (acquired), RingCentral (NYSE: RNG), TraceLink (active), and Kaidee (acquired). Mr. Ahmed holds a BS in Computer Science from the University of Southern California and an MBA from the University of Chicago Booth School of Business. Mr. Ahmed was selected to serve on the board due to his experience in the technology industry.
102 |
Jack Selby. Mr. Selby has served as a member of our Board since August 2022 and previously served as a director of Founder. Mr. Selby is a technology and finance executive who brings more than 20 years of experience. Currently, Mr. Selby is a Managing Director at Thiel Capital, the family office of Peter Thiel. As a “PayPal Mafia” member, Mr. Selby co-founded Clarium Capital Management after selling PayPal (Nasdaq: PYPL) to eBay (Nasdaq: EBAY) in October 2002 for $1.5 billion. At PayPal, Mr. Selby joined as an early employee and later served as a Senior Vice President, overseeing the company’s international and corporate operations. Mr. Selby is an active technology investor and adviser. He was an early investor in Affirm (Nasdaq: AFRM), Bird (NYSE: BRDS), Myeloid Therapeutics, and SpaceX, and facilitated several investments in Palantir (NYSE: PLTR) over the company’s lifespan. Mr. Selby was also a formal member of the advisory boards of Blend (NYSE: BLND) and Offerpad (NYSE: OPAD). In addition to his responsibilities at Thiel Capital, Mr. Selby is currently a member of the Board of Directors of the Arizona Commerce Authority, a co-host/founder of the Arizona Technology Innovation Summit with Governor Doug Ducey, Chairman of invisionAZ, and Co-founder and member of the Board of Directors for the Wyoming Global Technology Partnership with Governor Mark Gordon. He received a BA in Economics from Hamilton College where he is a member of the Board of Trustees. Mr. Selby was selected to serve on the board due to his experience in managing and investing in companies in the technology industry.
Ambassador Paula J. Dobriansky. Ambassador Dobriansky has served as a member of our Board and as chair of the Compensation Committee since August 2022. Ambassador Dobriansky is a Senior Fellow at Harvard University’s Belfer Center for Science and International Affairs since 2009 and is Vice Chair of the Atlantic Council’s Scowcroft Center for Strategy and Security. She has also served as Vice Chair of the U.S. Water Partnership’s National Executive Committee since 2015 and as an Adjunct Professor at Georgetown University’s School of Foreign Service since 2013. From 2018-2021, Ambassador Dobriansky served as a Strategic Adviser to Global Water 2020, providing strategic advice on international water and health issues, specifically, water, sanitation, and hygiene in health care facilities. From 2014-2017, she was a Senior International Affairs & Energy Policy Advisor to Southern Company (NYSE: SO), where she focused on projects involving cutting-edge energy technologies including improvements in energy efficiency and new combustion methods. Previously, Ambassador Dobriansky served as Under Secretary of State for Global Affairs from 2001-2009, and as the President’s Envoy to Northern Ireland from 2007-2009, for which she received the Distinguished Service Medal (the Secretary of State’s highest honor). Ambassador Dobriansky has served on Holdings LLC’s board of directors since 2020 and also serves on the boards of several non-profits and private institutions, including the Atlantic Council, the Middle East Institute, the Naval War College Foundation, and Georgetown University’s School of Foreign Service. She received a B.S.F.S. in International Politics from Georgetown University’s School of Foreign Service, an M.A. in International Relations from Harvard University, and a Ph.D. in U.S.-Soviet Foreign Policy & Strategic Studies from Harvard University.
Brent Callinicos. Mr. Callinicos has served as a member of our Board and as the chair of the Audit Committee since August 2022. Mr. Callinicos served as the chief operating officer and the chief financial officer of Virgin Hyperloop One from January 2017 to January 2018. Prior to that, Mr. Callinicos served as the chief financial officer of Uber Technologies Inc. (NYSE: UBER) from September 2013 to March 2015, and then as an advisor for 18 additional months. Prior to joining Uber, he worked at Google (Nasdaq: GOOG) from January 2007 to September 2013, where he last served as vice president, treasurer and chief accountant. He also led green energy investments and financial services at Google Inc. From 1992 to 2007, he served in a variety of increasingly senior roles at Microsoft Corporation (Nasdaq: MSFT), where he last served as corporate vice-president and divisional chief financial officer of the Platforms and Services Division, and oversaw Microsoft’s Worldwide Licensing and Pricing and Microsoft Financing. He currently serves on the board of directors of Holdings LLC, where he is chairman of the audit committee; Baidu (Nasdaq: BIDU), where he is the chairman of the audit committee; and PVH Corp. (NYSE: PVH), where he is a member of the Corporate Responsibility committee. Mr. Callinicos is on the Board of Trustees of Mayfield Senior School in Pasadena, CA, where he is the Chairman of the Finance Committee. Mr. Callinicos is a certified public accountant. Mr. Callinicos received a bachelor’s degree from the University of North Carolina at Chapel Hill and an M.B.A. degree from the Kenan-Flagler School of Business at Chapel Hill.
103 |
Barry H. Caldwell. Mr. Caldwell has served as a member of our Board since August 2022. Mr. Caldwell has been Principal of Wroxton Civic Ventures LLC, an advisory services business, since 2018, through which he provides strategic advice, direction and support to nonprofit organizations in energy and education. Prior to Wroxton, Mr. Caldwell spent 16 years at Waste Management (NYSE: WM), a Fortune 200 company and leading provider of comprehensive waste, recycling, and environmental solutions in North America. From 2017-2018, Mr. Caldwell served as Waste Management’s Senior Vice President of Corporate Affairs and Chief People Officer and had primary responsibility for human resources, state and federal policy, corporate communications and community relations. He previously served as the company’s Senior Vice President of Corporate Affairs and Chief Legal Officer from September 2014-December 2016, and as Senior Vice President of Public Affairs and Communications from September 2002-September 2014. Mr. Caldwell serves as chair of the board of directors of the Discovery Green Conservancy in Houston, TX, and vice chair of the board of directors of KIPP DC Public Schools. He also serves on the boards of the Washington Latin Public Charter School, the DC Public Defender Service, CityBridge Education, and the Electrification Coalition. He previously served on the boards of Keep America Beautiful (2004-2018), the National Waste & Recycling Association (2002-2018), and the National Association of Manufacturers (2005-2018), and on the Dartmouth Alumni Council (2013-2017). Mr. Caldwell received an A.B. in History from Dartmouth College and a J.D. from Georgetown University Law Center.
Coddy Johnson. Mr. Johnson has served as a member of our Board and as chair of the Corporate Citizenship Committee since August 2022. Mr. Johnson also is an advisor to TPG (Nasdaq: TPG), a private equity firm, and Goodwater Capital, a venture capital firm that focuses on consumer technology. From June 2017-June 2020, Mr. Johnson served as President and Chief Operating Officer of Activision Blizzard (Nasdaq: ATVI), a leading technology and entertainment company, where he was responsible for companywide profits and losses and all business units and product lines. From April 2016-June 2017, Mr. Johnson was co-founder and Chief Operating Officer for Altschool, a Silicon Valley education technology company focused on developing personalized, whole-child learning platforms for students and classrooms. Prior to Altschool, Mr. Johnson held numerous roles in executive strategy, operations, and planning at Activision, including Chief Financial Officer and Executive Vice President of Finance and Operations (2012-2016), Chief Operating Officer for Activision Worldwide Studios (2010-2012) and Senior Vice President and Chief of Staff to the CEO (2008-2010). Mr. Johnson serves on the boards of multiple technology companies, including Scopely, an interactive entertainment and mobile game company, and Photomath, an EdTech company, and is a member of the board of the Environmental Defense Action Fund. He received a B.A. in Ethics, Politics, and Economics from Yale University and a MBA from the Stanford Graduate School of Business, where he was an Arjay Miller Scholar.
Andres Chico. Mr. Chico has served as a member of our Board since August 2022 and previously served as a director of Holdings LLC since 2017. In 2016, Mr. Chico founded Rodina, an investment firm focused on real estate, technology, hotels and resorts, and infrastructure investments, where he serves as its Managing Partner. Mr. Chico is the co-founder of Tortuga Resorts, a diversified hotel platform based in Mexico, and has served as its Chief Executive Officer since 2017. Previous to Rodina and Tortuga Resorts, Mr. Chico worked at Riverwood Capital, a New York based private equity fund focused on investing in growth equity in the technology sector, and started his investment career at Promecap where he acted as an investment professional for over three years. Mr. Chico has been the Co-Chairman of the board of Tortuga Resorts since 2017 and RLH Properties (RLHA:MM) since 2020, and has served on the board of SSA Marine Inc., a marine terminal and rail yard operator in more than 250 strategic locations around the world, since 2019. Mr. Chico holds a BA in Finance from Universidad Iberoamericana in Mexico City, and an MBA from Kellogg Graduate School of Management, Northwestern University.
Paula Henderson. Ms. Henderson has served as a member of our Board since August 2022. Ms. Henderson also serves as Executive Vice President and Chief Sales Officer for the Americas for SAS, a global leader in analytics software, where she is a member of the SAS Executive Leadership Team. Prior to her current role, Ms. Henderson served as Senior Vice President of US Commercial and Public Sector at SAS from January 2019-January 2021 and Vice President of US State & Local Government from May 2002-January 2019. Since joining SAS in 2002, Ms. Henderson has led teams and operations, partnering to create transformational digital solutions for commercial -- private and public sector organizations across the life science, financial, manufacturing and consumer industries. Ms. Henderson serves as a board member for the First Flight Venture Center, American Heart Association, Prevent Child Abuse for NC and the Executive Roundtable for the NC Chamber of Commerce. She received a BS in Business Administration from North Carolina State University, where she serves on the National Advisory Board Member for the Institute of Emerging Issues, and an MBA from Meredith College.
Family Relationships
There are no family relationships between the Board and any of its executive officers.
104 |
Board of Directors
The Board currently has nine (9) directors. Under the terms of the Charter, the Board is divided into three classes designated as Class I, Class II and Class III. Class I directors will initially serve for a term expiring at the 2023 annual meeting of stockholders (the first annual meeting of stockholders following the Closing Date). Class II and Class III directors will initially serve for a term expiring at the 2024 and 2025 annual meeting of stockholders (the second and third annual meeting of stockholders following the Closing Date), respectively. At each annual meeting of stockholders, directors will be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting of the stockholders. There is no limit on the number of terms a director may serve on the Board.
Under the Charter, directors are elected by a plurality voting standard, whereby each of our stockholders may not give more than one vote per share towards any one director nominee. There are no cumulative voting rights.
Director Independence
NYSE listing rules require that a majority of the board of directors of a company listed on NYSE be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. The NYSE listing rules also include certain bright line independence requirements. The Board has determined that each of Ms. Henderson, Mr. Johnson, Ambassador Dobriansky, Mr. Caldwell, Mr. Callinicos, Mr. Ahmed, and Mr. Selby is an independent director under NYSE listing rules. In making these determinations, the Board considered the current and prior relationships that each non-employee director had with Holdings LLC and has with Rubicon and all other facts and circumstances the Board deemed relevant in determining independence, including the beneficial ownership of our Common Stock by each non-employee director, and the transactions involving them described in the section entitled “Certain Relationships and Related Party Transactions.”
The NYSE and SEC also have certain specific independence requirements applicable to members of committees of a listed company’s board of directors. The NYSE listing rules require that, subject to specified exceptions, a listed company’s audit, compensation and nominating and governance committees be comprised entirely of independent directors. In order to be considered to be independent for purposes of Exchange Act Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
Committees of the Board of Directors
The standing committees of the Board consist of an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, and a Corporate Citizenship Committee. The composition of each committee is set forth below.
Audit Committee
Our Audit Committee consists of Brent Callinicos, Osman Ahmed, and Barry Caldwell, each of whom are independent directors under NYSE listing standards and Rule 10A-3 of the Exchange Act and are “financially literate” as defined under NYSE listing standards and interpreted by the Board using its business judgment. Mr. Callinicos serves as chairman of the Audit Committee. Our Board has determined that Mr. Callinicos qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC.
The primary role of the Audit Committee is to exercise primary financial oversight on behalf of the Board. Rubicon’s management team is responsible for preparing financial statements, and Rubicon’s independent registered public accounting firm is responsible for auditing those financial statements. The Audit Committee is directly responsible for the selection, engagement, compensation, retention and oversight of Rubicon’s independent registered public accounting firm. The Audit Committee is also responsible for the review of any proposed related persons transactions. The Audit Committee has established a procedure whereby complaints or concerns regarding accounting, internal controls or auditing matters may be submitted anonymously to the Audit Committee by email.
105 |
Compensation Committee
Our Compensation Committee consists of Brent Callinicos, Paula Dobriansky, and Paula Henderson, each of whom is an independent director under NYSE listing standards and SEC rules. Ambassador Dobriansky serves as chairman of the Compensation Committee.
The Compensation Committee is responsible for approving the compensation payable to the executive officers of Rubicon, and administering the 2022 Plan. The Compensation Committee acts on behalf of the Board to establish the compensation of the chief executive officer and works in conjunction with the Board to establish the compensation of executive officers of Rubicon (other than the chief executive officer) and to provide oversight of Rubicon’s overall compensation programs and philosophy.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of Paula Dobriansky, Coddy Johnson, and Paula Henderson, each of whom is an independent director under NYSE’s listing standards. Ms. Henderson serves as the chair of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee assists the Board by identifying and recommending individuals qualified to become members of the Board. The Nominating and Corporate Governance Committee is responsible for evaluating the composition, size and governance of the Board and its committees and making recommendations regarding future planning and the appointment of directors to the committees; establishing a policy for considering stockholder nominees to the Board; reviewing the corporate governance principles and making recommendations to the Board regarding possible changes; and reviewing and monitoring compliance with Rubicon’s Code of Business Conduct and Ethics.
Corporate Citizenship Committee
Our Corporate Citizenship Committee consists of Coddy Johnson, Barry Caldwell, and Jack Selby, each of whom is an independent director under NYSE’s listing standards. Mr. Johnson serves as the chair of the Corporate Citizenship Committee. The Corporate Citizenship Committee assists the Board in its oversight of Rubicon’s policies, programs and related risks that concern key sustainability initiatives and engagement, and public policy matters, including public issues of significance to Rubicon and its stakeholders that may affect Rubicon’s business, strategy, operations, performance or reputation, including charitable contributions, maintaining safe and secure communities, and corporate social responsibility.
Compensation Committee Interlocks and Insider Participation
Our Compensation Committee is composed of Brent Callinicos, Paula Dobriansky, and Paula Henderson. None of our executive officers currently serves, or has served during the last completed fiscal year, as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors.
Code of Business Conduct and Ethics
Rubicon has adopted a Code of Business Conduct and Ethics for our directors, officers, employees and certain affiliates in accordance with applicable federal securities laws, a copy of which is available on Rubicon’s website. Rubicon will make a printed copy of the Code of Business Conduct and Ethics available to any stockholder who so requests. Requests for a printed copy may be directed to: Rubicon, 100 W Main Street, Suite 610, Lexington, Kentucky 40507, Attention: Investor Relations.
In the event we make any amendment to, or grants any waiver from, a provision of the Code of Business Conduct and Ethics that applies to the principal executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC or NYSE rules, we will disclose such amendment or waiver and the reasons therefor on our website at www.rubicon.com. The information contained in or accessible from our website does not constitute part of and is not incorporated into this prospectus or the registration statement of which it forms a part, and you should not consider it part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
106 |
EXECUTIVE AND DIRECTOR COMPENSATION
Executive and Director Compensation of Founder
None of Founder’s executive officers or directors have received any cash compensation for services rendered to Founder. The Sponsor and Founder’s executive officers and directors, or their respective affiliates, were reimbursed for any out-of-pocket expenses incurred in connection with activities on Founder’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Prior to the Closing, Founder’s audit committee reviewed on a quarterly basis all payments that were made by Founder to the Sponsor and Founder’s executive officers or directors, or their affiliates. Any such payments prior to the Closing were made using funds held outside Founder’s trust account. Other than quarterly audit committee review of such reimbursements, Founder did not have any additional controls in place governing Founder’s reimbursement payments to its directors and executive officers for their out-of-pocket expenses incurred in connection with activities on Founder’s behalf in connection with identifying and consummating an initial business combination. Other than these payments and reimbursements, no compensation of any kind, including finder’s and consulting fees, was paid by Founder to the Sponsor or Founder officers, or their respective affiliates, prior to the Closing. Founder was not party to any agreements with its executive officers and directors that provide for benefits upon termination of employment.
Executive and Director Compensation of Rubicon
As an emerging growth company, Rubicon has opted to comply with the executive compensation rules applicable to “smaller reporting companies,” as such term is defined under the Exchange Act, when detailing the executive compensation of Rubicon’s executives. This section discusses the material elements of compensation awarded to, earned by or paid to the principal executive officer of Rubicon and the two next most highly compensated executive officers of Rubicon for the fiscal year ended December 31, 2021. These individuals are referred to as Rubicon’s “Named Executive Officers” or “NEOs.”
2022 Summary Compensation Table
The compensation reported in this summary compensation table below is not necessarily indicative of how Rubicon will compensate its Named Executive Officers in the future. Rubicon expects that it will continue to review, evaluate and modify its compensation framework as a result of becoming a publicly-traded company and Rubicon’s compensation program could vary significantly from its historical practices.
Name and Principal Position | Year |
Salary ($) |
|
Bonus ($)(1) |
Stock Awards ($)(2) | All Other Compensation ($)(3) | Total ($) | |||||||||||||||||
Philip Rodoni | 2022 | $ | 670,000 | $ | 1,747,485 | $ | 3,031,044 | $ | 19,575 | $ | 5,468,104 | |||||||||||||
Chief Executive Officer; Former Chief Technology Officer (4) | 2021 | $ | 582,495 | $ | 305,810 | - | $ | 8,930 | $ | 897,235 | ||||||||||||||
Nate Morris | 2022 | $ | 810,000 | $ | 20,000,000 | $ | 16,590,392 | $ |
3,556,177 |
(5) | $ |
40,956,569 |
||||||||||||
Former Chief Executive Officer | 2021 | $ | 686,159 | $ | 390,332 | - | $ | 15,913 | $ | 1,092,404 | ||||||||||||||
Michael Heller | 2022 | $ | 542,192 | $ | 1,414,414 | - | $ | 8,636 | $ | 1,965,242 | ||||||||||||||
Chief Administrative Officer | 2021 | $ | 471,471 | $ | 247,522 | - | $ | 21,221 | $ | 740,214 | ||||||||||||||
Renaud de Viel Castel | 2022 | $ | 475,000 | $ | 1,275,000 | - | $ | 5,705 | $ | 1,755,705 | ||||||||||||||
Chief Operating Officer |
(1) | Amounts in this column for 2022 include special performance and retention bonuses paid in connection with the Business Combination, as described under “Narrative Disclosure to the Summary Compensation Table—Business Combination Bonuses” below. Amounts in this column will represent also represent discretionary annual bonuses, as described under “Narrative Disclosure to the Summary Compensation Table—Annual Cash Bonuses” below, which were not determinable as of the date of this registration statement. Once determinable, we will provide details on these payments and updated total compensation numbers in a subsequent filing. |
107 |
(2) | Represents the grant date fair value of restricted stock units (“RSUs”) granted under the Rubicon Technologies Inc. 2022 Equity Incentive Plan (the “2022 Plan”), calculated in accordance with FASB Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), based on the closing price on the date of grant, granted on (i) October 19, 2022 for Mr. Morris, which was $1.98 per share, and (ii) October 21, 2022 for Mr. Rodoni, which was $1.92 per share. For more information regarding the RSUs, see “Narrative Disclosure to the Summary Compensation Table—Long-Term Equity Compensation” and “Narrative Disclosure to the Summary Compensation Table—Business Combination Bonuses” below. |
(3) | Amounts in this column for the NEOs other than Mr. Morris include payments of premiums for long-term and short-term disability and additional life insurance ($8,786 for Mr. Rodoni, $4,065 for Mr. Heller and $3,197 for Mr. de Viel Castel) and Rubicon matching contributions under its 401(k) plan ($10,789 for Mr. Rodoni, $4,571 for Mr. Heller and $2,508 for Mr. de Viel Castel). |
(4) | On October 13, 2022, Mr. Rodoni succeeded Mr. Morris as Chief Executive Officer (the “CEO Transition”). |
(5) | Includes (i) premiums for long-term and short-term disability and additional life insurance of $2,298, (ii) Rubicon matching contributions under its 401(k) plan of $10,250, (iii) total cash payments of $2,525,000 and COBRA reimbursements of $3,001 under the Transition Agreement, as described under “Narrative Disclosure to the Summary Compensation Table—CEO Transition Agreement” below, (iv) director compensation fees earned or paid in cash for service on the Board following October 31, 2022, the last day of his employment, of $12,500, (v) a forgiven payroll advance of $25,000 and related tax gross-up of $18,677, (vi) political consultant expenses of $829,776, (vii) personal legal advisor expenses of $100,000, (viii) membership fees for professional organizations, and (ix) personal storage expenses. |
Narrative Disclosure to the Summary Compensation Table
Principal Objectives of Rubicon’s Compensation Program for Named Executive Officers
Rubicon’s executive compensation program reflects its growth and development-oriented corporate culture. To support this culture, the following objectives have guided Rubicon’s decisions with respect to the compensation provided to its NEOs:
● | attract, retain and incentivize highly effective executives who share Rubicon’s values and philosophy; | |
● | align the interests of Rubicon’s NEOs with the interests of its stockholders and, prior to the Business Combination, its interest holders; and | |
● | reward the NEOs for creating long-term value. |
Employment Agreements
Mr. Rodoni entered into an employment agreement with Holdings LLC, dated as of November 17, 2016 (as amended from time to time, the “Rodoni Employment Agreement”). Mr. Morris entered into an amended and restated employment agreement with Holdings LLC (formerly known as Rubicon Global Holdings, LLC) effective as of February 9, 2021, which was further amended as of April 21, 2022 and August 10, 2022 (as amended from time to time, the “Morris Employment Agreement”). Mr. Heller entered into an employment agreement with Holdings LLC, dated as of November 17, 2016 (as amended from time to time, the “Heller Employment Agreement”). Mr. de Viel Castel entered into an employment agreement with Holdings LLC, dated as of December 14, 2017 (as amended from time to time, the “de Viel Castel Employment Agreement and, together with the Rodoni Employment Agreement, Morris Employment Agreement and Heller Employment Agreement, the “Employment Agreements”).
In addition to standard terms relating to base salary, annual cash bonus, and benefits eligibility, the Employment Agreements provide for severance in the event of certain terminations of employment, as described under “Additional Narrative Disclosure—Potential Payments Upon Termination or Change in Control—Severance Under Employment Agreements” below. The Employment Agreements also contain special performance bonuses and other benefits in connection with certain sale or other transactions, which are described under “Additional Narrative Disclosure—Potential Payments Upon Termination or Change in Control—Sale and IPO Events under Employment Agreements” below.
108 |
Pursuant to the Employment Agreements, each NEO is subject to customary confidentiality, intellectual property, non-competition and non-solicitation covenants. The non-competition and non-solicitation covenants extend for 24 months following the NEO’s termination of employment.
CEO Transition Agreement
In connection with the CEO Transition, Rubicon entered into a CEO Transition Agreement (the “Transition Agreement”) with Mr. Morris, which superseded the Morris Employment Agreement, pursuant to which Mr. Morris ceased to serve as Chief Executive Officer and continued to serve as Chairman of the Board through February 10, 2023 (the “End Date”). Pursuant to the Transition Agreement, Mr. Morris will also continue to serve as a member of the Board and be compensated as a non-executive director until the earlier of (i) October 13, 2023, (ii) the date of the Company’s annual shareholder meeting in 2023, and (iii) the 10th day following notice by Mr. Morris that he intends to resign from the Board. Rubicon also provided and will provide Mr. Morris with the following benefits under the Transition Agreement:
● | $1,850,000 payable in equal installments over the course of the period beginning on the Transition Date and concluding on the End Date; | |
● | Reimburse of his payment of premiums for COBRA benefits continuation coverage for a period of up to 18 months following October 31, 2022, or until Mr. Morris is no longer entitled to COBRA continuation coverage under Rubicon’s group health plan(s), whichever period is shorter; | |
● | A bonus with respect to Mr. Morris’ service in 2022 in the gross amount of $675,000, payable no later than the End Date; and | |
● | In lieu of any obligation to deliver RSUs to Mr. Morris under his employment agreement, a grant of 8,378,986 RSUs (the “Transition Agreement RSUs”). |
Mr. Morris also has the option to purchase all rights to the book about Rubicon by paying Rubicon a price equivalent to the costs incurred to date in connection with the creation of the book, which price may not exceed $150,000 in the aggregate. Rubicon further agreed to reimburse Mr. Morris for his reasonable attorneys’ fee incurred in the negotiation of the Transition Agreement, up to a maximum amount of $75,000.
Base Salary
Each NEO receives a base salary to compensate them for the satisfactory performance of services rendered to Rubicon. The base salary payable to each NEO is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. Base salaries for the NEOs have generally been set at levels deemed necessary to attract and retain individuals with superior talent and were originally established in the Employment Agreements. Pursuant to the Employment Agreements, each of Messrs. Rodoni and Heller is entitled to at least a 15% increase in base salary each year, which may be further adjusted upward by the Compensation Committee from time to time. As of December 31, 2022 (or, for Mr. Morris, as the date of the Transition Date), the NEO’s base salaries were as follows: (i) Mr. Rodoni, $670,000, (ii) Mr. Morris, $810,000 (iii) Mr. Heller, $542,192, and (iv) Mr. de Viel Castel, $475,000.
Annual Cash Bonuses
Pursuant to the Employment Agreements, the NEOs have the opportunity to earn discretionary annual performance-based cash bonuses, based upon the achievement of key performance indicators, as determined by the Compensation Committee, and other pre-established factors, such as leadership and adherence to Rubicon’s mission and values, capital fundraising, recruiting talent, managing Rubicon’s business, and Rubicon’s achievement of adjusted gross profit goals established by the Compensation Committee. Each of Messrs. Rodoni and Heller has an annual target bonus of 50% of their respective base salary, and Mr. de Viel Castel has an annual target bonus of 35% of his base salary. Prior to the CEO Transition, Mr. Morris’s annual target bonus was 100% of his base salary
The Compensation Committee retains ultimate discretion over all bonus payouts, and no annual bonuses are paid unless approved by the Compensation Committee. 2022 annual bonuses were not determinable as of the date of this registration statement. Once determinable, we will provide details on 2022 annual bonuses in a subsequent filing.
109 |
Long-Term Equity Compensation
Prior to Business Combination
Prior to the consummation of the Business Combination, Holdings LLC maintained a Profits Participation Plan (the “Incentive Unit Plan”) and a Unit Appreciation Rights Plan (the “Phantom Unit Plan”). Each of the NEOs, other than Mr. Morris, previously received grants of profits interests (“denominated as “incentive units”) under the Incentive Unit Plan in 2015, 2016, 2017, 2018 and 2020; however, no NEO has received a grant of unit appreciation rights (denominated as “phantom units”) under the Phantom Unit Plan. No incentive units were granted to NEOs during 2021 or 2022. As of the consummation of the Business Combination, the Phantom Unit Plan and Incentive Unit Plan were no longer in effect.
The incentive units generally vested over a four-year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly installments over the next 36 months. However, in connection with the consummation of the Business Combination, all outstanding incentive units were fully accelerated and converted into Class B Units and Class V Common Stock issuable pursuant to the Merger Agreement.
Following the Business Combination
In connection with the Business Combination, Rubicon adopted the 2022 Plan to promote and closely align the interests of employees, officers, non-employee directors and other service providers of Rubicon and its stockholders, to attract and retain the best available employees for positions of substantial responsibility, and to motivate participants to optimize the profitability and growth of Rubicon.
Under his employment agreement, Mr. Morris was entitled to grants of 4,821,357 time-based RSUs and 2,410,679 performance-based RSUs. However, in connection with the CEO Transition and in lieu of these RSU grants, Mr. Morris received the Transition Agreement RSUs pursuant to the Transition Agreement, as described under “CEO Transition Agreement” above. The Transition Agreement RSUs will vest on the End Date and are subject to accelerated vesting or cancellation in lieu of a cash payment upon certain events, as described under “Additional Narrative Disclosure—Potential Payments Upon Termination or Change in Control—CEO Transition Agreement” below.
Business Combination Bonuses
Each of the NEOs received bonuses under the Employment Agreements in connection with the consummation of the Business Combination. For purposes of the Employment Agreements, the Business Combination constituted a Sale Event.
Rodoni Employment Agreement
Under the Rodoni Employment Agreement, Mr. Rodoni was eligible for three bonuses: (a) a special performance bonus of $6,500,000 (or $7,475,000 if paid in equity rather than cash) upon a Sale Event or IPO, grossed up for any state, federal and payroll taxes that may be due as a result of such bonus, (b) a retention bonus of 100% of his base salary as of December 31, 2021 ($582,495) upon a Sale Event, and (c) a post-sale retention bonus of two times his base salary as of December 31, 2021 ($1,164,990) if Mr. Rodoni remained employed following a Sale Event or IPO.
In connection with the Business Combination and in satisfaction of the special performance bonus, the retention bonus and the post-sale retention bonus, Mr. Rodoni (i) received approximately $1.75 million in cash and (ii) on October 21, 2022, received 1,578,669 RSUs, which were fully vested on the date of grant and will be settled after February 11, 2023 but no later than March 15, 2023.
Morris Employment Agreement and Transition Agreement
Under the prior Morris Employment Agreement, Mr. Morris was eligible for two bonuses: (a) a special performance bonus equal to 2% of the transaction value upon a “Sale Event” or “IPO” prior to February 9, 2023 that has a transaction value in excess of $1.2 billion (which increases to 4% if the transaction value exceeds $1.5 billion and to 6% if the transaction value exceeds $1.85 billion) and (b) a retention bonus equal to 100% of his base salary upon a Sale Event. In connection with the Business Combination and in satisfaction of the special performance bonus and the retention bonus, in accordance with the August 2022 amendment to the Morris Employment Agreement, Mr. Morris received $20.0 million in cash.
110 |
In connection with the Business Combination, Mr. Morris was also eligible to receive (A) 3,561,469 restricted shares plus (B) a number of restricted shares having a grant date value $5.0 million, in each case, to vest on February 10, 2023 (the “Prior Morris Transaction Award”). However, in connection with the CEO Transition, Mr. Morris entered into the Transition Agreement with Rubicon, as described under “Narrative Disclosure to the Summary Compensation Table—CEO Transition Agreement” above, which replaced his Employment Agreement and pursuant to which he received the Transition Agreement RSUs in lieu of the Prior Morris Transaction Award.
Heller Employment Agreement
Under the Heller Employment Agreement, Mr. Heller was eligible for four bonuses: (a) a special performance bonus of $2,725,000 upon a Sale Event or IPO with an enterprise value of $1.0 billion (which is increased to $4,725,000 if the enterprise value exceeds $1.5 billion), grossed up for any state, federal and payroll taxes that may be due as a result of such bonus, (b) a retention bonus of 100% of his base salary as of December 31, 2021 ($471,471) upon a Sale Event, (c) a post-sale retention bonus of two times his base salary as of December 31, 2021 ($942,943) if Mr. Heller remained employed following a Sale Event or IPO, and (d) an additional bonus of $1,719,284 upon a Sale Event or IPO, grossed up for any state, federal and payroll taxes that may be due as a result of such bonus.
In connection with the Business Combination and in satisfaction of the special performance bonus, the retention bonus, the post-sale retention bonus and the additional bonus, Mr. Heller (i) received approximately $1.41 million in cash and (ii) on October 21, 2022, the Compensation Committee approved the grant of 1,173,822 fully vested RSUs to be settled after February 11, 2023 but no later than March 15, 2023; however Mr. Heller declined the grant of these RSUs.
de Viel Castel Employment Agreement
Under the de Viel Castel Employment Agreement, Mr. de Viel Castel was eligible for three bonuses: (a) a special performance bonus of $1,875,000 upon a Sale Event or IPO with an enterprise value greater than $1 billion or a special performance bonus of $4,725,000 upon a Sale Event or IPO with an enterprise value greater than $1.5 billion, (b) a retention bonus of 100% of his base salary as of December 31, 2021 ($425,000) upon a Sale Event, and (c) a post-sale retention bonus of two times his base salary as of December 31, 2021 ($850,000) if Mr. de Viel Castel remained employed following a Sale Event or IPO.
In connection with the Business Combination and in satisfaction of the special performance bonus, the retention bonus and the post-sale retention bonus, Mr. de Viel Castel (i) received approximately $1.275 million in cash and (ii) on October 21, 2022, the Compensation Committee approved the grant of 749,275 fully vested RSUs to be settled after February 11, 2023 but no later than March 15, 2023; however Mr. de Viel Castel declined the grant of these RSUs.
Outstanding Equity Awards at 2022 Fiscal Year-End Table
The following table shows all outstanding equity awards held by the NEOs as of December 31, 2022, which consisted solely of RSUs.
Stock Awards | ||||||||
Name | Number of Shares or Units of Stock That Have Not Vested (#) |
Market Value of Shares or Units of Stock That Have Not Vested (#)(1) |
||||||
Philip Rodoni | - | - | ||||||
Nate Morris | 8,378,986 | (2) | $ | 14,914,595 | ||||
Michael Heller | - | - | ||||||
Renaud de Viel Castel | - | - |
(1) | Amounts in this column reflect the value of outstanding RSUs as of December 31, 2022, based on a per share price of $1.78, the closing price of Class A Common Stock on December 30, 2022, the last trading day of 2022. |
(2) | These Transition Agreement RSUs will vest on the End Date. |
111 |
Additional Narrative Disclosure
Retirement, Health and Welfare Benefits
Each NEO is eligible to participate in employee benefit plans and programs, including medical and dental benefits, flexible spending accounts, long-term care benefits, and short- and long-term disability and life insurance, to the same extent as Rubicon’s other full-time employees, subject to the terms and eligibility requirements of those plans. The NEOs are also eligible to participate in a 401(k) defined contribution plan, subject to limits imposed by the Internal Revenue Code of 1986, as amended (the “Code”), to the same extent as Rubicon’s other full-time employees. Rubicon matches up to 50% of the first 4% of contributions made by participants in the 401(k).
Potential Payments Upon Termination or Change in Control
Severance Under the Employment Agreements
Under the Rodoni Employment Agreement and the Heller Employment Agreement, if Mr. Rodoni or Mr. Heller is terminated without “Cause,” if he resigns with “Good Reason” or if his termination is as a result of his disability, he is eligible to receive: (a) 1.5 times the sum of his base salary and target bonus, payable in installments over 18 months and (b) COBRA continuation coverage for up to 18 months. In addition, if Mr. Rodoni’s or Mr. Heller’s termination without Cause or resignation with Good Reason occurs within 24 months following a Sale Event or IPO, he will also receive a lump sum equal to his base salary and his annual performance bonus at 50% of base salary, in each case, for the remainder of the 24-month period.
As used in the Rodoni Employment Agreement and the Heller Employment Agreement:
● | “Cause” generally includes (i) conviction of, or plea of guilty or nolo contendere to, a felony, (ii) willful misconduct or gross negligence in the conduct of his duties that is injurious to Rubicon or its affiliates, following written notice and a 30-day cure period, (iii) willful failure to abide by reasonable and lawful instructions of the board of directors, following written notice and a 30-day cure period or (iv) violation of confidentiality, non-solicit or non-compete provisions. | |
● | “Good Reason” generally includes (i) a reduction in base salary, (ii) a material reduction in benefits, (iii) reduction or adverse change of position, title, duties or reporting responsibilities, or (iv) Rubicon’s material breach of the Employment Agreement, subject to standard notice and cure periods. |
Under the de Viel Castel Employment Agreement, if Mr. de Viel Castel is terminated as a result of his disability, he is eligible to receive 0.5 times his base salary payable in installments over six months. If Mr. de Viel Castel is terminated without “Cause” or if he resigns with “Good Reason,” he is eligible to receive: (a) a lump sum severance payable equal to his base salary, (b) a prorated bonus amount for the year in which such termination occurs based on actual performance, assuming full achievement of any individual performance goals, (c) COBRA continuation coverage for up to 6 months, grossed up for taxes, and (d) outplacement services of up to $7,500 through the earlier to occur of 6 months or the date full time employment is secured.
As used in the de Viel Castel Employment Agreement:
● | “Cause” generally includes (i) conviction of, or plea of guilty or nolo contendere to, a felony, (ii) willful misconduct or gross negligence in the conduct of his duties that is injurious to Rubicon or its affiliates, (iii) willful failure to abide by reasonable and lawful instructions of the board of directors, (iv) fraud or embezzlement, (v) conduct which is injurious in a meaningful way (monetarily or otherwise) to the business or reputation of Rubicon or its affiliates, or (vi) violation of confidentiality, non-solicit or non-compete provisions. | |
● | “Good Reason” generally includes (i) a material reduction in base salary, (ii) a material reduction in benefits, (iii) reduction or adverse change of position, title, duties or reporting responsibilities, (iv) Rubicon’s material breach of the Employment Agreement, or (v) geographic relocation by more than 50 miles, subject to standard notice and cure periods. |
112 |
Potential Payments Under the Transition Agreement
Under the Transition Agreement, if the Board removes Mr. Morris as Chairman prior to the End Date, the Transition Agreement RSUs will be cancelled and Rubicon will pay to Mr. Morris, within 10 days following such removal, a lump sum calculated as (A) $5.0 million, plus the product of (B) 6,534,639 multiplied by (C) the greater of (i) the volume-weighted average price of Rubicon’s shares during the period from August 16, 2022, through the date on which the Board removes Mr. Morris as Chairman and (ii) the volume-weighted average price of Rubicon’s shares on the trading date immediately prior to Mr. Morris’ removal as Chairman. The Transition Agreement RSUs will accelerate upon a change of control (as defined in the 2022 Plan) and upon Mr. Morris’s death or disability.
Director Compensation
The table set forth below details the compensation paid to (i) Rubicon’s directors (including directors of Holdings LLC) and (ii) the Founder’s directors, in each case, for the fiscal year ended December 31, 2022. Mr. Morris, prior to the Transition Date, and Mr. Rodoni did not receive any additional compensation for their service on the Board. See “2022 Summary Compensation Table” above for information regarding the compensation they received for 2022.
Name | Fees Earned or Paid in Cash ($) |
Total ($) | ||||||
Hassan Ahmed (1) | - | - | ||||||
Osman Ahmed | $ | 37,500 | $ | 37,500 | ||||
Barry Caldwell | $ | 46,875 | $ | 46,875 | ||||
Brent Callinicos | $ | 56,250 | $ | 56,250 | ||||
Andres Chico | $ | 28,125 | $ | 28,125 | ||||
Ambassador Paula J. Dobriansky | $ | 56,250 | $ | 56,250 | ||||
Stephen Goldsmith (2) | - | - | ||||||
Paula Henderson | $ | 56,250 | $ | 56,250 | ||||
Coddy Johnson | $ | 56,250 | $ | 56,250 | ||||
Steve Koonin (2) | - | - | ||||||
Elizabeth Montoya (2) | - | - | ||||||
Michael A. Nutter (2) | - | - | ||||||
Steve Papa (1) | - | - | ||||||
Oscar Salazar (2) | - | - | ||||||
Allen Salmasi (1) | - | - | ||||||
Jack Selby | $ | 37,500 | $ | 37,500 | ||||
Rob Theis (1) | - | - | ||||||
Nicholas Walrod (2) | - | - | ||||||
Bob Wickham (2) | - | - |
(1) | Messrs. H. Ahmed, Theis, Papa, and Salmasi served as directors of Founder prior to the Business Combination and did not receive any compensation for their prior services during 2022. |
(2) | Messrs. Goldsmith, Koonin, Nutter, Salazar, Walrod, and Wickham and Ms. Montoya served as directors of Holdings LLC prior to the Business Combination and did not receive any compensation for their prior services during 2022. |
Prior to the Business Combination, no compensation was provided by Founder or Holdings LLC to its non-employee directors for the year ended December 31, 2022. Holdings LLC has historically reimbursed its non-employee directors’ travel expenses to and from board meetings.
113 |
Following the Business Combination, the Board adopted a director compensation policy, pursuant to which Rubicon’s non-employee directors receive the following:
● | Annual cash retainer of $75,000 for service on the Board; | |
● | Additional annual cash retainers of $25,000 (per committee) for service as the chair of the Audit Committee, the Compensation Committee, the Corporate Citizenship Committee or the Nominating and Corporate Governance Committee; | |
● | Additional annual cash retainers of $25,000 (per committee) for service as a member of the Audit Committee, the Compensation Committee, the Corporate Citizenship Committee or the Nominating and Corporate Governance Committee | |
● | Annual equity grant of RSUs under the 2022 Plan with a value of approximately $250,000 in connection with Rubicon’s annual meetings; and | |
● | Initial equity grant of RSUs under the 2022 Plan with a value of approximately $500,000. |
The director compensation policy also provides each director with reimbursement for reasonable travel and miscellaneous expenses incurred in attending meetings and activities of the Board and its committees. In accordance with the director compensation policy, each non-employee director received their initial RSU grant under the 2022 Plan on January 6, 2023 of 125,628 RSUs, which will vest annually over two years.
114 |
PRINCIPAL SECURITYHOLDERS
The following table sets forth information known to Rubicon regarding beneficial ownership of shares of Common Stock as of February 3, 2023 by:
● | each person who is known by us to be the beneficial owner of more than five percent (5%) of the outstanding shares of Common Stock; |
● | each of our named executive officers and directors; and |
● | all current executive officers and directors as a group. |
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that the persons and entities identified in the table below possess sole voting and investment power over all securities shown as beneficially owned by them. Shares of Class A Common Stock subject to options, Warrants and other convertible or exchangeable securities (including Class B Units) that are exercisable or may be converted or will be exercisable or convertible within 60 days of February 3, 2023 are considered outstanding and beneficially owned by the person holding those options, Warrants or other securities for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The beneficial ownership percentages set forth in the table below are based on 55,886,692 shares of Class A Common Stock and 114,886,453 shares of Class V Common Stock issued and outstanding as of February 3, 2023.
Name and Address of Beneficial Owner(1) | Class A Common Stock |
Class V Common Stock |
Voting Power and Implied Ownership(2) |
|||||||||
Directors and Named Executive Officers | ||||||||||||
Nate Morris(3) | 8,378,986 | - | 4.7 | % | ||||||||
Michael Heller(4) | 1,173,822 | - | * | % | ||||||||
Phil Rodoni(5) | 2,370,402 | 545,036 | 1.7 | % | ||||||||
Renaud de Viel Castel(6) | 749,275 | * | % | |||||||||
Osman Ahmed | - | - | 0.0 | % | ||||||||
Jack Selby | - | - | 0.0 | % | ||||||||
Ambassador Paula J. Dobriansky | - | 24,493 | * | % | ||||||||
Brent Callinicos | - | 314,597 | * | % | ||||||||
Barry Caldwell | - | - | 0.0 | % | ||||||||
Coddy Johnson | - | - | 0.0 | % | ||||||||
Andres Chico(7) | - | - | 0.0 | % | ||||||||
Paula Henderson | - | - | 0.0 | % | ||||||||
All Directors and Executive Officers as a Group (17 Individuals) | 13,237,968 | 1,007,496 | 7.9 | % | ||||||||
Five Percent Holders | ||||||||||||
Founder SPAC Sponsor LLC(8) | 19,369,375 | - | 10.6 | % | ||||||||
MBI Holdings LP(9) | 740,000 | 10,513,171 | 6.6 | % | ||||||||
GFAPCH FO, S.C.(10) | - | 17,084,267 | 10.0 | % | ||||||||
Jose Miguel Enrich(11) | 1,180,000 | 27,597,438 | 16.9 | % | ||||||||
Guardians of New Zealand Superannuation(12) | 22,912,903 | - | 13.4 | % | ||||||||
RGH, Inc.(13) | - | 22,917,675 | 13.4 | % |
* | Less than 1% |
115 |
(1) | Unless otherwise noted, the business address of each person is 100 West Main Street Suite #610 Lexington, KY 40507. |
(2) | Voting Power and Implied Ownership is calculated based on 55,886,692 shares of Class A Common Stock and 114,886,453 shares of Class V Common Stock outstanding as of February 3, 2023. |
(3) | Includes 8,378,986 RSUs issued pursuant to the Transition Agreement, which will vest into an equivalent number of shares of Class A Common Stock on February 10, 2023. |
(4) | Includes 1,173,822 RSUs awarded pursuant to the 2022 Plan which vest into an equivalent number of Class A Common Stock on February 11, 2023. |
(5) |
Includes 1,578,669 RSUs awarded pursuant to the 2022 Plan which vest into an equivalent number of Class A Common Stock on February 11, 2023. |
(6) | Includes 749,275 RSUs awarded pursuant to the 2022 Plan which vest into an equivalent number of Class A Common Stock on February 11, 2023. |
(7) | Does not include any shares indirectly owned by Mr. Chico as a result of his pecuniary interests in MBI Holdings LP and GFAPCH FO, S.C, as described in notes 8 and 9, respectively. |
(8) | Represents (a) 6,746,250 shares of Class A Common Stock and (b) 12,623,125 shares of Class A Common Stock that underly the 12,623,125 Private Warrants that are exercisable within 60 days from the date hereof. Manpreet Singh has voting and dispositive power over the securities held by Sponsor and therefore may be deemed to be a beneficial owner thereof. The business address of Mr. Singh and Sponsor is 11752 Lake Potomac Drive, Potomac, MD 20854. |
(9) | Represents (a) 10,513,712 shares of Class V Common Stock and equivalent number of Class B Units and (b) 740,000 shares of Class A Common Stock. Jose Miguel Enrich is the general partner of MBI Holdings LP (“MBI”), and therefore, Mr. Enrich has voting and dispositive control over the securities of and may be deemed to beneficially own the securities held by MBI. Mr. Enrich disclaims beneficial ownership of these securities except to the extent of his pecuniary interest therein. The business address of each of MBI and Mr. Enrich is 781 Crandon Blvd 902, Key Biscayne, FL 33149. |
(10) | Represents (a) 55,897,164 shares of Class V Common Stock and equivalent number of Class B Units held by RUBCN Holdings LP (“RUBCN Holdings”), (b) 4,055,591 shares of Class V Common Stock and equivalent number of Class B Units held by RUBCN IV LP (“RUBCN IV”), and (c) 7,131,512 shares of Class V Common Stock and equivalent number of Class B Units held by RUBCN Holdings V LP (“RUBCN Holdings V”). GFAPCH FO, S.C, a Mexican corporation (“Ontario GP”), is the general partner of each of RUBCN Holdings, RUBCN IV, and RUBCN Holdings V. Mr. Enrich is the sole director of Ontario GP, and therefore, Mr. Enrich has voting and dispositive control over the securities of and may be deemed to beneficially own the securities held by RUBCN Holdings, RUBCN IV, and RUBCN Holdings V. Mr. Enrich disclaims beneficial ownership of these securities except to the extent of his pecuniary interest therein. The business address of each of RUBCN Holdings, RUBCN IV, RUBCN Holdings V, Ontario GP and Mr. Enrich is 781 Crandon Blvd 902, Key Biscayne, FL 33149. |
(11) | Mr. Enrich, as referenced in notes 8 and 9 above, has voting and dispositive control over the securities of and may be deemed to beneficially own the securities held directly and indirectly by MBI and Ontario GP. In addition to such interests described in notes 8 and 9, Mr. Enrich may be deemed to beneficially own the following securities: (a) 140,000 shares of Class A Common Stock held by Bolis Holdings LP (“Bolis LP”), (b) 150,000 shares of Class A Common Stock held by DGR Holdings LP (“DGR LP”), and (c) 150,000 shares of Class A Common Stock held by Pequeno Holdings LP (“Pequeno LP”). Bolis Holdings LLC (“Bolis LLC”) is the general partner of Bolis LP. Pequeno Holdings LLC (“Pequeno LLC”) is the general partner of Pequeno LP. DGR Holdings LLC (“DGR LLC”) is the general partner of DGR LP. Mr. Enrich is the sole director of each of Bolis LLC, Pequeno LLC and DGR LLC, and has voting and dispositive control over such securities and may be deemed to beneficially own such securities held by Bolis LP, Pequeno LP, and DGR LP. Mr. Enrich disclaims beneficial ownership of these securities except to the extent of his pecuniary interest therein. The business address of each of Mr. Enrich, MBI, Ontario GP, Bolis LP, Pequeno LP, DGR LP, Bolis LLC, Pequeno LLC, and DGR LLC is 781 Crandon Blvd 902, Key Biscayne, FL 33149. |
(12) | Guardians of New Zealand Superannuation is a New Zealand autonomous crown entity (“Guardians”). Matthew Whineray is the chief executive officer of Guardians and has voting and dispositive control over the securities held by Guardians. Therefore, Mr. Whineray may be deemed to beneficially own such securities held by Guardians. The business address of Mr. Whineray and Guardians is Level 12, 21 Queen Street, Auckland 1010, New Zealand. |
(13) | Lane Moore is a director and the chief executive officer of RGH, Inc. and has investment control of the securities held by RGH, Inc. Accordingly, Mr. Moore may be deemed to have beneficial ownership of such securities. Mr. Moore disclaims all beneficial ownership of these securities except to the extent of his pecuniary interest therein. The business address of each of Mr. Moore and RGH, Inc. is 191 Peachtree St., N.E., 34th Floor, Atlanta, GA 20202, Attn: Scott A. Augustine. |
116 |
SELLING SECURITYHOLDERS
The following table sets forth information known to Rubicon regarding the beneficial ownership of shares of Class A Common Stock as of February 3, 2023 that may be offered from time to time by the Selling Securityholders. When we refer to the “Selling Securityholders” in this prospectus, we refer to the persons listed in the table below, and the pledgees, donees, transferees, assignees, successors and other permitted transferees that hold any of the Selling Securityholders’ interest in the shares of Class A Common Stock after the date of this prospectus.
The Selling Securityholders listed in the table below may from time to time offer and sell any or all of the shares of Class A Common Stock set forth below pursuant to this prospectus. We cannot advise you as to whether the Selling Securityholders will in fact sell any or all of such shares of Class A Common Stock. In particular, the Selling Securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their securities after the date on which they provided us with information regarding their securities. Any changed or new information given to us by the Selling Securityholders, including regarding the identity of, and the securities held by, each Selling Securityholder, will be set forth in a prospectus supplement or amendments to the registration statement of which this prospectus is a part, if and when necessary.
Our registration for resale of the shares of Class A Common Stock included in this prospectus does not necessarily mean that the Selling Securityholders will sell all or any of such Class A Common Stock. The following table sets forth certain information provided by or on behalf of the Selling Securityholders concerning the beneficial ownership of Class A Common Stock that may be offered from time to time by each Selling Securityholder with this prospectus and the beneficial ownership of the Selling Securityholders both before and after the offering of the securities covered by this prospectus. A Selling Securityholder may sell all, some or none of such securities in this offering. See “Plan of Distribution.”
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that the persons and entities identified in the table below possess sole voting and investment power over all securities shown as beneficially owned by them. Shares of Class A Common Stock subject to options, Warrants and other convertible or exchangeable securities (including Class B Units) that are exercisable or may be converted or will be exercisable or convertible within 60 days of February 3, 2023 are considered outstanding and beneficially owned by the person holding those options, Warrants or other securities for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The beneficial ownership percentages set forth in the table below are based on 55,886,692 shares of Class A Common Stock and 114,886,453 shares of Class V Common Stock issued and outstanding as of February 3, 2023.
117 |
Number of Shares of Common Stock Beneficially Owned |
Maximum Number of Shares of Common Stock Being |
Shares of Common Stock Beneficially Owned After the Offered Shares of Common Stock are Sold |
||||||||||||||||||||
Name of Selling Securityholder | Number | Percent (1) | Offered | Number | Percent | |||||||||||||||||
YA II PN, LTD. | (2) | 32,010,075 | 18.74 | % | 32,010,075 | - | - | |||||||||||||||
Brent Callinicos | (3) | 133,648 | 0.08 | % | 133,648 | - | - | |||||||||||||||
Kevin Schubert | (3) | 26,730 | 0.02 | % | 26,730 | - | - | |||||||||||||||
Coddy Johnson | (3) | 26,730 | 0.02 | % | 26,730 | - | - | |||||||||||||||
Osman Ahmed | (3) | 106,918 | 0.06 | % | 106,918 | - | - | |||||||||||||||
David Manuel Gutierrez Muguerza | (3) | 527,107 | 0.31 | % | 527,107 | - | - | |||||||||||||||
Sergio Manuel Gutierrez Muguerza | (3) | 154,497 | 0.09 | % | 154,497 | - | - | |||||||||||||||
Raul Manuel Gutierrez Muguerza | (3) | 227,201 | 0.13 | % | 227,201 | - | - | |||||||||||||||
DGR Holdings LP | (3) | 1,336,478 | 0.78 | % | 1,336,478 | - | - | |||||||||||||||
Pequeno Holdings LP | (3) | 1,336,478 | 0.78 | % | 1,336,478 | - | - | |||||||||||||||
Bolis Holdings LP | (3) | 1,069,182 | 0.63 | % | 1,069,182 | - | - | |||||||||||||||
Paula J. Dobriansky | (3) | 5,346 | 0.00 | % | 5,346 | - | - | |||||||||||||||
The Rodoni Family Trust | (3) | 400,943 | 0.23 | % | 400,943 | - | - | |||||||||||||||
Paula Henderson | (3) | 10,692 | 0.01 | % | 10,692 | - | - | |||||||||||||||
Nathaniel R. Morris | (3) | 133,648 | 0.08 | % | 133,648 | - | - | |||||||||||||||
Oluts LLC | (3) | 133,648 | 0.08 | % | 133,648 | - | - | |||||||||||||||
McEllen Investments LP | (4) | 195,120 | 0.11 | % | 195,120 | - | - | |||||||||||||||
Jeronimo Quintana Kawage | (4) | 194,536 | 0.11 | % | 194,536 | - | - | |||||||||||||||
Diego Quintana Kawage | (4) | 195,120 | 0.11 | % | 195,120 | - | - | |||||||||||||||
Stephen Goldsmith | (4) | 14,605 | 0.01 | % | 14,605 | - | - | |||||||||||||||
Michael Nutter | (4) | 29,210 | 0.02 | % | 29,210 | - | - | |||||||||||||||
Lateral, Inc. | (4) | 58,419 | 0.03 | % | 58,419 | - | - | |||||||||||||||
Bruce W. Walz | (4) | 29,210 | 0.02 | % | 29,210 | - | - | |||||||||||||||
Guardians of New Zealand Superannuation | (4) | 2,651,289 | 1.55 | % | 2,651,289 | - | - | |||||||||||||||
Jefferies LLC | (5) | 3,877,750 | 2.27 | % | 3,877,750 | - | - |
* | Less than 1%. |
(1) | Based on 170,773,145 shares of Common Stock issued and outstanding as of February 7, 2023. | |
(2) | Represents (a) 200,000 shares of Class A Common Stock issued to the Yorkville Investor on August 31, 2022 as Yorkville Commitment Shares and (b) up to 31,810,075 shares of Class A Common Stock that we may, at our discretion, elect to issue and sell to the Yorkville Investor from time to time pursuant to the SEPA. The number of shares of Class A Common Stock that may actually be acquired by the Yorkville Investor pursuant to the SEPA is not currently known and is subject to satisfaction of certain conditions and other limitations set forth in the SEPA, including the Beneficial Ownership Limitation and the SEPA Exchange Cap (each as defined below). The Yorkville Investor is a fund managed by Yorkville Advisors Global, LP (“Yorkville LP”). Yorkville Advisors Global II, LLC (“Yorkville LLC”) is the General Partner of Yorkville LP. All investment decisions for the Yorkville Investor are made by Yorkville LLC’s President and Managing Member, Mr. Mark Angelo. The business address of the Yorkville Investor is 1012 Springfield Avenue, Mountainside, NJ 07092. The Yorkville Investor is also beneficial owner of shares underlying the YA Convertible Debentures and YA Warrants. | |
(3) | Represents a portion of the 5,629,245 shares of Class A Common Stock issued to the First Closing Insider Investors on December 16, 2022 pursuant to the First Closing Insider SPA. | |
(4) | Represents a portion of the 3,367,509 shares of Class A Common Stock issued to the Second Closing Insider Investors on February 1, 2023 pursuant to the Second Closing Insider SPA. | |
(5) | Represents the 3,877,750 shares of Class A Common Stock issued to Jefferies pursuant to the Jefferies Deferred Share Arrangement. |
118 |
CERTAIN FINANCING TRANSACTIONS
Forward Purchase Agreement
On August 4, 2022, ACM Seller (together with the FPA Sellers to which obligations of ACM Seller were novated) entered into the Forward Purchase Agreement as a hedging strategy with Founder and Holdings LLC. The FPA Sellers purchased an aggregate of 7,082,616 Founder Class A Shares from Redeeming Holders prior to the Closing, comprising 6,082,616 Founder Class A Shares from Redeeming Holders (the “Recycled Shares”) and 1,000,000 Founder Class A Shares from Redeeming Holders (“Separate Shares”), each at an average price per share of $10.15. Pursuant to the Forward Purchase Agreement, each of the FPA Sellers waived its redemption rights triggered by the Business Combination under the governing documents of Founder with respect to the Founder Class A Shares purchased from Redeeming Holders under the Forward Purchase Agreement in connection with the Closing. Each FPA Seller’s obligations to us under the Forward Purchase Agreement were secured by perfected liens on (i) the proceeds of any sale or other disposition of the Recycled Shares and (ii) the deposit accounts into which such proceeds were required to be deposited, with such accounts subject to a customary control agreement in our favor. On November 30, 2022, the parties terminated the Forward Purchase Agreement and related obligations pursuant to the Atalaya Termination Agreement and the Vellar Termination Agreement. For more information, see the section below entitled “FPA Termination Agreements.”
Among the reasons that Founder entered into the Forward Purchase Agreement was to reduce the number of redemptions in connection with the Business Combination to help ensure that, following completion of the Business Combination, Founder’s stockholder base would comply with NYSE listing standards, including with respect to the minimum number and aggregate market value of publicly held shares. In connection with the Founder Special Meeting, holders of 31,260,777 Founder Class A Shares (or approximately 98.8% of the issued and outstanding Founder Class A Shares on such date) exercised their right to redeem those shares for cash at a price of approximately $10.176 per share. As a result of the Forward Purchase Agreement, at the Business Combination, the number of shares that elected to redeem was reduced to 24,178,161 Founder Class A Shares (or approximately 76.5% of the issued and outstanding Founder Class A Shares). Without the Forward Purchase Agreement, we would have had approximately 364,233 Founder Class A Shares outstanding at the Closing (without giving effect to the Business Combination). At a price of $9.81 per share of Founder Class A Shares, the closing price of the Founder Class A Shares on August 15, 2022, Founder would have had a public float of approximately $3.6 million (without giving effect to the Business Combination).
At the Closing, we paid to the FPA Sellers approximately $68.7 million from the funds held in our trust account and we retained approximately $3.4 million in proceeds from the trust account (proceeds which would have otherwise been paid to redeeming shareholders but for the Forward Purchase Agreement). The $68.7 million payment to the FPA Sellers was comprised of (a) approximately $57.8 million (the “Prepayment Amount”), an amount equal to (x) the redemption price of approximately $10.176 per share (the “Per-Share Redemption Price”) multiplied by the number of Recycled Shares on the date of such prepayment (which amount equaling the price per Founder Class A Share we would have paid to the prior holder of shares had such shares been redeemed, resulting in an average profit to the FPA Sellers of approximately $0.026 per Founder Class A Share were such shares to be held to the Maturity Date (as defined below)), less (y) 50% of the product of the Recycled Shares multiplied by $1.33 (the “Prepayment Shortfall”), (b) approximately $10.2 million, an amount equal to the product of the number of Separate Shares multiplied by the Per-Share Redemption Price (which amount equaling the price per Founder Class A Share we would have paid to the prior holder of shares had such shares been redeemed, resulting in an average profit to the FPA Sellers of approximately $10.176 per Founder Class A Share as such shares were intended to be treated as consideration for the Forward Purchase Agreement), and (c) approximately $0.7 million in respect of the FPA Sellers’ transaction fees and expenses. As a result of consummation of the Business Combination and completion of the other transactions entered into in connection with the Business Combination, we received approximately $73.8 million in net proceeds after accounting for our payment of approximately $25.4 million of transaction costs, these aggregate payments by us to the FPA Sellers under the Forward Purchase Agreement of $68.7 million, net proceeds of $121.0 million from the PIPE Investment, and the payment by us of an aggregate of $28.9 million in Cash Transaction Bonuses.
Set forth below are summaries of certain additional payments and share issuances that we may have been required to make under the Forward Purchase Agreement, including upon maturity. Following these summaries is a table summarizing certain information with respect to these payments and share issuances, including hypothetical examples of how each provision might have worked, minimum and maximum benefits to Rubicon and to the FPA Sellers in respect of each provision and the ultimate result of what payments or share issuances were made, if any, prior to or in connection with the termination of the Forward Purchase Agreement.
119 |
Additional Payments and Share Issuances
Following the consummation of the Business Combination, the FPA Sellers were able to sell the securities they purchased pursuant to the Forward Purchase Agreement. Depending on how the FPA Sellers sold Recycled Shares, if at all, we were entitled to certain payments from the FPA Sellers. This right of the FPA Sellers was terminated pursuant to the FPA Termination Agreements.
1. | Shortfall Sales. The FPA Sellers were permitted to sell up to $8,089,879.28 of Class A Common Stock without any payment obligation to us (“Shortfall Sales”). Upon making a sale of Class A Common Stock in excess of such amount, the FPA Sellers were required to make an aggregate one-time payment to us of $4,044,939.64. Immediately prior to entry into the FPA Termination Agreements, the aggregate Shortfall Sales by the FPA Sellers did not exceed the threshold amount and we did not receive any payment from the FPA Sellers in respect of this provision. | |
2. | Terminated Shares. The FPA Sellers were also required to pay us a percentage of the proceeds from any sale by the FPA Sellers of Recycled Shares (“Terminated Shares”), whereby such shares would be deducted from the number of shares used to calculate the FPA Maturity Consideration (as discussed further below). Specifically, we were entitled to proceeds from such sales of Terminated Shares equal to the product of (x) the number of Terminated Shares multiplied by (y) the Forward Price, which was, at the time we entered into the FPA Termination Agreements, $6.00. More generally, the “Forward Price” was initially the Per-Share Redemption Price of approximately $10.176, but was adjusted on a monthly basis to the lower of (a) the then-current Forward Price, (b) the Per-Share Redemption Price, and (c) the VWAP of the last trading day of the prior month, but not lower than $6.00; provided, however, that if we offered and sold Class A Common Stock, or then-outstanding or future issued securities were exercised or converted, at a price lower than the then-current Forward Price (the “Offering Price”), but excluding certain issuances, then the Forward Price would be adjusted to the Offering Price. Consequently, it was unlikely that we would have received proceeds from the sale of Terminated Shares unless and until the Forward Price was lower than the current market price for our securities. | |
3. | Reissued Shares. In connection with all Shortfall Sales, we were obligated to issue, for no additional consideration, a number of additional shares of Class A Common Stock equal to the number of shares of Class A Common Stock sold pursuant to Shortfall Sales (the “Reissued Shares”). No Reissued Shares were issued to the FPA Sellers prior to the FPA Termination Agreements. | |
4. | FPA Maturity Consideration. On the Maturity Date, we would have been obligated to pay to the FPA Sellers an aggregate amount of $30.0 million, which could be settled by delivery of shares of Class A Common Stock, subject to certain adjustments (the “FPA Maturity Consideration”). |
Maturity Date
The maturity date of the Forward Purchase Agreement (the “Maturity Date”) was August 15, 2025 (the third anniversary of the Closing). However, in the event that the VWAP of our Class A Common Stock (a) from August 15, 2022 through November 13, 2022 (within the first 90 days following Closing), was less than $3.00 per share for 20 trading days during any 30 trading day period or (b) from November 14, 2022 (the 91st day following the Closing), was less than $5.00 per share for 20 trading days during any 30 trading day period, then each of the FPA Sellers had the right to accelerate the Maturity Date. The FPA Maturity Consideration was equal to the sum of (a) $30 million less (b) any Terminated Shares multiplied by $2.00. The FPA Maturity Consideration was payable by us as equity, issued in Class A Common Stock, with a per share issue price based on the average daily VWAP price over 30 scheduled trading days commencing on (i) the Maturity Date if the shares used to pay the FPA Maturity Consideration were freely tradeable by the FPA Sellers, or (ii) if the shares were not freely tradeable by the FPA Sellers, the date on which the shares were registered under the Securities Act. The number of shares issuable as FPA Maturity Consideration, if any, would be payable on a net basis with the number of Recycled Shares the FPA Sellers continued to hold at the Maturity Date. Separate Shares would be retained by the FPA Sellers and would not offset any FPA Maturity Consideration due to the FPA Sellers. Newly issued shares to satisfy FPA Maturity Consideration and Reissued Shares obligations would have been registered under the Securities Act pursuant to terms to be mutually agreed to between us and the applicable FPA Sellers.
At the close of market on October 20, 2022, the VWAP price of Class A Common Stock was less than $3.00 per share for 20 consecutive trading days, giving the FPA Sellers the right to accelerate the Maturity Date; however, the FPA Sellers did not elect to accelerate the Maturity Date, and following discussions with the FPA Sellers, we entered into the FPA Termination Agreements in lieu of paying the FPA Maturity Consideration.
120 |
Summary Table
The following table sets forth additional information regarding the rights and obligations of the parties under the various provisions of the Forward Purchase Agreement summarized above, including examples of how the provision may have worked, “best case scenarios” and “worst case scenarios” with respect to the various rights and obligations that were due thereunder, and a summary of the outcome of these obligations as a result of the FPA Termination Agreements. Each scenario, other than the outcome as a result of termination, is illustrative only and subject to the assumptions referenced in the table.
121 |
(1) | Note that in order to receive the $4,044,939.64 one-time payment from the FPA Sellers, FPA Sellers need to make Shortfall Sales in excess of $8,089,879.28, thus requiring Rubicon to issue an equivalent amount of Reissued Shares. |
(2) | Proceeds assume that all 6,082,616 Recycled Shares held by the FPA Sellers are sold as Terminated Shares. Figures do not give effect to any Recycled Shares sold as Shortfall Sales, as such Shortfall Sales would reduce the number of Recycled Shares sold as Terminated Shares. |
122 |
(3) | Under the terms of the Forward Purchase Agreement, the maximum benefit Rubicon could have received is $61.9 million from the sale of Recycled Shares (i.e., Per-Share Redemption Price multiplied by 6,082,616 Recycled Shares) since the per-share price is capped at the Per-Share Redemption Price; however, the maximum benefit to the FPA Sellers was infinite as there is no upward limit in the amount of proceeds they could retain in excess of the Per-Share Redemption Price. Note that the FPA Sellers would likely have only made sales of Recycled Shares that constituted Terminated Shares if the net proceeds due to them would have been in excess of $2.00 (i.e., the market price of Class A Common Stock would need to be more than $2.00 above the then Forward Price), as any such sale of Terminated Shares would have been offset against the $2.00 per share value assigned to Recycled Shares as FPA Maturity Consideration. |
(4) | This scenario assumes that no Terminated Shares were sold, as the $30 million in FPA Maturity Consideration divided by a 30-day VWAP greater than $4.93 would be a number of shares at least equal to the 6,082,616 Recycled Shares that were held by the FPA Sellers. |
(5) | This scenario assumes that no Terminated Shares were sold, as the $30 million in FPA Maturity Consideration divided by a 30-day VWAP less than $4.93 would be a number of shares more than the 6,082,616 Recycled Shares that were held by the FPA Sellers. |
The proceeds that Rubicon could have received pursuant to the Forward Purchase Agreement were dependent on whether the FPA Sellers elected to make Shortfall Sales or sell Terminated Shares, which were primarily driven by the market price for our securities. As discussed in the table above, if shares of Class A Common Stock traded above the Forward Price, there was a higher probability that the FPA Sellers would have made Shortfall Sales or sales of Terminated Shares; however, the ultimate decision to sell securities was with the FPA Sellers. In addition to the market price of Class A Common Stock, FPA Sellers likely considered the potential effects of sales of Terminated Shares on the potential amount of FPA Maturity Consideration that would be due to them on the Maturity Date. Consequently, the FPA Sellers may have been discouraged from making sales of Terminated Shares as such amounts would have offset the FPA Maturity Consideration due to them, as described further above.
The description of the Forward Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Forward Purchase Agreement, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part and is incorporated herein by reference, as well as the resulting FPA Termination Agreements, as discussed further below.
123 |
FPA Termination Agreements
On November 30, 2022, Rubicon terminated the Forward Purchase Agreement and related obligations pursuant to those certain termination agreements with each of ACM Seller and Vellar.
Pursuant to the Atalaya Termination Agreement, Rubicon and ACM Seller agreed to terminate their respective obligations under the Forward Purchase Agreement. In consideration thereof, (a) Rubicon made a one-time cash payment to ACM Seller of $6.0 million, (b) ACM Seller forfeited, for no additional consideration, 2,222,119 shares of Class A Common Stock that it held pursuant to the Forward Purchase Agreement, and (c) ACM Seller retained (i) 666,667 shares, constituting Separate Shares, (ii) proceeds from the open-market sales of 593,830 shares constituting Shortfall Sales, and (iii) 500,000 Recycled Shares. Pursuant to the Atalaya Termination Agreement, the 500,000 Recycled Shares retained by the ACM Seller are restricted from transfer until May 30, 2024. In particular, ACM Seller may not (a) sell, offer to sell, contract or agree to sell, assign, transfer (including by operation of law), gift, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidation with respect to or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, and the rules and regulations promulgated thereunder, with respect to the Class A Common Stock, (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the shares of Class A Common Stock, whether any such transaction is to be settled by delivery of such securities, in cash or otherwise, or (c) make any public announcement of any intention to effect any transaction specified in clause (a) or (b). If the ACM Seller instead accelerated the Maturity Date, it would have (a) received $20 million in FPA Maturity Consideration (net of the Recycled Shares it held at the Maturity Date), (b) retained proceeds from the open-market sales of 593,830 shares constituting Shortfall Sales, and (c) retained 666,667 shares constituting Separate Shares.
Pursuant to the Vellar Termination Agreement, Rubicon and Vellar agreed to terminate their respective obligations under the Forward Purchase Agreement. In consideration thereof, Rubicon agreed to, at its sole option, either pay Vellar $2.0 million in cash or issue to Vellar $2.0 million in shares of Class A Common Stock (such shares, if issued, “Settlement Shares”), in each case on or shortly following the Vellar Lock-Up Date in accordance with the terms of the Vellar Termination Agreement. Vellar retained (a) 333,333 shares, constituting Separate Shares, (b) approximately $1.7 million in net proceeds from the open-market sales of 1,125,819 shares constituting Shortfall Sales, and (c) 1,640,848 Recycled Shares (“Previously Owned Shares”). Under the Vellar Termination Agreement, Rubicon further agreed that (a) if Rubicon issues Settlement Shares and within the first 360 calendar days from the date that the Settlement Shares are first registered for resale under an effective registration statement, Vellar sells all of the Settlement Shares in open market sales to unaffiliated third parties and realizes gross proceeds of less than $2.0 million, Rubicon will pay to Vellar a cash amount equal to the difference between $2.0 million and the realized gross proceeds from such sales of Settlement Shares, and (b) if Settlement Shares are issued, Rubicon will provide Vellar with customary registration rights with respect to the Settlement Shares and the Previously Owned Shares; provided that if a registration statement registering the resale of such shares is not declared effective by the 45th calendar day (or 90th calendar day if the SEC notifies Rubicon that it will review such registration statement) following the filing date thereof, or the registration statement is declared effective and subsequently ceases to be continuously effective, Rubicon shall pay Vellar a cash penalty fee of $5.0 million (the “Cash Penalty”). The Cash Penalty is also payable in the event that Rubicon breaches, violates, or otherwise defaults under the Vellar Termination Agreement (subject to certain cure periods set forth therein). Pursuant to the Vellar Termination Agreement, the 1,640,848 Previously Owned Shares are restricted from transfer until the earlier of May 30, 2024 or the six month anniversary of the conversion of 90% or more of the YA Convertible Debentures into shares of Class A Common Stock. In particular, Vellar may not, among other things, sell, exchange, assign, distribute, encumber, hypothecate, gift, pledge, or transfer the Previously Owned Shares or make any other disposition or alienation (whether voluntarily, involuntarily or by operation of law) thereof to any person other than to an affiliate of Vellar, who prior to such transfer, shall execute a joinder agreement to be bound by the same restrictions in a form reasonably acceptable to Rubicon. If Vellar instead accelerated the Maturity Date, it would have (a) received $10 million in FPA Maturity Consideration (net of the Previously Owned Shares), (b) retained proceeds from the open-market sales of 1,125,819 shares constituting Shortfall Sales, and (c) retained 333,333 shares constituting Separate Shares.
The descriptions of the Atalaya Termination Agreement and the Vellar Termination Agreement do not purport to be complete and are qualified in their entirety by reference to the full text thereof, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part and are incorporated herein by reference.
124 |
SEPA
On August 31, 2022, we entered into the SEPA with the Yorkville Investor. Pursuant to the SEPA, we have the right to sell to the Yorkville Investor, from time to time, up to $200.0 million of shares of our Class A Common Stock, subject to certain limitations and conditions set forth therein. Sales of Class A Common Stock to the Yorkville Investor under the SEPA, and the timing of any such sales, are at our option, and subject to our obligations under the Term Loan, we are under no obligation to sell any securities to the Yorkville Investor under the SEPA.
Upon the satisfaction of the conditions to the Yorkville Investor’s purchase obligation set forth in the SEPA, including the registration of shares of Class A Common Stock issuable pursuant to the SEPA, we will have the right, but not the obligation, from time to time at our discretion until the first day of the month next following the 36-month anniversary of the date of the SEPA, to require the Yorkville Investor to purchase a specified amount of shares of Class A Common Stock (each such sale, an “Advance”) by delivering written notice to the Yorkville Investor (each, an “Advance Notice” and the date on which we are deemed to have delivered an Advance Notice, the “Advance Notice Date”). We will, in our sole discretion, select the amount of the Advance that we desire to issue and sell to the Yorkville Investor in each Advance Notice, an amount equal to the average Daily Traded Value of our Class A Common Stock on the NYSE on the five (5) Trading Days immediately preceding an Advance Notice (the “Maximum Advance Amount”). For purposes of determining the Maximum Advance Amount, “Daily Traded Value” shall mean the product obtained by multiplying the daily trading volume of our Class A Common Stock during regular trading hours as reported by Bloomberg L.P., by the VWAP of the Class A Common Stock for such trading day. There shall be no mandatory minimum of Advances under the SEPA.
The per share purchase price for the shares of Class A Common Stock, if any, that we elect to sell to the Yorkville Investor in an Advance pursuant to the SEPA will be equal to 97% of the lowest daily VWAP of the Class A Common Stock during the three consecutive trading days commencing on an Advance Notice Date; provided, however, that we may establish a minimum acceptable price in each Advance Notice below which we shall not be obligated to make any sales to the Yorkville Investor. There is no upper limit on the price per share that the Yorkville Investor could be obligated to pay for the Class A Common Stock that we may elect to sell to it in any Advance.
We will control the timing and amount of any sales of Class A Common Stock to the Yorkville Investor. Actual sales of shares of our Class A Common Stock to the Yorkville Investor under the SEPA will depend on a variety of factors to be determined by us from time to time, which may include, among other things, market conditions, the trading price of our Class A Common Stock and determinations by us as to the appropriate sources of funding for our business and its operations.
We may not issue or sell any shares of Class A Common Stock to the Yorkville Investor under the SEPA which, when aggregated with all other shares of Class A Common Stock then beneficially owned by the Yorkville Investor and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the Yorkville Investor and its affiliates beneficially owning more than 9.99% of the outstanding shares of Class A Common Stock (the “Beneficial Ownership Limitation”). The Beneficial Ownership Limitation may be waived by the Yorkville Investor as to itself and its affiliates upon not less than 65 days’ prior notice to us, on the terms and subject to the conditions set forth in the SEPA. In addition to the Beneficial Ownership Limitation, we may not issue and sell more than 32,010,075 shares of Class A Common Stock pursuant to the SEPA (19.9% of the issued and outstanding Common Stock immediately prior to the signing of the SEPA) unless we first obtain stockholder approval pursuant to NYSE Listing Rule 312.03 (the “SEPA Exchange Cap”).
The net proceeds to us under the SEPA will depend on the frequency and prices at which we sell shares of Class A Common Stock to the Yorkville Investor. Upon the effectiveness of the registration statement of which this prospectus forms a part, we expect that any proceeds received by us from such sales to the Yorkville Investor will be used to repay the Term Loan and for working capital and general corporate purposes.
125 |
The Yorkville Investor has agreed that, except as otherwise expressly provided in the SEPA, it and its affiliates will not engage in any short sales of the Class A Common Stock during the term of the SEPA.
The SEPA will automatically terminate on the earliest to occur of (i) September 1, 2025 (the first day of the month next following the 36-month anniversary of the date of the SEPA) or (ii) the date on which the Yorkville Investor shall have purchased from us under the SEPA $200.0 million of shares of our Class A Common Stock. We have the right to terminate the SEPA upon five (5) trading days’ prior written notice to the Yorkville Investor, provided that there are no outstanding Advance Notices under which we are yet to issue Class A Common Stock and provided that we have paid all amounts owed to the Yorkville Investor pursuant to the SEPA. We and the Yorkville Investor may also agree to terminate the SEPA by mutual written consent. Neither we nor the Yorkville Investor may assign or transfer our respective rights and obligations under the SEPA, and no provision of the SEPA may be modified or waived by us or the Yorkville Investor other than by an instrument in writing signed by both parties.
As consideration for the Yorkville Investor’s commitment to purchase shares of Class A Common Stock at our direction upon the terms and subject to the conditions set forth in the SEPA, upon execution of the SEPA, we issued 200,000 Yorkville Commitment Shares to the Yorkville Investor and paid a structuring fee of $10,000 to an affiliate of the Yorkville Investor.
The SEPA contains customary representations, warranties, conditions and indemnification obligations of the parties. The representations, warranties and covenants contained in the SEPA were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement and may be subject to limitations agreed upon by the contracting parties.
On November 30, 2022, we entered into the SEPA Amendment with the Yorkville Investor, pursuant to which we agreed that we would not file the SEPA Registration Statement until there is an effective registration statement covering the resale of at least 18,000,000 YA Conversion Shares. The Form S-1/A registration statement (Registration No. 333-268799) filed by Rubicon with the SEC on January 26, 2023, which registered 19,800,000 YA Conversion Shares for resale and which was declared effective by the SEC on February 1, 2023, satisfied this requirement. Upon its effectiveness, the registration statement of which this prospectus forms a part will register all shares of Class A Common Stock issued or otherwise issuable to the Yorkville Investor under the SEPA (subject to the SEPA Exchange Cap).
Pursuant to the SEPA Amendment, we and the Yorkville Investor further agreed to amend the definition of “Maximum Advance Amount” (as such term is defined in the SEPA and as described above) to mean an amount equal to the average Daily Traded Value of the Class A Common Stock on the five trading days immediately preceding an Advance Notice.
The descriptions of the SEPA and the SEPA Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of the SEPA and the SEPA Amendment, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part and are incorporated herein by reference.
YA Convertible Debentures
On November 30, 2022, we entered into the YA SPA with the Yorkville Investor, whereby we agreed to issue and sell to the Yorkville Investor (i) the YA Convertible Debentures in the aggregate principal amount of up to $17.0 million, which are convertible into YA Conversion Shares, and (ii) the YA Warrant, which is exercisable for $20.0 million of YA Warrant Shares, on the terms and subject to the conditions set forth therein.
On November 30, 2022, upon signing the YA SPA, we (i) issued and sold to the Yorkville Investor (a) the First YA Convertible Debenture in the principal amount of $7.0 million for a purchase price of $7.0 million and (b) the YA Warrant for a prefunded purchase price of $6.0 million, and (ii) paid the Yorkville Investor a commitment fee equal to $2.04 million, with such amount being deducted from the proceeds of the First YA Convertible Debenture. Pursuant to the YA SPA, the parties further agreed that we would issue and sell to the Yorkville Investor and the Yorkville Investor would purchase from us the Second YA Convertible Debenture in the principal amount of $10.0 million for a purchase price of $10.0 million, upon the satisfaction of, among other things, (a) the Initial Registration Statement (as defined below) being declared effective by the SEC and (b) our consummation of a securities offering consisting of equity or debt securities that are convertible into Class A Common Stock, provided that such offering is not a Variable Rate Transaction (as defined in the YA SPA), the holders of such securities are subject to a customary lock-up until January 1, 2024 and we receive gross proceeds of at least $15.0 million (the “Required Offering”). On February 3, 2023, following satisfaction of these conditions, we issued and sold to the Yorkville Investor the Second YA Convertible Debenture in the principal amount of $10.0 million for a purchase price of $10.0 million.
126 |
Each YA Convertible Debenture matures on May 30, 2024 (the “Maturity Date”), unless extended by the Yorkville Investor in its sole discretion, and accrues interest at the rate of 4% per annum, provided that the interest rate will increase to 15% per annum upon the occurrence of certain events of default or other specified events. Principal, interest and any other payments due under the YA Convertible Debentures shall be paid in cash, unless converted by the Yorkville Investor or redeemed by us. Except as specifically permitted by the terms of a YA Convertible Debenture, we may not prepay or redeem any portion of the outstanding principal and accrued and unpaid interest thereunder.
Subject to certain limitations set forth in the YA Convertible Debentures, at any time on or after their respective issuance dates and so long as the YA Convertible Debentures remain outstanding, the Yorkville Investor may convert all or part of the YA Convertible Debentures into shares of Class A Common Stock at the following conversion rate: the number of shares of Class A Common Stock issuable upon conversion of any portion of the outstanding principal and accrued interest under a YA Convertible Debenture (the “Conversion Amount”) will be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”). The “Conversion Price” means, as of any conversion date or other date of determination, the lower of (i) 110% of the lowest daily VWAP during the three trading days prior to the issuance date of such YA Convertible Debenture (the “Fixed Conversion Price”), or (ii) 90% of the lowest daily VWAP of the Class A Common Stock during the seven consecutive trading days immediately preceding the conversion date (the “Variable Conversion Price”), but in no event lower than $0.25 per share (the “Floor Price”). The Fixed Conversion Price for the First YA Convertible Debenture is $2.4157. The Conversion Price will be adjusted from time to time pursuant to the terms and conditions of the YA Convertible Debentures. Outside of an event of default under the YA Convertible Debentures, if the Conversion Price is set by using the Variable Conversion Price, the Yorkville Investor may not convert in any calendar month more than the greater of (a) 25% of the dollar trading volume of the shares of Class A Common Stock during such calendar month, or (b) $3.0 million.
If, at any time after the issuance of the YA Convertible Debentures, and from time to time thereafter, (i) the daily VWAP of the Class A Common Stock is less than the Floor Price for five trading days during a period of seven consecutive trading days (a “Floor Price Trigger”), or (ii) we issue in excess of 95% of the Class A Common Stock that we may issue to the Yorkville Investor without violating the rules or regulations of NYSE (the “YA Exchange Cap Trigger” and the number of shares which may be issued without violating such rules or regulations, the “YA Exchange Cap”) (the last such day of each such occurrence, a “Triggering Date”), we will be required to make monthly payments to the Yorkville Investor beginning on the 20th trading day after the Triggering Date and continuing on the same day of each successive calendar month. Each monthly payment will be in an amount equal to the sum of (i) $3.0 million in the aggregate among all YA Convertible Debentures issued pursuant to the YA SPA (or the outstanding principal amount under the YA Convertible Debenture if less than such amount) (the “Triggered Principal Amount”), (ii) a 7% redemption premium in respect of such Triggered Principal Amount, and (iii) accrued and unpaid interest under the YA Convertible Debenture as of each payment date. Notwithstanding the foregoing, each Triggered Principal Amount will be reduced by any principal and/or accrued and unpaid interest converted by the Yorkville Investor in the 30 days prior to such monthly prepayment date. Our obligation to make monthly prepayments will cease (with respect to any payment that has not yet come due) if at any time after the Triggering Date (A) the daily VWAP of the Class A Common Stock is greater than 110% of the Floor Price for a period of five consecutive trading days in the event of a Floor Price Trigger, or (B) the date on which we obtain stockholder approval to increase the number of shares of Class A Common Stock issuable under the YA Exchange Cap and/or the YA Exchange Cap no longer applies, in the event of a YA Exchange Cap Trigger, unless a subsequent Triggering Date occurs.
The YA Convertible Debentures provide us, subject to certain conditions, with the right, but not the obligation, to redeem early a portion or all amounts outstanding under the YA Convertible Debentures, provided that (i) the VWAP of the Class A Common Stock is less than the Fixed Conversion Price on the trading day immediately preceding the date of the Redemption Notice and (ii) we provide the Yorkville Investor with at least ten business days’ prior written notice (each, a “Redemption Notice”) of our desire to exercise such redemption right. Each Redemption Notice will be irrevocable and will specify the outstanding balance of the YA Convertible Debentures to be redeemed and the 10% redemption premium of such amount. With respect to any Redemption Notice, the “Redemption Amount” will equal the outstanding principal balance being redeemed by us, plus (x) a 10% redemption premium and (y) all accrued and unpaid interest. After receipt of a Redemption Notice, the Yorkville Investor will have ten business days to elect to convert all or any portion of the YA Convertible Debentures. On the 11th business day after a Redemption Notice, we will deliver to the Yorkville Investor the Redemption Amount with respect to the principal amount redeemed after giving effect to conversions effected during the ten business day period.
127 |
The Yorkville Investor may declare the full unpaid principal amount of the YA Convertible Debentures, together with accrued interest and other amounts owing in respect thereof, immediately due and payable in cash upon the occurrence of certain specified events of default, including, for example, our failure to perform our obligations under, or certain material breaches of, the YA Convertible Debentures, YA SPA, YA Warrant, YA Registration Rights Agreement, or certain related agreements; the commencement of bankruptcy or insolvency proceedings; certain defaults by us under our other debt facilities; the delisting of our Class A Common Stock for a ten consecutive trading day period; and the occurrence of certain change of control transactions. Upon the occurrence and during the continuance of any event of default, interest will accrue on the outstanding principal balance of the YA Convertible Debentures at a rate of 15% per annum. In addition to any other remedies, to the extent that the YA Convertible Debentures remain outstanding following an event of default or the Maturity Date, the Yorkville Investor will continue to have the right, but not the obligation, to convert the YA Convertible Debentures at the Conversion Price at any time after (x) an event of default (provided that such event of default is continuing) or (y) the Maturity Date.
Pursuant to the YA SPA, until all YA Convertible Debentures have been repaid, we are required to obtain the prior written consent of the holders of at least 75% in principal amount of the then-outstanding YA Convertible Debentures in order to (i) amend our governing documents in any manner that materially and adversely affects any rights of the holders of the YA Convertible Debentures, (ii) make any payments with respect to indebtedness owed to affiliates, (iii) amend, supplement, restate, withdraw, terminate or otherwise modify certain of our existing loan facilities or extensions thereof in a manner that would be materially adverse to the Yorkville Investor’s interests, (iv) amend, supplement, restate, withdraw, terminate or otherwise modify our termination of the Forward Purchase Agreement and related obligations pursuant to the FPA Termination Agreements in a manner that would be materially adverse to the Yorkville Investor’s interests, (v) effect Advances pursuant to the SEPA in certain circumstances, or (vi) enter into certain Variable Rate Transactions (as defined in the YA SPA).
In connection with the YA SPA, Rubicon and Yorkville Investor entered into the YA Registration Rights Agreement, pursuant to which we are required to register for resale all of the YA Conversion Shares and YA Warrant Shares. We were required to file an initial registration statement (the “Initial Registration Statement”) covering the resale of at least 19,800,000 shares of Class A Common Stock, consisting of YA Conversion Shares, by no later than the 15th calendar day following execution of the YA Registration Rights Agreement. The Form S-1/A registration statement (Registration No. 333-268799) filed by Rubicon with the SEC on January 26, 2023 was filed in respect of this obligation and was declared effective by the SEC on February 1, 2023. We are required to file additional registration statements covering the resale by the Yorkville Investor of the YA Conversion Shares not covered by the Initial Registration Statement, or YA Warrant Shares, if applicable, on or prior to the 30th calendar day following receipt of a demand notice from the Yorkville Investor.
The descriptions of the YA SPA, YA Convertible Debentures, and YA Registration Rights Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the YA SPA, the YA Convertible Debentures, and the YA Registration Rights Agreement, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part and are incorporated herein by reference.
YA Warrant
Concurrent with the entry into the YA SPA (the “YA Warrant Issue Date”), we issued to the Yorkville Investor the YA Warrant, pursuant to which the Yorkville Investor or its permitted assigns is entitled, upon the terms and subject to the limitations on exercise and the conditions set forth therein, to subscribe for and purchase from us up to such number of YA Warrant Shares as is equal to the product of (a) $20.0 million divided by (b) the Market Price (as such number may be adjusted pursuant to the YA Warrant). The Yorkville Investor may subscribe for and purchase YA Warrant Shares at a price of $0.0001 per share at any time on or after the earlier of (i) nine months after the YA Warrant Issue Date, or (ii) the date on which all of the YA Convertible Debentures to be issued pursuant to the YA SPA have been fully repaid or fully converted into shares of Class A Common Stock (such earlier date, the “Market Price Set Date”), until the YA Warrant has been exercised in full (the “Termination Date”). For purposes of determining the number of YA Warrant Shares issuable pursuant to the YA Warrant, “Market Price” means 100% of the average of the daily VWAP of the Class A Common Stock during the three consecutive trading days immediately following the Market Price Set Date.
128 |
The number of YA Warrant Shares issuable pursuant to the YA Warrant is subject to two adjustments. If the average of the daily VWAP of the Class A Common Stock during the three consecutive trading days immediately following the 3-month anniversary of the Market Price Set Date (the “3-Month Reset Price”) is lower than the Market Price, then the number of YA Warrant Shares exercisable shall be increased by multiplying (i) the number of then-unpurchased YA Warrant Shares by (ii) a ratio equal to the product of the Market Price divided by the 3-Month Reset Price. If the average of the daily VWAP of the Class A Common Stock during the three consecutive trading days immediately following the 6-month anniversary of the Market Price Set Date (the “6-Month Reset Price”) is lower than the lower of the Market Price and the 3-Month Reset Price, then the number of YA Warrant Shares exercisable shall be increased by multiplying (i) the number of then-unpurchased YA Warrant Shares by (ii) a ratio equal to the product of the lower of (x) the Market Price and (y) the 3-Month Reset Price divided by the 6-Month Reset Price.
Pursuant to the YA Warrant, the exercise price per share of Class A Common Stock is $0.0001, subject to adjustment thereunder (the “Exercise Price”). The YA Warrant may also be exercised by means of cashless exercise, in which the Yorkville Investor will be entitled to receive a number of YA Warrant Shares equal to the quotient obtained by dividing (a) the product of (i) the difference between (x) the VWAP price on the trading day immediately prior to or on the date of the Notice of Exercise (as defined below), in each case as determined in accordance with the YA Warrant, and (y) the Exercise Price, and (ii) the number of YA Warrant Shares that would be issuable in a cash exercise, by (b) the amount determined in clause (a)(i)(x). The Yorkville Investor may exercise its purchase rights under the YA Warrant at any time on or after the Market Price Set Date and on or before the Termination Date by delivering a duly executed notice of exercise (each, a “Notice of Exercise”) to us and timely delivering the aggregate Exercise Price for the YA Warrant Shares specified in the applicable Notice of Exercise (unless cashless exercise is specified in such notice). No fractional shares or scrip representing fractional shares shall be issued upon exercise of the YA Warrant. With respect to any fraction of a share which the Yorkville Investor would otherwise be entitled to purchase upon exercise of the YA Warrant, we will, at our election, either pay a cash adjustment in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
If at any time after the YA Warrant Issue Date, (i) any of certain specified events of default under the YA Convertible Debentures occurs, (ii) we fail to cause our transfer agent to transmit to the Yorkville Investor any applicable portion of the YA Warrant Shares in accordance with, and as and when required by, the YA Warrant (provided that such failure may be cured by delivery of the applicable portion of the YA Warrant Shares to the Yorkville Investor), or (iii) we commit certain material breaches of or defaults under the YA Warrant, the YA SPA, the YA Registration Rights Agreement, the YA Convertible Debentures and certain related agreements (subject to certain cure periods), we will, at the Yorkville Investor’s option, exercisable at any time concurrently with, or after, the occurrence of an event described in clauses (i)-(iii) purchase the YA Warrant in whole from the Yorkville Investor by paying to the Yorkville Investor a cash amount equal to the product of (a) $20.0 million, multiplied by (b) the quotient of (y) the number of YA Warrant Shares called for by the YA Warrant as of the date such payment is made divided by (z) the original number of YA Warrant Shares underlying the YA Warrant (plus any increase required pursuant to the terms thereof), which amount will be paid within 20 trading days of the date of notice from the Yorkville Investor.
The Yorkville Investor shall be entitled to participate in any distribution to the holders of shares of Class A Common Stock based on the then-current Exercise Price immediately before the record date for such distribution.
The description of the YA Warrant does not purport to be complete and is qualified in its entirety by reference to the full text of the YA Warrant, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part and is incorporated herein by reference.
Insider Convertible Debentures
On December 16, 2022, Rubicon entered into the First Closing Insider SPA with various First Closing Insider Investors comprised of members of Rubicon’s management team and board of directors. Pursuant to the First Closing Insider SPA, Rubicon agreed to issue and sell to the First Closing Insider Investors the First Closing Insider Convertible Debentures in the aggregate principal amount of up to $17.0 million, net of an original issuance discount of $2.0 million, which are convertible into shares of Class A Common Stock, which First Closing Insider Convertible Debentures may be purchased by the First Closing Insider Investors over the course of more than one closing. The First Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the First Closing Insider Convertible Debentures. The registration statement of which this prospectus forms a part of is being filed in respect of the registration requirements pursuant to the First Closing Insider SPA.
129 |
At the first closing, which closed on December 16, 2022, the First Closing Insider Investors purchased the First Closing Insider Convertible Debentures in an aggregate amount of $10.5 million in United States dollars, net of an original issuance discount of $1.4 million, for a total principal amount of $11.9 million in the First Closing Insider Convertible Debentures. Pursuant to the terms of the First Closing Insider SPA, at the second closing, Rubicon agreed to issue the Second Closing Insider Convertible Debentures with an aggregate value of no less than $4.0 million, to certain third-party investors, as designated thereby at the second closing.
The First Closing Insider Convertible Debentures have a maturity date of June 16, 2024, 18 months after issuance, and accrue interest at the rate of 6% per annum (provided that the interest rate will increase to 12% per annum in the event of certain defaults). The First Closing Insider Convertible Debentures may be converted into shares of Class A Common Stock at an initial conversion price equal to the lower of 110% of: (i) the average closing price of Class A Common Stock for the five (5) trading days immediately preceding the date of the respective closing or (ii) the closing price of Class A Common Stock immediately preceding the date of the respective closing, subject to adjustments as further specified in the First Closing Insider Convertible Debentures. The First Closing Insider Convertible Debentures will be fully repayable in cash upon maturity. Concurrent with the entry into the First Closing Insider SPA, we entered into (i) the First Closing Insider Registration Rights Agreement, pursuant to which Rubicon agreed to file a registration statement with the SEC registering the resale of First Closing Insider Conversion Shares within 45 days of the first closing, and to cause any such registration statement to become effective within 120 days after filing, and (ii) the First Closing Insider Lockup Agreement, pursuant to which the First Closing Insider Investors agreed to not offer, sell, or otherwise dispose of, directly or indirectly, any First Closing Insider Conversion Shares during certain period defined in the First Closing Insider Lockup Agreement. As of the filing of this prospectus, Rubicon has received $10.5 million of proceeds for the First Closing Insider Convertible Debentures.
On February 1, 2023, Rubicon entered into the Second Closing Insider SPA with various Second Closing Insider Investors. Pursuant to the Second Closing Insider SPA, Rubicon agreed to issue and sell to the Second Closing Insider Investors the Second Closing Insider Convertible Debentures, with an aggregate value of no less than $4.0 million, subject to an original issuance discount, which are convertible into shares of Class A Common Stock. The Second Closing Insider Convertible Debentures may be purchased by the Second Closing Insider Investors at the second of the two closings. The Second Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the Second Closing Insider Convertible Debentures. The registration statement of which this prospectus forms a part of is being filed in respect of the registration requirements pursuant to the Second Closing Insider SPA.
At the second closing, which closed on February 1, 2023, the Second Closing Insider Investors purchased Second Closing Insider Convertible Debentures in an aggregate amount of $5.7 million in United States dollars, net of an original issuance discount of $0.8 million, for a total principal amount of $6.5 million in Second Closing Insider Convertible Debentures. The Second Closing Insider Convertible Debentures have a maturity date of August 2, 2024, 18 months after issuance, and accrue interest at the rate of 6% per annum (provided that the interest rate will increase to 12% per annum in the event of certain defaults) for all Second Closing Insider Investors except for Guardians of New Zealand Superannuation; whose Second Closing Insider Convertible Debentures accrue interest at the rate of 8% per annum.
The Second Closing Insider Convertible Debentures may be converted into shares of Class A Common Stock at an initial conversion price equal to the lower of 110% of: (i) the average closing price of Class A Common Stock for the five (5) trading days immediately preceding the date of the respective closing or (ii) the closing price of Class A Common Stock immediately preceding the date of the respective closing, subject to adjustments as further specified in the Second Closing Insider Convertible Debentures. The Second Closing Insider Convertible Debentures will be fully repayable in cash upon maturity. Concurrent with the entry into the Second Closing Insider SPA, we entered into (i) the Second Closing Insider Registration Rights Agreement pursuant to which Rubicon agreed to file a registration statement with the SEC registering the resale of Second Closing Insider Conversion Shares within 90 days of the second closing, and to cause any such registration statement to become effective within 120 days after filing, and (ii) the Second Closing Insider Lockup Agreement, pursuant to which the Second Closing Insider Investors agreed to not offer, sell, or otherwise dispose of, directly or indirectly, any Second Closing Insider Conversion Shares during certain period defined in the Second Closing Insider Lockup Agreement. As of the filing of this prospectus, Rubicon has received $5.7 million of proceeds for the Second Closing Insider Convertible Debentures.
Rodina Note
On February 2, 2023, Rubicon and Rodina entered into an Unsecured Promissory Note pursuant to which Rodina agreed to loan Rubicon the Rodina Principal in exchange for Rubicon’s promise to pay to Rodina, in cash, the full outstanding Rodina Principal, and in kind, all unpaid interest accrued thereon, which interest shall accrue at an annual rate of 16.0%, by July 1, 2024, the maturity date.
The descriptions of the Insider Convertible Debentures, Insider Registration Rights Agreement and Insider Lockup Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Insider Convertible Debentures, Insider Registration Rights Agreement and Insider Lockup Agreement, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part and are incorporated herein by reference.
130 |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of certain relationships and transactions since January 1, 2019, involving our directors, executive officers, beneficial holders of more than 5% of our capital stock, or entities affiliated with them (each a “Related Party”).
The descriptions of the various agreements and arrangements are not complete and are qualified in their entirety by reference to the complete text of the agreements, copies of which are filed or incorporated by reference as exhibits to the registration statement of which this prospectus forms a part.
Certain Relationships and Related TransactionsFounder
Founder Shares
On April 27, 2021, the Sponsor made a capital contribution of $25,000, or approximately $0.003 per share, to cover certain of Founder’s expenses, for which Founder issued 7,906,250 Founder Class B Shares to the Sponsor. On August 15, 2022, (a) pursuant to the Sponsor Agreement, the Founder Class B Shares converted on a one-to-one basis into Class A Common Stock in connection with the Domestication, (b) pursuant to the Rubicon Equity Investment Agreement, Founder forfeited for no consideration 160,000 Founder Class B Shares, and (c) pursuant to the Sponsor Forfeiture Agreement, Sponsor forfeited for no consideration 1,000,000 Founder Class B Shares immediately prior to the Closing. Class A Common Stock held by the Sponsor is subject to certain transfer restrictions set forth in the Sponsor Agreement described below.
Promissory Note
On April 27, 2021, the Sponsor agreed to loan Founder an aggregate of up to $300,000 to cover expenses related to Founder’s initial public offering (the “IPO”) pursuant to a promissory note. This note was non-interest bearing and any amounts drawn on the note were payable on the earlier of (i) December 31, 2022 or (ii) the consummation of the IPO. Founder had not drawn on this note and it was terminated in connection with the consummation of the Business Combination.
Private Placement Warrants
Simultaneously with the closing of the IPO, in a private placement, Founder sold 12,623,125 Founder Private Placement Warrants to the Sponsor, and 1,581,250 Founder Private Placement Warrants to Jefferies LLC, in each case at a purchase price of $1.00 per Founder Private Placement Warrant, generating gross proceeds to the Company of $14,204,375. In connection with the Domestication, each Founder Private Placement Warrant converted into a Private Warrant, representing a right to purchase one share of Class A Common Stock at $11.50 per share. See “Description of SecuritiesWarrants.”
131 |
A&R Registration Rights Agreement
In connection with the Closing, the RRA Holders entered into the A&R Registration Rights Agreement with Rubicon. Pursuant to the A&R Registration Rights Agreement, within 30 days of the Closing Date, Rubicon is required to file a registration statement registering for resale (i) all outstanding shares of Class A Common Stock held by the RRA Holders immediately following the Closing, (ii) all shares of Class A Common Stock issuable upon exercise, conversion or exchange of any option, warrant or convertible security held directly or indirectly by a RRA Holder immediately following the Closing, (iii) any Warrants or shares of Class A Common Stock that may be acquired by the RRA Holders upon the exercise of a Warrant or other right to acquire Class A Common Stock held by a RRA Holder immediately following the Closing, (iv) any shares of Class A Common Stock or Warrants otherwise acquired or owned by a RRA Holder following the date of the A&R Registration Rights Agreement to the extent that such securities are “restricted securities” (as defined in Rule 144) or are otherwise held by an “affiliate” (as defined in Rule 144) of Rubicon, and (v) any other equity security of Rubicon or its subsidiaries issued or issuable with respect to any of the foregoing pursuant to a reorganization, stock split, stock dividend, or like transaction. Rubicon thereafter is required to maintain a registration statement that is continuously effective and to cause the registration statement to regain effectiveness in the event that it ceases to be effective. The parties to the A&R Registration Rights Agreement have certain “demand” and “piggyback” registration rights under the agreement. Rubicon will bear the expenses incurred in connection with the filing of any registration statements pursuant to the A&R Registration Rights Agreement. See “Securities Eligible for Future SaleRegistration Rights.” Related Parties to the A&R Registration Rights Agreement include Sponsor (greater than 5% beneficial owner), RGH, Inc. (greater than 5% beneficial owner), MBI Holdings LP (greater than 5% beneficial owner), RUBCN Holdings LP (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner), RUBCN IV LP (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner), RUBCN Holdings V LP (controlled by a greater than 5% beneficial owner), GFAPCH FO, S.C. (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner), Jose Miguel Enrich (a greater than 5% beneficial owner), Guardians of New Zealand Superannuation (a greater than 5% beneficial owner), and Messrs. Morris (Chairman and former Chief Executive Officer), Rodoni (Chief Technology Officer), Heller (Chief Administrative Officer), Anderson (Chief Financial Officer), de Viel Castel (Chief Operations Officer), Meyer (former General Counsel), Rachelson (Chief Sustainability Officer), Sampson (Chief Marketing & Communications Officer), Owston (Interim Chief Commercial Officer), and Chico (Director).
Sponsor Agreement
Concurrent with the execution of the Merger Agreement, the Sponsor and the Insiders entered into the Sponsor Agreement, pursuant to which the Sponsor and the Insiders agreed, among other things, not to transfer any Class A Common Stock or Private Warrants (or any shares of Class A Common Stock issuable upon conversion or exercise thereof) until the earlier of (i) February 11, 2023 (180 days after the Closing Date) and (ii) the date after the Closing Date on which Rubicon completes a liquidation, merger, or similar transaction that results in all of Rubicon’s stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property. In the event that Rubicon waives, releases, or terminates a Lock-Up Agreement (discussed below) with respect to any shares or holders, then the Sponsor and the Insiders will be granted a similar waiver, release, or termination with respect to a pro rata portion of the securities held thereby and subject to the foregoing restrictions.
Tax Receivable Agreement
Concurrent with the Closing, Rubicon and Holdings LLC entered into the Tax Receivable Agreement with the TRA Holders and a designated TRA representative. Pursuant to the Tax Receivable Agreement, among other things, Rubicon is required to pay to the TRA Holders 85% of the amount of the net cash tax savings, if any, that Rubicon realizes (or, under certain circumstances, is deemed to realize) as a result of (i) increases in tax basis (and utilization of certain other tax benefits) resulting from Class B Unit future exchanges, (ii) certain favorable tax attributes (such as net operating losses attributable to pre-merger tax periods) Rubicon acquired in the Blocker Mergers and (iii) any payments Rubicon makes to the TRA Holders under the Tax Receivable Agreement (including tax benefits related to imputed interest).
Rubicon will retain the benefit of the remaining 15% of these net cash tax savings. The obligations under the Tax Receivable Agreement are Rubicon’s obligations and not obligations of Holdings LLC. For purposes of the Tax Receivable Agreement, the benefit deemed realized by Rubicon generally will be computed by comparing Rubicon’s U.S. federal, state and local income tax liability to the amount of such U.S. federal, state and local taxes that Rubicon would have been required to pay had it not been able to utilize any of the benefits subject to the Tax Receivable Agreement. The actual tax benefits realized by Rubicon may differ from tax benefits calculated under the Tax Receivable Agreement as a result of the use of certain assumptions in the Tax Receivable Agreement, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits.
132 |
The term of the Tax Receivable Agreement will continue until all tax benefits that are subject to the Tax Receivable Agreement have been utilized or have expired, unless Rubicon exercises its right to terminate the Tax Receivable Agreement (or the Tax Receivable Agreement is terminated due to a change in control or our breach of a material obligation thereunder), in which case Rubicon will be required to make the termination payment specified in the Tax Receivable Agreement, as described below. We expect that all of the intangible assets, including goodwill, of Holdings LLC allocable to Holdings LLC units acquired or deemed acquired by Rubicon from a holder of exchangeable units and in taxable exchanges following transactions contemplated by the Business Combination will be amortizable for tax purposes.
Estimating the amount and timing of payments that may be made under the Tax Receivable Agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors and future events. The actual increase in tax basis and utilization of tax attributes, as well as the amount and timing of any payments under the agreement, will vary depending upon a number of factors, including:
● | the timing of purchases or future exchanges—for instance, the increase in any tax deductions will vary depending on the fair market value, which may fluctuate over time, of the depreciable or amortizable assets of Holdings LLC at the time of each redemption or exchange of Class B Units; |
● | the price of shares of Class A Common Stock at the time of the purchase or exchange—the tax basis increase in the assets of Holdings LLC is directly related to the price of shares of Class A Common Stock at the time of the purchase or exchange; |
● | the extent to which such purchases or exchanges are taxable—if the redemption or exchange of Class B Units is not taxable for any reason, increased tax deductions will not be available; |
● | the holders tax basis—the amount of the exchanging unitholder’s tax basis in its Class B Units at the time of the relevant exchange; |
● | the amount, timing and character of Rubicon’s income—we expect that the Tax Receivable Agreement will require Rubicon to pay 85% of the tax savings as and when realized or deemed realized. If Rubicon does not have taxable income during a taxable year, Rubicon generally will not be required (absent a change in control or other circumstances requiring an early termination payment) to make payments under the Tax Receivable Agreement for that taxable year because no benefit will have been realized. However, any tax benefits that do not result in tax savings in a given tax year may generate tax attributes that may be used to generate tax savings in previous or future taxable years. The use of any such tax attributes will generate tax savings that will result in payments under the Tax Receivable Agreement; and |
● | the applicable tax rates—U.S. federal, state and local tax rates in effect at the time that we realize the relevant tax benefits. |
In addition, the amount of certain favorable tax attributes we acquired in the Blocker Mergers (such as net operating losses and tax refunds), the amount of each continuing member’s tax basis in its Holdings LLC units at the time of the exchange, the depreciation and amortization periods that apply to the increases in tax basis, the timing and amount of any earlier payments that Rubicon may have made under the Tax Receivable Agreement, and the portion of Rubicon’s payments under the Tax Receivable Agreement that constitute imputed interest or give rise to depreciable or amortizable tax basis are also relevant factors.
Rubicon has the right to terminate the Tax Receivable Agreement, in whole or in part, at any time. The Tax Receivable Agreement provides that if (i) Rubicon exercises its right to early termination of the Tax Receivable Agreement in whole (that is, with respect to all benefits due to all beneficiaries under the Tax Receivable Agreement) or in part (that is, with respect to some benefits due to all beneficiaries under the Tax Receivable Agreement), (ii) Rubicon experiences certain changes in control, (iii) the Tax Receivable Agreement is rejected in certain bankruptcy proceedings (and Rubicon does not cure the rejection in 90 days), (iv) Rubicon fails (subject to certain exceptions) to make a payment under the Tax Receivable Agreement within 180 days after the due date, or (v) Rubicon materially breaches its obligations under the Tax Receivable Agreement (and does not cure such breach in 90 days), Rubicon will be obligated to make an early termination payment to the beneficiaries under the Tax Receivable Agreement equal to the present value of all payments that would be required to be paid by Rubicon under the Tax Receivable Agreement. The amount of such payments will be determined on the basis of certain assumptions in the Tax Receivable Agreement, including (i) the assumption that Rubicon would have enough taxable income to fully utilize the tax benefit resulting from the tax assets that are the subject of the Tax Receivable Agreement, (ii) the assumption that any item of loss, deduction or credit generated by a basis adjustment or imputed interest arising in a taxable year preceding the taxable year that includes an early termination will be used by Rubicon ratably from such taxable year through the earlier of (x) the scheduled expiration of such tax item or (y) 15 years; (iii) the assumption that any non-amortizable assets are deemed to be disposed of in a fully taxable transaction on the fifteenth anniversary of the earlier of the basis adjustment and the early termination date; (iv) the assumption that U.S. federal, state and local tax rates will be the same as in effect on the early termination date, unless scheduled to change; and (v) the assumption that any exchangeable units (other than those held by Rubicon) outstanding on the termination date are deemed to be exchanged for an amount equal to the market value of the corresponding number of shares of Class A Common Stock on the termination date. The amount of the early termination payment is determined by discounting the present value of all payments that would be required to be paid by Rubicon under the Tax Receivable Agreement at a rate equal to the lesser of (a) 6.5% and (b) LIBOR (or a replacement rate) plus 400 basis points.
133 |
The payments that we will be required to make under the Tax Receivable Agreement are expected to be substantial. If all of the continuing members of Holdings LLC were to exchange their Class B Units, the estimated tax benefits to Rubicon subject to the Tax Receivable Agreement would be approximately $394.6 million and the related undiscounted payment to the TRA Holders equal to 85% of the benefit would be approximately $335.5 million, assuming (i) exchanges occurred on the same day, (ii) a share price of $10.00 per share of Class A Common Stock, (iii) no material changes in relevant tax law, (iv) a constant combined effective income tax rate of 24.017% and (v) that we have sufficient taxable income in each year to realize on a current basis the increased depreciation, amortization and other tax benefits that are the subject of each Tax Receivable Agreement.
The actual future payments to the TRA Holders will vary based on the factors discussed above, and estimating the amount of payments that may be made under each Tax Receivable Agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors and future events. See “Risk Factors—Other Risks Related to Operating as a Public Company—In certain circumstances, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual tax benefits, if any, that Rubicon actually realizes.”
Decisions made in the course of running our business, such as with respect to mergers and other forms of business combinations that constitute changes in control, may influence the timing and amount of payments we make under the Tax Receivable Agreement in a manner that does not correspond to our use of the corresponding tax benefits. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative effect on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control.
Payments are generally due under the Tax Receivable Agreement within a specified period of time following the filing of Rubicon’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR (or a replacement rate) plus 300 basis points from the due date (without extensions) of such tax return. Late payments generally accrue interest at a rate of LIBOR (or a replacement rate) plus 500 basis points commencing from the date on which such payment was due and payable. Because of our structure, our ability to make payments under the Tax Receivable Agreement is dependent on the ability of Holdings LLC to make pro rata distributions to us. The ability of Holdings LLC to make such distributions will be subject to, among other things, restrictions of law or in the agreements governing our debt. If we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid.
Additionally, Rubicon is required to indemnify and reimburse the “TRA Representative” who represents the TRA Holders under the Tax Receivable Agreement, for all costs and expenses, including legal and accounting fees and any other costs arising from claims in connection with the TRA Representative’s duties under the Tax Receivable Agreement, provided, the TRA Representative has acted reasonably and in good faith in incurring such expenses and costs. Michael Heller, in his capacity as Chief Administrative Officer of Rubicon, serves as the TRA Representative.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine. Although we are not aware of any material issue that would cause the IRS to challenge a tax basis increase, Rubicon will not, in the event of a successful challenge, be reimbursed for any payments previously made under the Tax Receivable Agreement (although Rubicon would reduce future amounts otherwise payable to a holder of rights under the Tax Receivable Agreement to the extent such holder has received excess payments). No assurance can be given that the IRS will agree with our tax reporting positions, including the allocation of value among our assets. As a result, in certain circumstances, payments could be made under the Tax Receivable Agreement significantly in excess of the benefit that Rubicon actually realizes. Rubicon may not be able to recoup those payments, which could adversely affect Rubicon’s financial condition and liquidity.
Generally, holders of rights under the Tax Receivable Agreement (including the right to receive payments) may not transfer their rights to another person without the written consent of Rubicon, except that all such rights may be transferred to another person to the extent that the corresponding Class B Units are transferred in accordance with the A&R LLCA.
Related Parties to the TRA include Messrs. Rodoni (Chief Executive Officer), Anderson (Chief Financial Officer), Meyer (former General Counsel), Callinicos (Director) and Owston (Interim Chief Commercial Officer), Amb. Dobriansky (Director), RGH, Inc. (greater than 5% beneficial owner), MBI Holdings LP (greater than 5% beneficial owner), RUBCN Holdings LP (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner), RUBCN IV LP (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner), and RUBCN Holdings V LP (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner).
134 |
Subscription Agreements
Certain Related Parties entered into Subscription Agreements upon the signing of the Merger Agreement, whereby at Closing, Guardians of New Zealand Superannuation (a greater than 5% beneficial owner of Common Stock) was issued 3,300,000 shares of Class A Common Stock at a per share purchase price of $10.00 per share, and MBI Holdings LP, an entity beneficially owned by Jose Miguel Enrich (a greater than 5% beneficial owner of Common Stock), was issued 660,000 shares of Class A Common Stock at a per share purchase price of $10.00 per share. On August 12, 2022, Bolis Holdings LP, DRG Holdings LP, and Pequeno Holdings LP, entities controlled by Jose Miguel Enrich, entered into Subscription Agreements for $1.4 million, $1.5 million and $1.5 million, respectively, for the purchase of Class A Common Stock at a per share price of $10.00 on substantially similar terms as the other PIPE Investors. At the Closing, Bolis Holdings LP, DRG Holdings LP, and Pequeno Holdings LP were issued 140,000, 150,000, and 150,000 shares of Class A Common Stock, respectively.
A&R LLCA
In connection with the Closing, Rubicon and the Rubicon Continuing Unitholders entered into the A&R LLCA. See “SummaryOrganizational Structure” for more detailed information regarding our corporate structure.
Equity. Rubicon holds a number of Class A Units equal to the number of shares of Class A Common Stock issued and outstanding. Rubicon Continuing Unitholders hold all of the Class B Units and an equal number of shares of Class V Common Stock.
Redemption Right. Beginning on the date on which the aggregate interest of holders of Class B Units (other than the Class A Units and Class B Units held directly or indirectly by Rubicon) is less than 15%, Holdings LLC shall have the right, but not the obligation, to redeem all (but not less than all) outstanding Class B Units. Class B Units may be redeemed, at Holdings LLC’s election, for either shares of Class A Common Stock, cash of an equivalent value, or a combination thereof, in each case subject to certain adjustments made pursuant to and in accordance with the terms of the A&R LLCA.
Exchange Right. Class B Unit holders will have the right, from time to time, to elect to surrender Class B Units (an “Elective Exchange”) in exchange for (a) shares of Class A Common Stock, (b) cash, or (c) a combination of cash and Class A Common Stock, on the terms and subject to the conditions set forth in the A&R LLCA and the Policy Regarding Exchanges set forth as Annex E thereto. Upon the exchange of a Class B Unit, one share of Class V Common Stock held by such holder of Class B Units will be automatically cancelled. Holders may make an Elective Exchange on a quarterly exchange date set by Holdings LLC, or prior to (i) certain extraordinary transactions (e.g., merger, consolidation) involving Rubicon or Holdings LLC or (ii) an Applicable Sale or Termination Transaction (each as defined in the A&R LLCA). At least two business days before an exchange date, Rubicon will give written notice of its intended form of exchange consideration; if it does not timely deliver such notice, Rubicon will be deemed to have elected to settle the exchange with shares of Class A Common Stock.
Adjustments. Holdings LLC shall have the authority, if necessary, to undertake ameliorative actions, which may include pro rata or non-pro rata reclassifications, combinations, subdivisions or adjustments of outstanding Class A Units pursuant to the A&R LLCA, to maintain one-for-one parity between Class A Units held by Rubicon and issued and outstanding shares of Class A Common Stock.
Management. Rubicon is the managing member of Holdings LLC. As the sole manager, Rubicon generally controls the day-to-day business affairs and decision-making of Holdings LLC, without the approval of any other member. As such, Rubicon, through its officers and directors, is responsible for all operational and administrative decisions of Holdings LLC and daily management of Holdings LLC’s business. Pursuant to the terms of the A&R LLCA, Rubicon cannot be removed or replaced as the sole manager of Holdings LLC except by its resignation, which may be given at any time by written notice to the other members. Holders of Class B Units will have no participation rights other than as set forth in the A&R LLCA.
Compensation, Expenses. Rubicon is not be entitled to compensation for its services as the manager of Holdings LLC except as expressly provided for in the A&R LLCA. Rubicon is entitled to reimbursement by Holdings LLC for reasonable out-of-pocket expenses incurred on behalf of Holdings LLC, including all expenses associated with being a public company and maintaining its corporate existence.
135 |
Distributions. The A&R LLCA requires Tax Distributions to be made by Holdings LLC to its members on a pro rata basis, except to the extent such distributions would render Holdings LLC insolvent or are otherwise prohibited by law. Tax Distributions will be made on a quarterly basis, to each member of Holdings LLC, including Rubicon, based on such member’s allocable share of the taxable income of Holdings LLC and an assumed tax rate that will be determined by Rubicon, as described below. For this purpose, each member’s allocable share of Holdings LLC’s taxable income shall be net of its share of taxable losses of Holdings LLC. The assumed tax rate for purposes of determining tax distributions from Holdings LLC to its members will be the highest combined federal, state, and local tax rate that may potentially apply to an individual resident in the U.S. (as reasonably determined by Holdings LLC). The A&R LLCA will also allow for cash distributions to be made by Holdings LLC (subject to Rubicon’s sole discretion as the sole manager of Holdings LLC) to its members on a pro rata basis out of Available Cash (as defined in the A&R LLCA). We expect Holdings LLC may make distributions out of Available Cash periodically and as necessary to enable us to cover Rubicon’s operating expenses and other obligations, including tax liabilities and other obligations under the Tax Receivable Agreement, except to the extent such distributions would render Holdings LLC insolvent or are otherwise prohibited by law.
Transfer Restrictions. The A&R LLCA generally does not permit transfers of Class A Units or Class B Units, except for transfers to permitted transferees, transfers pursuant to the participation right described below and other limited exceptions. The A&R LLCA also imposes additional restrictions on transfers (including redemptions described below with respect to each Class B Unit) so that the transfers would not cause a material risk of Holdings LLC being treated as a “publicly traded partnership” for U.S. federal income tax purposes. In the event of a permitted transfer under the A&R LLCA, such transferring member will be required to simultaneously transfer shares of Class V Common Stock held by such transferring member to such transferee equal to the number of Class B Units that were transferred to such transferee in such permitted transfer. Except for certain exceptions, any transferee of Class A Units or Class B Units must assume, by executing a joinder to the A&R LLCA, all of the obligations of a transferring member with respect to the transferred Class A Units or Class B Units, and such transferee shall be bound by any limitations and obligations under the A&R LLCA (without relieving the transferring member from any applicable limitations and obligations). A member shall retain all duties, liabilities and obligations of a member until the transferee is accepted as a substitute member in accordance with the A&R LLCA and Rubicon, as manager, may, in its sole discretion, reinstate all or any portion of the rights and privileges of such member with respect to such transferred Class A Units or Class B Units for any period of time prior to the admission date of the substitute member.
Dissolution. The A&R LLCA requires the consent of Rubicon, as the managing member of Holdings LLC, and members holding a majority of the Class B Units then outstanding (excluding Class A Units and Class B Units held directly or indirectly by Rubicon) to voluntarily dissolve Holdings LLC. In addition to a voluntary dissolution, Holdings LLC will be dissolved upon the entry of a decree of judicial dissolution or other circumstances in accordance with Delaware law. Upon a dissolution event, the proceeds of a liquidation will be distributed in the following order: (1) first, to pay debts, liabilities and obligations owed to creditors of Holdings LLC; (2) second, to pay debts, liabilities and obligations owed to the members; and (3) third, to the members pro-rata in accordance with their respective percentage ownership interests in Holdings LLC (as determined based on the number of Class A Units and/or Class B Units held by a member relative to the aggregate number of all outstanding Class A Units and Class B Units).
Indemnification. The A&R LLCA provides for indemnification of the manager, members and officers of Holdings LLC and their respective subsidiaries or affiliates, as well as the Tax Representative and Designated Person (each as defined in the A&R LLCA).
Amendments. In addition to certain other requirements, Rubicon’s prior written consent, as manager, and the prior written consent of members holding a majority of the Class B Units then outstanding and entitled to vote (excluding Class A Units and Class B Units held directly or indirectly by Rubicon) is generally be required to amend or modify the A&R LLCA.
Related Parties to the A&R LLCA and TRA include Messrs. Rodoni (Chief Executive Officer), Anderson (Chief Financial Officer), Meyer (former General Counsel), Callinicos (Director) and Owston (Interim Chief Commercial Officer), Amb. Dobriansky (Director), RGH, Inc. (greater than 5% beneficial owner), MBI Holdings LP (greater than 5% beneficial owner), RUBCN Holdings LP (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner), RUBCN IV LP (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner), and RUBCN Holdings V LP (controlled by Jose Miguel Enrich, a greater than 5% beneficial owner).
136 |
Certain Relationships and Related TransactionsRubicon
Rubicon Equity Investment Agreement
On May 25, 2022, Holdings LLC and Sponsor entered into the Rubicon Equity Investment Agreement with the New Equity Holders who are affiliated with Andres Chico (a member of the Board) and Jose Miguel Enrich (greater than 5% beneficial owner). Pursuant to the Rubicon Equity Investment Agreement, the New Equity Holders advanced to Holdings LLC an aggregate of $8.0 million and, on the Closing Date, and in full satisfaction of the advancements, (a) Rubicon caused to be issued to the New Equity Holders 880,000 Class B Units pursuant to the Merger Agreement and 160,000 shares of Class A Common Stock and (b) Sponsor forfeited 160,000 Founder Class B Shares. No interest accrued on any amounts advanced by the New Equity Holders.
Insider Loans
On July 19, 2022, the board of directors of Holdings LLC unanimously approved term loans from certain of its members, affiliates and officers in the aggregate of $4.7 million (each an “Insider Loan”). The Insider Loans had a maturity date of the earlier of the Closing Date or August 15, 2022. In addition to a 10% interest rate, each Insider Loan had a loan fee (the “Loan Fee”) equal to 15% of the principal amount of the loan, less all accrued interest thereunder. Phil Rodoni (at the time, the Chief Technology Officer of Rubicon) entered into an Insider Loan with Holdings LLC for $1.1 million, which, inclusive of all interest and the Loan Fee, was repaid at Closing by Rubicon for $1.3 million. Michael Heller, the Chief Administrative Officer of Rubicon, entered into an Insider Loan with Holdings LLC for $400,000, which, inclusive of all interest and the Loan Fee, was repaid at Closing by Rubicon for $460,000. David Rachelson, the Chief Sustainability Officer of Rubicon, entered into an Insider Loan with Holdings LLC for $150,000, which, inclusive of all interest and the Loan Fee, was repaid at Closing by Rubicon for $172,500. DGR Compound Inc., an entity controlled by Andres Chico, a director of Rubicon, entered into an Insider Loan with Holdings LLC for $1.0 million, which, inclusive of all interest and the Loan Fee, was repaid at Closing by Rubicon for $1.2 million. Bolis Holdings LP and Pequeno Compound Inc., entities controlled by Jose Miguel Enrich (a beneficial owner of greater than 10% of the issued and outstanding Class A Common Stock and Class V Common Stock of Rubicon), entered into Insider Loans with Holdings LLC for an aggregate amount of $2.0 million, which, inclusive of all interest and the Loan Fee, were repaid at Closing by Rubicon for $2.3 million.
On February 2, 2023, Rubicon and Rodina entered into an Unsecured Promissory Note pursuant to which Rodina agreed to loan Rubicon $3.0 million in exchange for Rubicon’s promise to pay to Rodina, in cash, the full outstanding Rodina Principal, and in kind, all unpaid interest accrued thereon, which interest shall accrue at an annual rate of 16.0%, by July 1, 2024, the maturity date. Andres Chico (Director) is the managing partner of Rodina.
Insider Convertible Debentures
On December 16, 2022, Rubicon entered into the First Closing Insider SPA with various First Closing Insider Investors comprised of members of Rubicon’s management team and board of directors. Pursuant to the First Closing Insider SPA, Rubicon agreed to issue and sell to the First Closing Insider Investors the First Closing Insider Convertible Debentures in the aggregate principal amount of up to $17.0 million, net of an original issuance discount of $2.0 million, which are convertible into shares of Class A Common Stock, which First Closing Insider Convertible Debentures may be purchased by the First Closing Insider Investors over the course of more than one closing. The First Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the Insider Convertible Debentures.
At the first closing, which closed on December 16, 2022, the following First Closing Insider Investors constituting related parties of Rubicon purchased, directly or indirectly, the First Closing Insider Convertible Debentures in an aggregate amount of $8.6 million in United States dollars, net of an original issuance discount of $1.1 million, for a total principal amount of $9.7 million in the First Closing Insider Convertible Debentures: (1) Brent Callinicos, director, purchased $250,000 of First Closing Insider Convertible Debentures, (2) Kevin Schubert, president of Rubicon, purchased $50,000 of First Closing Insider Convertible Debentures, (3) Collister Johnson, director, purchased $50,000 of First Closing Insider Convertible Debentures, (4) Osman Ahmed, director, purchased $200,000 of First Closing Insider Convertible Debentures, (5) Paula J. Dobriansky, director, purchased $10,000 of First Closing Insider Convertible Debentures, (6) Philip Rodoni, chief executive officer of Rubicon, purchased $750,000 of First Closing Insider Convertible Debentures, (7) Paula Henderson, director, purchased $20,000 of First Closing Insider Convertible Debentures, (8) Nathaniel R. Morris, director, purchased $250,000 of First Closing Insider Convertible Debentures, (9) DGR Holdings LP (an entity controlled by Jose Miguel Enrich, a beneficial owner of greater than 10% of the issued and outstanding Class A Common Stock and Class V Common Stock), purchased $2.5 million of First Closing Insider Convertible Debentures, (10) Pequeno Holdings LP (an entity controlled by Jose Miguel Enrich, a beneficial owner of greater than 10% of the issued and outstanding Class A Common Stock and Class V Common Stock) purchased $2.5 million of First Closing Insider Convertible Debentures, and (11) Bolis Holdings LP (an entity controlled by Jose Miguel Enrich, a beneficial owner of greater than 10% of the issued and outstanding Class A Common Stock and Class V Common Stock) purchased $2.0 million of First Closing Insider Convertible Debentures.
137 |
On February 1, 2023, Rubicon entered into the Second Closing Insider SPA with various Second Closing Insider Investors. Pursuant to the Second Closing Insider SPA, Rubicon agreed to issue and sell to the Second Closing Insider Investors the Second Closing Insider Convertible Debentures, with an aggregate value of no less than $4.0 million, subject to an original issuance discount, which are convertible into shares of Class A Common Stock. The Second Closing Insider Convertible Debentures may be purchased by the Second Closing Insider Investors at the second of the two closings. The Second Closing Insider SPA contained customary representations, warranties, and covenants for the sale and purchase of the Second Closing Insider Convertible Debentures.
At the second closing, which closed on February 1, 2023, the following Second Closing Insider Investors purchased, directly or indirectly, Second Closing Insider Convertible Debentures in an aggregate amount of $5.7 million in United States dollars, net of an original issuance discount of $0.8 million, for a total principal amount of $6.5 million in Second Closing Insider Convertible Debentures: (1) McEllen Investments LP purchased $334,000 of Second Closing Insider Convertible Debentures, (2) Jeronimo Quintana Kawage purchased $333,000 of Second Closing Insider Convertible Debentures, (3) Diego Quintana Kawage purchased $334,000 of Second Closing Insider Convertible Debentures, (4) Stephen Goldsmith purchased $25,000 of Second Closing Insider Convertible Debentures, (5) Michael Nutter purchased $50,000 of Second Closing Insider Convertible Debentures, (6) Lateral, Inc. purchased $100,000 of Second Closing Insider Convertible Debentures, (7) Bruce W. Walz purchased $50,000 of Second Closing Insider Convertible Debentures, and (8) Guardians of New Zealand Superannuation purchased $4.5 million of Second Closing Insider Convertible Debentures.
Insider Registration Rights Agreement
In connection with the Insider SPAs, the Insider Investors entered into the Insider Registration Rights Agreements with Rubicon. Pursuant to the Insider Registration Rights Agreements, within 45 days of the first closing or 90 days of the second closing, as applicable, Rubicon is required to file a registration statement covering the resale by the Insider Investors of (i) the shares of Class A Common Stock issuable upon conversion of the Insider Convertible Debentures, (ii) the shares of Class A Common Stock issued and held by the Insider Investors from conversions of the Insider Convertible Debentures, (iii) the additional shares issuable in connection with any anti-dilution provisions of the Insider Convertible Debentures (without giving effect to any limitations on exercise set forth in the Insider Convertible Debentures, as applicable) and (iv) any shares of Class A Common Stock issued or issuable with respect to any shares described in subsections (i) and (ii) above by way of any stock split, stock dividend or other distribution, recapitalization or similar event or otherwise (in each case without giving effect to any limitations on exercise set forth in the Insider Convertible Debentures, as applicable). The parties to the Insider Registration Rights Agreements have certain “piggyback” registration rights under the agreements. Rubicon will bear the expenses incurred in connection with the filing of any registration statements pursuant to the Insider Registration Rights Agreements. See “Securities Eligible for Future SaleRegistration Rights.” Related Parties to the Insider Registration Rights Agreement include (i) Jose Miguel Enrich (a greater than 10% beneficial owner) on behalf of DGR Holdings LP, Pequeno Holdings LP, and Bolis Holdings LP, (ii) Philip Rodoni (Chief Executive Officer), (iii) Brent Callinicos (Director), (iv) Kevin Schubert (President), (v) Collister Johnson (Director), (vi) Osman Ahmed (Director), (vii) Paula J. Dobrianksy (Director), (viii) Paula Henderson (Director), (ix) Nathaniel R. Morris (Director), (x) Guardians of New Zealand Superannuation (a greater than 10% beneficial owner), (xi) Stephen Goldsmith (security holder), (xii) Michael Nutter (security holder), (xiii) Bruce Walz (family member of Rubicon employee), (xiv) Lateral, Inc. (service provider).
Related Person Transaction Policy
Rubicon has adopted a related person transaction policy that sets forth its procedures for the identification, review, consideration and approval or ratification of related person transactions. The policy became effective at the Closing.
Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, Rubicon’s management must present information regarding the related person transaction to the Audit Committee, or, if Audit Committee approval would be inappropriate, to another independent body of the Board, for review, consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to Rubicon of the transaction and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, Rubicon will collect information that Rubicon deems reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable Rubicon to identify any existing or potential related-person transactions and to effectuate the terms of the policy. In addition, under Rubicon’s Code of Business Conduct and Ethics, Rubicon’s employees and directors have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related person transactions, the Audit Committee, or other independent body of the Board, will take into account the relevant available facts and circumstances including, but not limited to:
138 |
● | the risks, costs and benefits to Rubicon; |
● | the impact on a director’s independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated; |
● | the availability of other sources for comparable services or products; and |
● | the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. |
The policy requires that, in determining whether to approve, ratify or reject a related person transaction, the Audit Committee, or other independent body of the Board, must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, Rubicon’s best interests and those of Rubicon’s stockholders, as the Audit Committee, or other independent body of the Board, determines in the good faith exercise of its discretion. Each of the transactions summarized above was effected prior to the adoption of this policy.
For additional information regarding related party transactions not otherwise reportable pursuant to Item 404 of Regulation S-K, see Note 15 to Rubicon’s audited consolidated financial statements and Note 14 to Rubicon’s unaudited condensed consolidated financial statements, each as included elsewhere in this prospectus.
139 |
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. Your rights as Rubicon stockholders are governed by Delaware law and the Charter and our Bylaws (the “Bylaws”). Your rights as a Rubicon warrantholder are governed by the Warrant Agreement, as amended by the Warrant Agreement Amendment. We urge you to read the applicable provisions of Delaware law, the Charter and Bylaws, and the Warrant Agreement and the Warrant Agreement Amendment carefully and in their entirety because they describe your rights as a holder of shares of Common Stock. The descriptions of the Charter, Bylaws and Warrant Agreement are not complete and are subject to and qualified in their entirety by reference to the full text of the Charter, Bylaws and Warrant Agreement, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part and are incorporated herein by reference.
Capital Stock
Authorized and Outstanding Stock
The Charter authorizes the issuance of 975,000,000 shares of capital stock, consisting of (i) 690,000,000 shares of Class A common stock, par value $0.0001 per share, (ii) 275,000,000 shares of Class V common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share.
Common Stock
The Charter authorizes two classes of common stock, Class A Common Stock and Class V Common Stock, each with a par value of $0.0001. As of February 3, 2023, there were 55,886,692 shares of Class A Common Stock issued and outstanding and 114,886,453 shares of Class V Common Stock issued and outstanding.
Pursuant to the A&R LLCA, Class B Units are exchangeable into an equivalent number of Class A Common Stock, subject to certain limitations and adjustments, at the election of the holder thereof or pursuant to a mandatory redemption at the election of Rubicon (as managing member of Holdings LLC). Upon the exchange of any Class B Units, Rubicon will retire an equivalent number of shares of Class V Common Stock held by such holder of exchanged Class B Units.
Preferred Stock
The Charter provides that up to 10,000,000 shares of preferred stock may be issued from time to time in one or more series. The Board is authorized to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special and other rights, if any, and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. The Board is able, without stockholder approval, to issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the Class A Common Stock and Class V Common Stock and could have anti-takeover effects. The ability of the Board to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management. We have no preferred stock outstanding at the date hereof. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Dividends and Other Distributions
Under the Charter, holders of Class A Common Stock 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. There are no current plans to pay cash dividends on Class A Common Stock for the foreseeable future. See the section entitled “Dividend Policy.” In the event of our liquidation, dissolution or winding-up, the holders of our Class A Common stock will be entitled to share ratably in all assets remaining after payment of or provision for any liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. Class V Common Stock has no economic rights and shares of Class V Common Stock are not entitled to receive any assets upon dissolution, liquidation or winding up of Rubicon, nor can such shares participate in any dividends or distributions of Rubicon.
140 |
We are a holding company with no material assets other than our interest in Holdings LLC. We intend to cause Holdings LLC to make distributions to holders of Class A Units and Class B Units in amounts such that the total cash distribution from Holdings LLC to the holders are sufficient to enable each holder to pay all applicable taxes on taxable income allocable to such holder and other obligations under the Tax Receivable Agreement as well as any cash dividends declared by us.
The A&R LLCA generally provides that pro rata cash Tax Distributions will be made to holders of Class A Units and Class B Units (including Rubicon) at certain assumed tax rates. We anticipate that the distributions we will receive from Holdings LLC may, in certain periods, exceed our actual tax liabilities and obligations to make payments under the Tax Receivable Agreement. The Board, in its sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, which may include, among other uses, to pay dividends on the Class A Common Stock. We will have no obligation to distribute such cash (or other available cash other than any declared dividend) to stockholders. We also expect, if necessary, to undertake ameliorative actions, which may include pro rata or non-pro rata reclassifications, combinations, subdivisions or adjustments of outstanding Class A Units pursuant to the A&R LLCA, to maintain one-for-one parity between Class A Units held by us and shares of Class A Common Stock.
Voting Power
Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, under the Charter, the holders of Class A Common Stock and Class V Common Stock possess all voting power for the election of our directors and all other matters requiring stockholder action and are entitled to one vote per share on matters to be voted on by stockholders. Holders of Class A Common Stock and Class V Common Stock shall at all times vote together as one class on all matters submitted to a vote of the holders of Class A Common Stock and Class V Common Stock under the Charter. Under the Charter, directors are elected by a plurality voting standard, whereby each of our stockholders may not give more than one vote per share towards any one director nominee. There are no cumulative voting rights.
Preemptive or Other Rights
The Charter does not provide for any preemptive or other similar rights.
Limitations on Liability and Indemnification of Officers and Directors
The Charter and Bylaws limit the liability of our directors, and provide for the indemnification of our current and former officers and directors, in each case, to the fullest extent permitted by Delaware law.
We have entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our Charter and Bylaws. The Charter and Bylaws also permit us to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions.
In connection with the Closing, Founder purchased a tail policy with respect to liability coverage for the benefit of former Founder officers and directors. We will maintain such tail policy for a period of no less than six (6) years following the Closing.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.
We believe that these provisions, the directors’ and officers’ liability insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.
141 |
Exclusive Forum
The Charter provides that, unless Rubicon selects or consents in writing to the selection of an alternative forum, to the fullest extent permitted by the applicable law: (a) the sole and exclusive forum for any complaint asserting any internal corporate claims, to the fullest extent permitted by law, and subject to applicable jurisdictional requirements, shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have, or declines to accept, jurisdiction, another state court or a federal court located within the State of Delaware); and (b) the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act, to the fullest extent permitted by law, shall be the federal district courts of the United States of America. For purposes of the foregoing, “internal corporate claims” means claims, including claims in the right of Rubicon that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity, or as to which the DGCL confers jurisdiction upon the Court of Chancery. Any person or entity purchasing or otherwise acquiring any interest in any shares of Class A Common Stock or Class V Common Stock will be deemed to have notice of and consented to the provisions of this provision.
Certain Anti-Takeover Provisions of Delaware Law; Rubicon’s Certificate of Incorporation and Bylaws
The Charter and Bylaws contain, and the DGCL contains, provisions, as summarized in the following paragraphs, that are intended to enhance the likelihood of continuity and stability in the composition of the Board. These provisions are intended to avoid costly takeover battles, reduce our vulnerability to a hostile change of control and enhance the Board’s ability to maximize stockholder value in connection with any unsolicited offer to acquire Rubicon. However, these provisions may have an anti-takeover effect and may delay, deter or prevent a merger or acquisition of Rubicon by means of a tender offer, a proxy contest or other takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the prevailing market price for the shares of Class A Common Stock held by stockholders.
Delaware Law
Rubicon is governed by the provisions of Section 203 of the DGCL. Section 203 generally prohibits a publicly held Delaware corporation from engaging in a “business combination” with any “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status, did own) 15% or more of a corporation’s voting stock. These provisions may have the effect of delaying, deferring or preventing changes in control of Rubicon not approved in advance by the Board.
Special Meetings
The Charter provides that special meetings of the stockholders may be called only by or at the direction of the Board, the Chairman of the Board or the Chief Executive Officer. The Bylaws prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers or changes in control or management of our company.
Advance Notice of Director Nominations and New Business
The Bylaws state that in order for a stockholder to propose nominations of candidates to be elected as directors or any other proper business to be considered by stockholders at the annual meeting, such stockholder must, among other things, provide notice thereof in writing to the secretary at the principal executive offices of Rubicon within the time periods set forth in the Bylaws. Such notice must contain, among other things, certain information about the stockholder giving the notice (and the beneficial owner, if any, on whose behalf the nomination or proposal is made) and certain information about any nominee or other proposed business. Stockholder proposals of business other than director nominations cannot be submitted in connection with special meetings of stockholders.
The Bylaws allow the presiding officer at a meeting of stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if such rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to influence or obtain control of our company.
142 |
Supermajority Voting for Amendments to Our Governing Documents
Certain amendments to the Charter require the affirmative vote of at least 66⅔% of the voting power of all shares of our Common Stock then outstanding. The Charter provides that the Board is expressly authorized to adopt, amend or repeal the Bylaws and that our stockholders may amend certain provision of the Bylaws only with the approval of at least 66⅔% of the voting power of all shares of our Common Stock then outstanding. These provisions make it more difficult for stockholders to change the Charter or Bylaws and may, therefore, defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to amend the Charter or Bylaws or otherwise attempting to influence or obtain control of our company.
No Cumulative Voting
The DGCL provides that a stockholder’s right to vote cumulatively in the election of directors does not exist unless the certificate of incorporation specifically provides otherwise. The Charter does not provide for cumulative voting. The prohibition on cumulative voting has the effect of making it more difficult for stockholders to change the composition of the Board.
Classified Board of Directors
The Charter provides that the Board is divided into three classes of directors, with the classes to be as nearly equal in number as possible, designated Class I, Class II and Class III. The terms of Class I, Class II and Class III directors end at our 2023, 2024 and 2025 annual meetings of stockholders, respectively. Directors of each class the term of which shall then expire shall be elected to hold office for a three-year term. The classification of directors has the effect of making it more difficult for stockholders to change the composition of our Board and require a longer time period to do so. The Charter provides that the number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by the Board. The classification of directors has the effect of making it more difficult for stockholders to change the composition of our Board. As a result, in most circumstances, a person can gain control of the Board only by successfully engaging in a proxy contest at two or more meetings of stockholders at which directors are elected.
Removal of Directors; Vacancies
The Charter and Bylaws provide that, so long as the Board is classified, directors may be removed only for cause and only upon the affirmative vote of holders of at least 66⅔% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. Therefore, because stockholders cannot call a special meeting of stockholders, as discussed above, stockholders may only submit a stockholder proposal for the purpose of removing a director at an annual meeting. The Charter and Bylaws provide that vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled only by a majority of the directors then in office or by a sole remaining director. Therefore, while stockholders may remove a director, stockholders are not able to elect new directors to fill any resulting vacancies that may be created as a result of such removal.
Stockholder Action by Written Consent
The DGCL permits any action required to be taken at any annual or special meeting of the stockholders to be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock entitled to vote thereon were present and voted, unless the certificate of incorporation provides otherwise. The Charter and Bylaws preclude stockholder action by written consent. This prohibition, combined with the fact stockholders cannot call a special meeting, as discussed above, means that stockholders are limited in the manner in which they can bring proposals and nominations for stockholder consideration, making it more difficult to effect change in our governing documents and the Board.
143 |
Warrants
As of February 3, 2023, there were 30,016,851 Warrants outstanding, consisting of 15,812,476 Public Warrants and 14,204,375 Private Warrants. Each whole Warrant entitles the registered holder to purchase one share of Class A Common Stock at a price of $11.50 per share, subject to adjustment as set forth in the Warrant Agreement.
A Warrant does not entitle the registered holder thereof to any of the rights of a stockholder of Rubicon, including, without limitation, the right to receive dividends or any voting rights, until such Warrant is exercised for shares of Class A Common Stock. Rubicon will at all times reserve and keep available a sufficient number of authorized but unissued shares of Class A Common Stock to permit the exercise in full of all outstanding Warrants.
Warrant Exercise
The Warrants became exercisable on September 14, 2022 (30 days after the consummation of the Business Combination) and will expire at 5:00 p.m., New York City time on August 15, 2027 (the fifth anniversary of the completion of the Business Combination) or earlier upon redemption or liquidation.
The Warrants may be exercised on or before the expiration date upon surrender of the warrant certificate at the office of the warrant agent, with the subscription form duly executed, and by paying in full the exercise price and all applicable taxes due for the number of Warrants being exercised. No fractional shares will be issued upon exercise of the Warrants. If, by reason of any adjustment made pursuant to the Warrant Agreement, a holder would be entitled, upon the exercise of a Warrant, to receive a fractional interest in a share, we will, upon such exercise, round up to the nearest whole number of shares of Class A Common Stock to be issued to the Warrant holder.
No Warrant will be exercisable for cash, and we will not be obligated to issue Class A Common Stock upon exercise of a Warrant unless the shares of Class A Common Stock issuable upon exercise of such Warrant have been registered, qualified, or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrant. In the event that the foregoing condition is not met, the holder of such Warrant will not be entitled to exercise such Warrant for cash and such Warrant may have no value and expire worthless. Notwithstanding the foregoing, in no event will we be required to net cash settle any Warrant.
We have agreed that as soon as practicable, but in no event later than September 6, 2022 (15 business days after the Closing), we will use our best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of Class A Common Stock issuable upon exercise of the Warrants, and to use our best efforts to take such action as is necessary to register or qualify such shares for sale under applicable blue sky laws to the extent an exemption is not available. We have agreed to use best efforts to cause such registration statement to become effective and to maintain the effectiveness of such registration statement until the expiration of the Warrants. If such registration statement has not been declared effective by November 9, 2022 (the 60th business day following the Closing), Warrant holders will have the right, until such time as such registration statement is declared effective by the SEC, and during any other period when we fail to maintain an effective registration statement covering the Class A Common Stock issuable upon exercise of the Warrants, to exercise such Warrants on a “cashless basis” pursuant to an available exemption from registration under the Securities Act.
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 after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 9.8% (the “maximum percentage”) of the shares of Class A Common Stock outstanding immediately after giving effect to such exercise. The holder of a Warrant may by written notice increase or decrease the maximum percentage applicable to such holder, on the terms and subject to the conditions set forth in the Warrant Agreement.
144 |
Redemption
Rubicon may, at its option, redeem not less than all of the outstanding Warrants at any time during the exercise period, at a price of $0.01 per Warrant:
● | upon not less than 30 days’ prior written notice of redemption to each Warrant holder, |
● | provided that the last reported sale price of the Class A Common Stock equals or exceeds $18.00 per share on each of 20 trading days within a 30 trading day period commencing after the Warrants become exercisable and ending on the third trading day prior to the notice of redemption to Warrant holders, and |
● | provided that there is an effective registration statement with respect to the Class A Common Stock underlying such Warrants, and a current prospectus relating thereto, available throughout the 30-day redemption or Rubicon has elected to require the exercise of the Warrants on a “cashless basis.” |
In accordance with the Warrant Agreement, in the event that we elect to redeem the outstanding Warrants as set forth above, we will fix a date for the redemption (the “Redemption Date”). Notice of redemption will be mailed by first class mail, postage prepaid, not less than 30 days prior to the Redemption Date to the registered holders of the Warrants to be redeemed at their last addresses as they appear on the registration books. Any notice mailed in the manner provided above will be conclusively presumed to have been duly given whether or not the registered holder received such notice.
The Warrants may be exercised for cash at any time after notice of redemption is given by Rubicon and prior to the Redemption Date. On and after the Redemption Date, the record holder of the Warrants will have no further rights, except to receive the redemption price for such holder’s Warrants upon surrender thereof.
If we call the Warrants for redemption as described above, our management will have the option to require all holders that wish to exercise Warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the Warrants for that number of shares of Class A Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A Common Stock underlying the Warrants, multiplied by the difference between the exercise price of the Warrants and the “fair market value” by (y) the fair market value. The “fair market value” shall mean the volume-weighted average trading price of the Class A Common Stock for the 10 trading days immediately following the date on which the notice of redemption is sent to the Warrant holders.
Private Warrants
The Private Warrants are identical to the Public Warrants in all material respects, except that (i) the Private Warrants issued to Jefferies will not be exercisable more than five years after October 19, 2021 in accordance with FINRA Rule 5110(g)(8), and (ii) the Private Warrants held by Sponsor and certain insiders of Founder are subject to certain additional transfer restrictions set forth in the Sponsor Agreement. See the section entitled “Certain Relationships and Related Party Transactions.”
145 |
YA Warrant
On November 30, 2022, we issued to the Yorkville Investor the YA Warrant, pursuant to which the Yorkville Investor or its permitted assigns is entitled, upon the terms and subject to the limitations on exercise and the conditions set forth therein, to subscribe for and purchase from us up to such number of YA Warrant Shares as is equal to the product of (a) $20.0 million divided by (b) the Market Price (as such number may be adjusted pursuant to the YA Warrant). The Yorkville Investor may subscribe for and purchase YA Warrant Shares at a price of $0.0001 per share at any time on or after the Market Price Set Date and on or before the Termination Date. For more information, see the section entitled “Certain Financing TransactionsYA Warrant.”
Neither the YA Warrant nor any shares of Class A Common Stock issuable thereunder upon exercise thereof are being registered pursuant to this registration statement.
YA Convertible Debentures
On November 30, 2022, we issued and sold to the Yorkville Investor the First YA Convertible Debenture in the principal amount of $7.0 million. On February 3, 2023, we issued and sold to the Yorkville Investor the Second YA Convertible Debenture in the principal amount of $10.0 million. Each YA Convertible Debenture matures on May 30, 2024, unless extended by the Yorkville Investor, and accrues interest at the rate of 4% per annum, provided that the interest rate will increase to 15% per annum upon the occurrence of certain events of default or other specified events. Principal, interest and any other payments due under the YA Convertible Debentures shall be paid in cash, unless converted by the Yorkville Investor or redeemed by us. Except as specifically permitted by the terms of a YA Convertible Debenture, we may not prepay or redeem any portion of the outstanding principal and accrued and unpaid interest thereunder. For more information, see the section entitled “Certain Financing TransactionsYA Convertible Debentures.”
19,800,000 shares of Class A Common Stock issuable upon conversion of the YA Convertible Debentures were registered on the Form S-1/A registration statement (Registration No. 333-268799) filed by Rubicon with the SEC on January 26, 2023, which was declared effective by the SEC on February 1, 2023.
Insider Convertible Debentures
On December 16, 2022, we issued and sold to the First Closing Insider Investors the First Closing Insider Convertible Debentures in the principal amount of $9.7 million. On February 1, 2023, we issued and sold to the Second Closing Insider Investors the Second Closing Insider Convertible Debentures in the principal amount of $6.5 million. Each Insider Convertible Debenture matures 18 months from issuance and accrues interest at a rate of 6% per annum (except for Guardians of New Zealand Superannuation, which accrues interest at a rate of 8% per annum); provided that the interest rate will increase to 12% per annum upon the occurrence of certain events of default or other specified events. For more information see the section entitled “Certain Financing Transactions – Insider Convertible Debentures.”
8,996,754 shares of Class A Common Stock issuable upon conversion of the Insider Convertible Debentures are being registered pursuant to this registration statement of which this prospectus forms a part.
Our Transfer Agent and Warrant Agent
The transfer agent for our Common Stock and warrant agent for our Warrants is Continental Stock Transfer & Trust Company, 1 State Street, New York, New York 10004.
Listing of Securities
Our Class A Common Stock and Public Warrants are listed on NYSE under the symbols “RBT” and “RBT WS”.
146 |
SECURITIES ELIGIBLE FOR FUTURE SALE
As of February 3, 2023, we had 55,886,692 outstanding shares of Class A Common Stock (excluding shares of Class A Common Stock issuable upon exchange of Class B Units) and 30,016,851 Warrants, all of which are freely tradable without restriction or further registration under the Securities Act, subject to the expiration or, if earlier, the waiver of the lock-up periods and transfer restrictions provided for in the agreements described below in respect of resales by the parties thereto. Any shares of Class A Common Stock issued upon exercise of outstanding Warrants or exchange of Class B Units have also been registered and are or will be, as applicable, freely tradeable without restriction or further registration under the Securities Act. Certain of our stockholders may be considered affiliates (as defined in Rule 144), which can impose some limitations on their resale of our securities. Any resales of restricted securities (as defined in Rule 144) will be subject to the registration requirements of the Securities Act, including the provisions of Rule 144 discussed below. We have also agreed to register the resale of certain other shares of Class A Common Stock that we may issue in the future, as discussed below in “Registration Rights.”
We cannot predict what effect, if any, sales of shares of our Class A Common Stock or Warrants from time to time or the availability of shares of our Class A Common Stock and Warrants for future sale may have on the market price of our securities. Sales of substantial amounts of Class A Common Stock or Warrants, including sales of Class A Common Stock pursuant to the offering covered by this prospectus, or the perception that such sales could occur, could adversely affect prevailing market prices for our securities and could impair our future ability to raise capital through an offering of equity securities or otherwise. See the section entitled “Risk Factors.”
Rule 144; Restrictions on Former Shell Companies
Subject to the limitations discussed below with respect to securities initially issued by shell companies, pursuant to Rule 144, a person who has beneficially owned restricted shares of our Class A Common Stock or our Warrants for at least six months would be entitled to sell their securities provided that (1) such person is not deemed to have been an affiliate of us at the time of, or at any time during the three months preceding, a sale and (2) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale. A non-affiliate can also include the holding period of any prior owner who was not an affiliate of ours.
Subject to the limitations discussed below with respect to securities initially issued by shell companies, persons who have beneficially owned restricted shares of our Class A Common Stock or our Warrants for at least six months but who are affiliates of us at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
● | 1% of the total number of shares of our Class A Common Stock or Warrants then outstanding; or |
● |
the average weekly reported trading volume of our Class A Common Stock or Warrants during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
Sales by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination-related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
● | the issuer of the securities that was formerly a shell company has ceased to be a shell company; |
● | the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; |
● | the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and |
● | at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company. |
147 |
Following the Closing on August 15, 2022, we were no longer a shell company. As a result, with respect to any securities they may hold which are restricted, (i) Sponsor and any other holder of Class A Common Stock issued upon conversion of Founder Class B Shares, or Private Warrants, as applicable, (ii) affiliates of the Company, (iii) holders of shares of Class A Common Stock received pursuant to the Rubicon Equity Investment Agreement, and (iv) PIPE Investors would be able to sell their private placement securities, in each case pursuant to Rule 144 without registration on August 19, 2023 (one year after the date on which we filed current Form 10 information with the SEC reflecting our status as an entity that is not a shell company), assuming we otherwise comply with the conditions set forth above. In addition to Rule 144 restrictions, certain holders of Class A Common Stock and/or Warrants and their permitted transferees are subject to certain transfer restrictions described below.
Lock-Up Agreements
Sponsor Agreement
Concurrent with the execution of the Merger Agreement, the Sponsor and the Insiders entered into the Sponsor Agreement, pursuant to which the Sponsor and the Insiders agreed, among other things, not to transfer any Class A Common Stock or Private Warrants (or any shares of Class A Common Stock issuable upon conversion or exercise thereof) until the earlier of (i) February 11, 2023 (180 days after the Closing Date) and (ii) the date after the Closing Date on which Rubicon completes a liquidation, merger, or similar transaction that results in all of Rubicon’s stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property. In the event that Rubicon waives, releases, or terminates a Lock-Up Agreement (discussed below) with respect to any shares or holders, then the Sponsor and the Insiders will be granted a similar waiver, release, or termination with respect to a pro rata portion of the securities held by them and subject to the foregoing restrictions.
Warrant Agreement
Pursuant to the Warrant Agreement, the Warrants became exercisable on September 14, 2022 (30 days after the Closing Date).
Lock-Up Agreements
Concurrent with the execution of the Merger Agreement, certain holders of Rubicon Interests entered into the Lock-Up Agreements. Pursuant to the Lock-Up Agreements, each holder agreed to certain transfer restrictions with respect to the securities such holder received as transaction consideration pursuant to the Merger Agreement, until the earlier of (i) February 11, 2023 (180 days after the Closing Date) and (ii) the date after the Closing on which Rubicon completes a liquidation, merger, or similar transaction that results in all of Rubicon’s stockholders having the right to exchange their equity holdings for cash, securities or other property. Holders further agreed not to exchange Class B Units for Class A Common Stock during this period. In the event that Rubicon waives, releases, or terminates the lock-up provision in another Lock-Up Agreement, then the other holders subject to the Lock-Up Agreements will be granted a similar waiver, release or termination with respect to a pro rata portion of the securities held by them and subject to the foregoing restrictions. Following the entry into the Merger Agreement, additional holders of Rubicon Interests and entered into Lock-Up Agreements on the same terms.
Atalaya Termination Agreement
Pursuant to the Atalaya Termination Agreement, 500,000 shares of Class A Common Stock held by the ACM Seller are restricted from transfer until May 30, 2024. In particular, ACM Seller may not (a) sell, offer to sell, contract or agree to sell, assign, transfer (including by operation of law), gift, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidation with respect to or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, and the rules and regulations promulgated thereunder, with respect to the Class A Common Stock, (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the shares of Class A Common Stock, whether any such transaction is to be settled by delivery of such securities, in cash or otherwise, or (c) publicly announce any intention to effect any transaction specified in clause (a) or (b).
148 |
Vellar Termination Agreement
Pursuant to the Vellar Termination Agreement, the Previously Owned Shares are restricted from transfer until the earlier of May 30, 2024 or the six month anniversary of the conversion of 90% or more of the YA Convertible Debentures into shares of Class A Common Stock. In particular, Vellar may not, among other things, sell, exchange, assign, distribute, encumber, hypothecate, gift, pledge, or transfer the Previously Owned Shares or make any other disposition or alienation (whether voluntarily, involuntarily or by operation of law) thereof to any person other than to an affiliate of Vellar, who prior to such transfer, shall execute a joinder agreement to be bound by the same restrictions in a form reasonably acceptable to Rubicon.
Insider Lockup Agreements
Pursuant to the Insider Lockup Agreements, all Insider Conversion Shares are subject to transfer restrictions, whereby the resale of Insider Conversion Shares are subject to a lock-up period that is the earlier of (i) 18 months and (ii) such date as the Yorkville Investor notifies Rubicon that it has sold all shares of Class A Common Stock underlying the YA Convertible Debentures issued pursuant to the YA SPA.
Registration Rights
Warrant Agreement
Concurrent with the consummation of the IPO, Founder and Continental Stock Transfer & Trust Company entered into the Warrant Agreement. Pursuant to the Warrant Agreement, Rubicon is required to, among other things, as soon as practicable after Closing, but in no event later than September 6, 2022 (15 business days after Closing), use its best efforts to file a registration statement for (i) the resale of the Private Warrants and (ii) the shares of Class A Common Stock underlying the Warrants, and to use its best efforts to have such registration statement declared effective no later than November 9, 2022 (60 business days after Closing). Rubicon has agreed to keep such registration statement effective until the expiration of the Warrants.
Subscription Agreement
Concurrent with the signing of the Merger Agreement, Founder entered into Subscription Agreements with the PIPE Investors. The PIPE Investors have certain customary registration rights pursuant to the Subscription Agreements, whereby Rubicon is required to, among other things, file a registration statement for the resale of the shares of Class A Common Stock issued pursuant to the Subscription Agreements as promptly as practicable after Closing and in any event by August 25, 2022 (the first business day to occur 10 calendar days after Closing) and to use commercially reasonable efforts to have such registration statement declared effective no later than October 14, 2022 (60 days after such filing) unless the SEC reviews and has written comments to such registration statement, in which case the deadline is November 13, 2022 (90 days after such filing). Rubicon has agreed to keep such registration statement effective until the earliest of (i) the second anniversary of the effectiveness date, (ii) the date on which all PIPE Investors cease to hold any Class A Common Stock issued pursuant to the Subscription Agreements, or (iii) the first date on which the PIPE Investors can sell all of their Class A Common Stock issued pursuant to the Subscription Agreements (or shares received in exchange therefor) under Rule 144 of the Securities Act.
The foregoing descriptions of the Subscription Agreements and the PIPE Financing are not complete and are subject to and qualified in its entirety by reference to the full text of the form of Subscription Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part and is incorporated herein by reference.
149 |
A&R Registration Rights Agreement
In connection with the Closing, the RRA Holders entered into the A&R Registration Rights Agreement with us. Pursuant to the A&R Registration Rights Agreement, no later than September 14, 2022 (30 days of the Closing Date), we were required to file a registration statement registering for resale (i) all outstanding shares of Class A Common Stock held by the RRA Holders immediately following the Closing, (ii) all shares of Class A Common Stock issuable upon exercise, conversion or exchange of any option, warrant or convertible security held directly or indirectly by a RRA Holder immediately following the Closing, (iii) any Warrants or shares of Class A Common Stock that may be acquired by the RRA Holders upon the exercise of a Warrant or other right to acquire Class A Common Stock held by a RRA Holder immediately following the Closing, (iv) any shares of Class A Common Stock or Warrants otherwise acquired or owned by a RRA Holder following the date of the A&R Registration Rights Agreement to the extent that such securities are “restricted securities” (as defined in Rule 144) or are otherwise held by an “affiliate” (as defined in Rule 144) of Rubicon, and (v) any other equity security of Rubicon or its subsidiaries issued or issuable with respect to any of the foregoing pursuant to a reorganization, stock split, stock dividend, or like transaction. We are thereafter required to maintain a registration statement that is continuously effective, subject to limited exceptions, and to cause the registration statement to regain effectiveness in the event that it ceases to be effective. At any time that the registration statement is effective, any one or more RRA Holders may request to sell all or a portion of its registrable securities in an underwritten offering pursuant to the registration statement; provided in each case that we are only be obligated to effect an underwritten offering if such offering will include registrable securities proposed to be sold by the demanding holders with a total offering price reasonably expected to exceed, in the aggregate, $35.0 million. In addition, the RRA Holders have certain “demand” and “piggyback” registration rights under the agreement. Rubicon will bear the expenses incurred in connection with the filing of any registration statements pursuant to the A&R Registration Rights Agreement.
The foregoing description of the A&R Registration Rights Agreement is not complete and is subject to and qualified in its entirety by reference to the full text of the form of A&R Registration Rights Agreement, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part and is incorporated herein by reference.
Vellar Termination Agreement
In the event that we issue Settlement Shares to Vellar in satisfaction of our obligations under the Vellar Termination Agreement, we agreed to provide Vellar with certain registration rights with respect to the Previously Owned Shares and Settlement Shares. If triggered, we are obligated to file a registration statement for the resale of such securities on or shortly following the Vellar Lock-Up Date in accordance with the terms of the Vellar Termination Agreement. We have covenanted to have the registration statement declared effective as soon as practicable after the filing thereof, but no later than the earliest of (i) the 45th calendar day (or 90th calendar day if the SEC notifies Rubicon that it will review such registration statement) following the filing date thereof and (ii) the fifth business day after the date that Rubicon is notified by the SEC that such registration statement will not be reviewed or will not be subject to further review. Upon notification by the SEC that the registration has been declared effective, within three business days thereafter, we are required to file the final prospectus for such registration statement. Once effective, we have agreed to use our best efforts to keep such registration statement effective (except for certain customary blackout periods not to exceed 15 calendar days per year and not more than 10 calendar days in any occurrence) until all of the Previously Owned Shares and Settlement Shares have been sold or may be transferred without any restrictions.
Rubicon will bear the expenses incurred in connection with the filing of any registration statements pursuant to these registration rights.
For more information regarding the securities to be registered thereunder, see the section entitled “Certain Financing TransactionsFPA Termination Agreements.”
YA Registration Rights Agreement
Pursuant to the YA Registration Rights Agreement, we are required to register for resale all of the YA Conversion Shares and YA Warrant Shares. We were required to file the Initial Registration Statement covering the resale of at least 19,800,000 YA Conversion Shares by no later than the 15th calendar day following execution of the YA Registration Rights Agreement. The Form S-1/A registration statement (Registration No. 333-268799) filed by Rubicon with the SEC on January 26, 2023 was filed in respect of this obligation and was declared effective by the SEC on February 1, 2023. We are further required to file additional registration statements covering the resale by the Yorkville Investor of the YA Conversion Shares not covered by the Initial Registration Statement, or YA Warrant Shares, if applicable, on or prior to the 30th calendar day following receipt of a demand notice from the Yorkville Investor.
150 |
The foregoing description of the YA Registration Rights Agreement is not complete and is subject to and qualified in its entirety by reference to the full text of the YA Registration Rights Agreement, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part and is incorporated herein by reference. For more information regarding the securities to be registered thereunder, see the section entitled “Certain Financing Transactions.”
Insider Registration Rights Agreements
In connection with the Insider SPAs, the Insider Investors each entered into an Insider Registration Rights Agreement with Rubicon. Pursuant to the Insider Registration Rights Agreements, within 45 days of the first closing or within 90 days of the second closing, Rubicon is required to file a registration statement covering the resale by the Insider Investors of (i) the shares of Class A Common Stock issuable upon conversion of the Insider Convertible Debentures, (ii) the shares of Class A Common Stock issued and held by the Insider Investors from conversions of the Insider Convertible Debentures, (iii) the additional shares issuable in connection with any anti-dilution provisions of the Insider Convertible Debentures (without giving effect to any limitations on exercise set forth in the Insider Convertible Debentures, as applicable) and (iv) any shares of Class A Common Stock issued or issuable with respect to any shares described in subsections (i) and (ii) above by way of any stock split, stock dividend or other distribution, recapitalization or similar event or otherwise (in each case without giving effect to any limitations on exercise set forth in the Insider Convertible Debentures, as applicable). The parties to the Insider Registration Rights Agreements have certain “piggyback” registration rights under the agreement. Rubicon will bear the expenses incurred in connection with the filing of any registration statements pursuant to the Insider Registration Rights Agreements. See “Securities Eligible for Future SaleRegistration Rights.”
Other Financing Transactions
Pursuant to the SEPA, we are required to file a Form S-1 registration statement for the resale of (i) the Yorkville Commitment Shares and (ii) the $200.0 million of shares of Class A Common Stock that may be sold to the Yorkville Investor from time to time pursuant to the SEPA. Upon its effectiveness, the registration statement of which this prospectus forms a part will register all shares of Class A Common Stock issued or otherwise issuable to the Yorkville Investor under the SEPA (subject to the SEPA Exchange Cap). The Yorkville Commitment Shares are the only shares of Class A Common Stock we have issued pursuant to the SEPA as of the date hereof.
On November 30, 2022, we entered into the SEPA Amendment with the Yorkville Investor, pursuant to which we agreed that we would not file the SEPA Registration Statement until there is an effective registration statement covering the resale of at least 18,000,000 YA Conversion Shares. The Form S-1/A registration statement (Registration No. 333-268799) filed by Rubicon with the SEC on January 26, 2023, which registered 19,800,000 YA Conversion Shares for resale and which was declared effective by the SEC on February 1, 2023, satisfied this requirement.
Pursuant to the Deferred Fee Arrangements entered into with certain of our advisors in connection with the consummation of the Business Combination, we issued 11,179,905 shares of Class A Common Stock, of which 3,877,750 shares of Class A Common Stock were issued pursuant to the deferred fee terms of the Amended Underwriting Agreement., Under the terms of the Amended Underwriting Agreement, at our election, we could pay such amounts in cash and/or equity within six months following the Closing. We could not elect to pay such obligations in equity until October 14, 2022 (60 days following Closing), and any shares issued upon such election would be issued at the ten trading-day VWAP prior to any such election. The timing, frequency, and the price at which we may issue shares of Class A Common Stock are subject to market prices and management’s decision to repay such amount in equity, if at all. The Cowen Deferred Fee Shares, Moelis Deferred Fee Shares, and Cohen Deferred Fee Shares have been registered for resale on other Form S-1 registration statements that we filed with the SEC prior to the date of this prospectus. The Jefferies Deferred Fee Shares issued pursuant to the terms of the Amended Underwriting Agreement, in satisfaction of the Jefferies Deferred Fee Arrangement, is being registered for resale on this Form S-1 registration statement of which this prospectus forms a part.
For more information regarding the SEPA and the Deferred Fee Arrangements, see the section entitled “Certain Financing Transactions.”
Additional Registration Statements
We intend to file one or more registration statements on Form S-1 under the Securities Act to register the shares of Class A Common Stock issued or issuable under certain of the Deferred Fee Arrangements, the Vellar Termination Agreement, the Insider Convertible Debentures, and the YA Warrant. We expect that these initial registration statements on Form S-1 will cover approximately $46.1 million shares of Class A Common Stock, each to be issued at a variable rate dependent on the future VWAP price of shares of Class A Common Stock. Once these shares are registered for resale, they can be sold in the public market upon issuance, subject to Rule 144 limitations applicable to affiliates and vesting restrictions.
151 |
PLAN OF DISTRIBUTION
We are registering up to 44,884,579 shares of Class A Common Stock, including (i) up to 31,810,075 shares of Class A Common Stock that we may, at our discretion, elect to issue and sell to the Yorkville Investor from time to time pursuant to the SEPA, (ii) 200,000 Yorkville Commitment Shares for possible sale by the Selling Securityholders from time to time, (iii) up to 5,629,245 First Closing Insider Conversion Shares, (iv) up to 3,367,509 Second Closing Insider Conversion Shares, and (v) 3,877,750 shares of Class A Common Stock issued to Jefferies pursuant to the Amended Underwriting Agreement. We are required to pay all fees and expenses incident to the registration of the shares of our Class A Common Stock to be offered and sold pursuant to this prospectus. The Selling Securityholders will bear all commissions and discounts, if any, attributable to their sale of shares of our Class A Common Stock.
We will not receive any of the proceeds from the sale of the securities by the Selling Securityholders. The aggregate proceeds to the Selling Securityholders will be the purchase price of the securities less any discounts and commissions borne by the Selling Securityholders. However, we expect to receive proceeds from sales of Class A Common Stock that we may elect to make to the Yorkville Investor pursuant to the SEPA, if any, from time to time in our discretion. The net proceeds from sales, if any, under the SEPA, will depend on the frequency and prices at which we sell shares of Class A Common Stock to the Yorkville Investor after the date of this prospectus. See “Certain Financing TransactionsSEPA” for a description of how the price at which we may sell shares of Class A Common Stock to the Yorkville Investor is calculated pursuant to the SEPA.
The shares of Class A Common Stock beneficially owned by the Selling Securityholders covered by this prospectus may be offered and sold from time to time by the Selling Securityholders. The term “Selling Securityholders” includes any donee, pledgee, transferee or other successor in interest selling securities received after the date of this prospectus from a Selling Securityholder as a gift, pledge, partnership distribution or other transfer. Each Selling Securityholder will act independently of us in making decisions with respect to the timing, manner and size of any sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing or at prices related to the then current market price or in negotiated transactions. The Selling Securityholders may sell or otherwise dispose of their shares of Class A Common Stock by one or more of, or a combination of, the following methods:
● | purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus; |
● | ordinary brokerage transactions and transactions in which the broker solicits purchasers; |
● | block trades in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
● | an over-the-counter distribution in accordance with the rules of NYSE; |
● | through trading plans entered into by a Selling Securityholder pursuant to Rule 10b5-1 under the Exchange Act, that are in place at the time of an offering pursuant to this prospectus and any applicable prospectus supplement hereto that provide for periodic sales of their securities on the basis of parameters described in such trading plans; |
● | to or through underwriters or broker-dealers; |
● | in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales agents; |
152 |
● | in privately negotiated transactions; |
● | in options transactions; |
● | through a combination of any of the above methods of sale; or |
● | any other method permitted pursuant to applicable law. |
In addition, a Selling Securityholder that is an entity may elect to make a pro rata in-kind distribution of securities to its members, partners or stockholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus with a plan of distribution. Such members, partners or stockholders would thereby receive freely tradeable securities pursuant to the distribution through a registration statement. To the extent a distributee is an affiliate of ours (or to the extent otherwise required by law), we may file a prospectus supplement in order to permit the distributees to use the prospectus to resell the securities acquired in the distribution.
In addition, any securities that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus.
To the extent required, this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. In connection with distributions of the shares of Class A Common Stock or otherwise, the Selling Securityholders may enter into hedging transactions with broker-dealers or other financial institutions. Subject to the terms of the SEPA, the Selling Securityholders may also enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of shares of Class A Common Stock offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The Selling Securityholders may also pledge shares of Class A Common Stock to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution, may effect sales of the pledged securities pursuant to this prospectus (as supplemented or amended to reflect such transaction).
A Selling Securityholder may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by any Selling Securityholder or borrowed from any Selling Securityholder or others to settle those sales or to close out any related open borrowings of shares of Class A Common Stock, and may use securities received from any Selling Securityholder in settlement of those derivatives to close out any related open borrowings of securities. The third party in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement (or a post-effective amendment). In addition, any Selling Securityholder may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell the securities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.
In effecting sales, broker-dealers or agents engaged by the Selling Securityholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the Selling Securityholders in amounts to be negotiated immediately prior to the sale.
In offering the securities covered by this prospectus, the Selling Securityholders and any broker-dealers who execute sales for the Selling Securityholders may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. The Yorkville Investor is an “underwriter” in connection with SEPA within the meaning of Section 2(a)(11) of the Securities Act.
153 |
In order to comply with the securities laws of certain states, if applicable, the securities must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
The Selling Securityholders are subject to the applicable provisions of the Exchange Act and the rules and regulations under the Exchange Act, including Regulation M. This regulation may limit the timing of purchases and sales of any of the securities offered in this prospectus by the Selling Securityholders. The anti-manipulation rules under the Exchange Act may apply to sales of the securities in the market and to the activities of the Selling Securityholders and their affiliates. Furthermore, Regulation M may restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities for the particular securities being distributed for a period of up to five business days before the distribution. The restrictions may affect the marketability of the securities and the ability of any person or entity to engage in market-making activities for the securities. We will make copies of this prospectus available to the Selling Securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Securityholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of shares of Class A Common Stock is made, if required, a prospectus supplement will be distributed that will set forth the number of securities being offered and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed selling price to the public.
We have agreed to indemnify the Selling Securityholders against certain liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the Class A Common Stock offered by this prospectus.
Restrictions to Sell
Certain holders of Class A Common Stock, Warrants and securities and/or rights to acquire Class A Common Stock agreed to certain restrictions on transfer with respect to their securities pursuant to the agreements described in the section entitled “Securities Eligible for Future Sale Lock-Up Agreements.”
154 |
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material U.S. federal income tax consequences of the ownership and disposition of our Class A Common Stock. This discussion is a summary only and does not address all aspects of U.S. federal income taxation that may be relevant to particular holder in light of their special circumstances or to holders subject to special tax rules (including a “controlled foreign corporation,” “passive foreign investment company,” company that accumulates earnings to avoid U.S. federal income tax, tax-exempt organization, financial institution, broker or dealer in securities or former U.S. citizen or resident). Except as specifically provided herein, this discussion does not address any aspect of U.S. federal taxation other than U.S. federal income taxation and does not address any aspect of state, local or non-U.S. taxation. In addition, this discussion deals only with U.S. federal income tax consequences to a holder that acquires our Class A Common Stock in this offering and holds that Class A Common Stock as a capital asset.
This discussion is based on the Code and administrative pronouncements, judicial decisions and final, temporary, and proposed Treasury regulations as of the date hereof, all of which are subject to change, possibly with retroactive effect, and changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein.
We have not sought, and will not seek, a ruling from the IRS as to any U.S. federal income tax consequence described herein. The IRS may disagree with the discussion herein, and its position may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion. Each prospective purchaser of our Class A Common Stock is urged to consult its tax advisor with respect to U.S. federal, state, local and non-U.S. income and other tax consequences of holding and disposing of our Class A Common Stock applicable to its particular situation.
If an entity or arrangement classified as a partnership for U.S. federal income tax purposes is a beneficial owner of our Class A Common Stock, the U.S. federal income tax treatment of its partners generally will depend upon the status of the partner and the activities of the partnership. Entities or arrangements classified as partnerships for U.S. federal income tax purposes and their partners holding our Class A Common Stock are urged to consult their tax advisors with respect to U.S. federal, state, local and non-U.S. income and other tax consequences of holding and disposing of our Class A Common Stock.
This summary is included herein as general information only. Accordingly, each prospective purchaser of our Class A Common Stock is urged to consult its tax advisor with respect to U.S. federal, state, local and non-U.S. income and other tax consequences of holding and disposing of our Class A Common Stock.
U.S. Holders
This section applies to you if you are a “U.S. Holder.” A U.S. Holder is a beneficial owner of shares of our Class A Common Stock who or that is, for U.S. federal income tax purposes:
● | an individual who is a citizen or resident of the United States; |
● | a corporation (or other entity taxable as a corporation) organized in or under the laws of the United States, any state thereof or the District of Columbia; |
● | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
● | a trust, if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons (as defined in the Code) have authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under Treasury Regulations to be treated as a U.S. person. |
Taxation of Distributions. If we pay distributions in cash or other property (other than certain distributions of our stock or rights to acquire our stock) to U.S. Holders of shares of our Class A Common Stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in our Class A Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the Class A Common Stock and will be treated as described under “U.S. Holders—Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Common Stock” below.
155 |
Dividends we pay to a U.S. Holder that is a taxable corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations), and provided certain holding period requirements are met, dividends we pay to a U.S. Holder that is not a taxable corporation may constitute “qualified dividends” that would be subject to tax at the maximum tax rate applicable to long-term capital gains. If the applicable holding period requirements are not satisfied, then a U.S. Holder that is a taxable corporation may not be able to qualify for the dividends received deduction and would have taxable income equal to the entire dividend amount, and a U.S. Holder that is not a taxable corporation may be subject to tax on such dividend at regular ordinary income tax rates instead of the preferential rate that applies to qualified dividend income.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Common Stock. Upon a sale, taxable exchange or other taxable disposition of our Class A Common Stock, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the Class A Common Stock. A U.S. Holder’s adjusted tax basis in its Class A Common Stock generally will equal the U.S. Holder’s acquisition cost for the Class A Common Stock less any prior distributions treated as a return of capital.
Any capital gain or loss generally will be long-term capital gain or loss if the U.S. Holder’s holding period for the Class A Common Stock so disposed of exceeds one year. If the holding period requirements are not satisfied, any gain on a sale or taxable disposition of the Class A Common Stock would be subject to short-term capital gain treatment and would be taxed at regular ordinary income tax rates. Long-term capital gains recognized by a U.S. Holder that is not taxable as a corporation is eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding. In general, information reporting requirements may apply to dividends paid to a U.S. Holder and to the proceeds of the sale, taxable exchange or other taxable disposition of our shares of Class A Common Stock, unless the U.S. Holder is an exempt recipient. Backup withholding may apply to such payments if the U.S. Holder fails to provide a taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Non-U.S. Holders
This section applies to you if you are a “Non-U.S. Holder.” A “Non-U.S. Holder” is a beneficial owner of shares of our Class A Common Stock who or that is, for U.S. federal income tax purposes, an individual, corporation, trust or estate that is not a U.S. Holder.
Distributions. If we pay distributions in cash or other property (other than certain distributions of our stock or rights to acquire our stock) to Non-U.S. Holders of shares of our Class A Common Stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the Non-U.S. Holder’s adjusted tax basis in our Class A Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the Class A Common Stock and will be treated as described under “Non-U.S. Holders—Sale, Exchange, or Other Taxable Disposition of Class A Common Stock” below.
Dividends paid to a Non-U.S. Holder of our Class A Common Stock that are not effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a duly completed and properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate. These certifications must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically. A Non-U.S. Holder that does not timely furnish the required documentation, but is eligible for a reduced rate of withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for refund with the IRS. Non-U.S. Holders are urged to consult their tax advisors regarding their entitlement to benefits under an applicable income tax treaty and the manner of claiming the benefits of such treaty.
156 |
Dividends that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business within the United States and, if such Non-U.S. Holder is entitled to claim treaty benefits (and the Non-U.S. Holder complies with applicable certification and other requirements), that are attributable to a permanent establishment (or, for an individual, a fixed base) maintained by such Non-U.S. Holder within the United States are not subject to the withholding tax described above but instead are subject to U.S. federal income tax on a net income basis at applicable graduated U.S. federal income tax rates. In order for its effectively connected dividends to be exempt from the withholding tax described above, a Non-U.S. Holder will be required to provide a duly completed and properly executed IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States. Dividends received by a Non-U.S. Holder that is a corporation that are effectively connected with its conduct of a trade or business within the United States may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Sale, Exchange, or Other Taxable Disposition of Class A Common Stock. A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on any gain recognized upon the sale, exchange, or other taxable disposition of shares of our Class A Common Stock, unless (i) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States and, if the Non-U.S. Holder is entitled to claim treaty benefits (and the Non-U.S. Holder complies with applicable certification and other requirements), is attributable to a permanent establishment (or, for an individual, a fixed based) maintained by the Non-U.S. Holder within the United States; (ii) such Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; or (iii) we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time within the shorter of the five-year period ending on the date of disposition or the period that such Non-U.S. Holder held shares of our Class A Common Stock.
If the gain recognized on the disposition of our Class A Common Stock is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States and, if the Non-U.S. Holder is entitled to claim treaty benefits (and the Non-U.S. Holder complies with applicable certification and other requirements), is attributable to a permanent establishment (or, for an individual, a fixed base) maintained by the Non-U.S. Holder within the United States generally will be taxed on any such gain on a net income basis at applicable graduated U.S. federal income tax rates and, in the case of a Non-U.S. Holder that is a non-U.S. corporation, an additional branch profits tax may apply at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
An individual Non-U.S. Holder who is subject to U.S. federal income tax because the Non-U.S. Holder was present in the United States for 183 days or more during the year of disposition and meets certain other conditions is taxed on its gains (including gains from the disposition of our Class A Common Stock and net of applicable U.S. source losses from dispositions of other capital assets recognized during the year) at a flat rate of 30% or such lower rate as may be specified by an applicable income tax treaty.
We do not believe that we have been, currently are, or will become, a United States real property holding corporation. If we were or were to become a United States real property holding corporation at any time during the applicable period, however, any gain recognized on a disposition of our Class A Common Stock by a Non-U.S. Holder that did not own (directly, indirectly, or constructively) more than 5% of our Class A Common Stock during the applicable period would not be subject to U.S. federal income tax, provided that our common stock is “regularly traded on an established securities market” (within the meaning of Section 897(c)(3) of the Code).
Information Reporting Requirements and Backup Withholding. The amount of dividends or proceeds paid to a Non-U.S. Holder, the name and address of the Non-U.S. Holder and the amount of tax, if any, withheld generally will be reported to the IRS. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. A Non-U.S. Holder generally will be required to provide proper certification (usually on a Form W-8BEN or Form W-8BEN-E, as applicable) to establish that the Non-U.S. Holder is not a U.S. person or otherwise qualifies for an exemption in order to avoid backup withholding tax with respect to our payment of dividends on, or the proceeds from the disposition of, our Class A Common Stock. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against that Non-U.S. Holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS. Each Non-U.S. Holder is urged to consult its tax advisor regarding the application of the information reporting rules and backup withholding to it.
157 |
Additional Withholding Tax on Payments Made to Foreign Accounts. Under Sections 1471 through 1474 of the Code (“FATCA”), payments of dividends on and the gross proceeds of dispositions of our Class A Common Stock paid to (i) a “foreign financial institution” (as specifically defined in the Code) or (ii) a “non-financial foreign entity” (as specifically defined in the Code) will be subject to a withholding tax at a rate of 30%, unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied or an exemption from these rules applies. Under proposed U.S. Treasury regulations, the preamble to which states that taxpayers may rely on the proposed U.S. Treasury regulations until final U.S. Treasury regulations are issued, this withholding tax will not apply to the gross proceeds from the sale or disposition of our Class A Common Stock. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements.
As discussed above under “Non-U.S. Holders —Distributions,” a dividend payment may be subject to a 30% withholding tax. While a payment with respect to our Class A Common Stock could be subject to both FATCA withholding and the withholding tax discussed above under “Non-U.S. Holders —Distributions,” the maximum rate of U.S. withholding on such payment would not exceed 30%. Non-U.S. Holders are urged to consult their tax advisors regarding the possible implications of FATCA withholding tax on their investment in our Class A Common Stock (including the possibility of FATCA withholding on payments made to financial intermediaries through which the Non-U.S. Holders hold their Class A Common Stock).
158 |
LEGAL MATTERS
The validity of the securities offered by this prospectus has been passed upon for us by Winston & Strawn LLP. Certain legal matters in connection with the securities offered hereby may be passed upon for any underwriters, dealers or agents by counsel that will be named in the applicable prospectus supplement.
EXPERTS
The audited financial statements of Founder SPAC as of December 31, 2021 and for the period from April 26, 2021 (inception) to December 31, 2021, included in this prospectus and elsewhere in this registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing.
The financial statements of Rubicon Technologies Holdings, LLC (formerly, Rubicon Technologies, LLC) as of December 31, 2021 and 2020 and for the years then ended included in this prospectus have been so included in reliance on the report of Cherry Bekaert LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act, including exhibits, with respect to the securities offered by this prospectus. This prospectus, which forms a part of such registration statement, does not contain all of the information included in the registration statement and the exhibits thereto. For further information pertaining to us and our securities, you should refer to the registration statement and to its exhibits. The registration statement has been filed electronically and may be obtained in any manner listed below. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are summaries and are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement or a report we file under the Exchange Act, you should refer to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit to a registration statement or report is qualified in all respects by the filed exhibit.
We are subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings, including the registration statement of which this prospectus forms a part and the exhibits thereto, are available to the public over the internet at the SEC’s website at www.sec.gov and on our website, free of charge, at www.rubicon.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information found on, or that can be accessed from or that is hyperlinked to, our website is not part of this prospectus. You may inspect a copy of the registration statement through the SEC’s website, as provided herein.
159 |
Index to Financial Statements
FOUNDER SPAC
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Founder SPAC
Opinion on the financial statements
We have audited the accompanying balance sheet of Founder SPAC (a Cayman Islands corporation) (the “Company”) as of December 31, 2021, the related statements of operations, changes in shareholders’ deficit, and cash flows for the period from April 26, 2021 (inception) through 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 the results of its operations and its cash flows for the period from April 26, 2021 (inception) through 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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2021.
Dallas, Texas March 28, 2022 |
F-2 |
FOUNDER SPAC
BALANCE SHEET
DECEMBER 31, 2021
The accompanying notes are an integral part of the financial statements.
F-3 |
FOUNDER SPAC
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 26, 2021 (INCEPTION) THROUGH DECEMBER 31, 2021
Formation costs and other operating expenses | $ | 937,887 | ||
Loss from operations | (937,887 | ) | ||
Other Income: | ||||
Income earned on investments in Trust Account | 22,182 | |||
Net loss | $ | (915,705 | ) | |
Weighted average Class A ordinary shares outstanding, basic and diluted | 9,271,586 | |||
Basic and diluted net loss per share, Class A | $ | 0.02 | ||
Weighted average Class B ordinary shares outstanding, basic and diluted | 7,906,250 | |||
Basic and diluted net loss per share, Class B | $ | (0.14 | ) |
The accompanying notes are an integral part of the financial statements.
F-4 |
FOUNDER SPAC
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE PERIOD FROM APRIL 26, 2021 (INCEPTION) THROUGH DECEMBER 31, 2021
Class B Ordinary Shares |
Additional Paid-in |
Accumulated | Total Shareholders’ |
|||||||||||||||||
Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
Balances at April 26, 2021 (inception) | - | $ | $ | $ | $ | |||||||||||||||
Issuance of Class B ordinary shares to Sponsor | 7,906,250 | 791 | 24,209 | 25,000 | ||||||||||||||||
Underwriter’s fees | (6,325,000 | ) | (6,325,000 | ) | ||||||||||||||||
Deferred underwriter fees | (11,068,750 | ) | (11,068,750 | ) | ||||||||||||||||
Offering costs | (746,784 | ) | (746,784 | ) | ||||||||||||||||
Sale of private placement warrants to Sponsor | 14,204,375 | 14,204,375 | ||||||||||||||||||
Deemed dividend to Class A Shareholders’ to state the Trust Account at Redemption value | 3,911,950 | (8,655,700 | ) | (4,743,750 | ) | |||||||||||||||
Net loss | (915,705 | ) | (915,705 | ) | ||||||||||||||||
Balances at December 31, 2021 | 7,906,250 | $ | 791 | $ | $ | (9,571,405 | ) | $ | (9,570,614 | ) |
The accompanying notes are an integral part of the financial statements.
F-5 |
FOUNDER SPAC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 26, 2021 (INCEPTION) THROUGH DECEMBER 31, 2021
Cash Flow from Operating Activities: | ||||
Net loss | $ | (915,705 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Income earned on investments in Trust Account | (22,182 | ) | ||
Changes in operating assets and liabilities | ||||
Prepaid insurance | (913,017 | ) | ||
Accrued expenses | (290,616 | ) | ||
Accrued offering costs | (250,000 | ) | ||
Net Cash used in Operating Activities | (2,391,520 | ) | ||
Cash Flow from Investing Activities: | ||||
Investments held in Trust Account | (320,993,750 | ) | ||
Net Cash used in Investing Activities | (320,993,750 | ) | ||
Cash Flow from Financing Activities: | ||||
Proceeds received from initial public offering, gross | $ | 316,250,000 | ||
Proceeds from private warrants | 14,204,375 | |||
Payment of offering costs | (6,307,500 | ) | ||
Net Cash provided by Financing Activities | 324,146,875 | |||
Net change in cash | 761,605 | |||
Cash at the beginning of the period | ||||
Cash at the end of the period | $ | 761,605 | ||
Supplement Disclosure of Cash Flow Information: | ||||
Non-Cash Investing and Financing Activities: | ||||
Offering costs paid by Sponsor | $ | 352,667 | ||
Deferred underwriting commissions | $ | 11,068,750 | ||
Offering costs paid by Sponsor in exchange for issuance of Class B ordinary shares | $ | 25,000 | ||
Offering costs included in accrued offering costs | $ | 286,145 |
The accompanying notes are an integral part of the financial statements.
F-6 |
FOUNDER SPAC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 26, 2021 (INCEPTION) THROUGH DECEMBER 31, 2021
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Founder SPAC (the “Company”) is a blank check company incorporated in the Cayman Islands on April 26, 2021. The Company was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (the “Business Combination”). The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of December 31, 2021, the Company had not yet commenced any operations. All activity for the period April 26, 2021 (inception) through December 31, 2021, relates to the Company’s formation and the initial public offering (the “Initial Public Offering”). The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is Founder SPAC Sponsor, LLC (the “Sponsor”) and Jefferies LLC simultaneously with the closing of the Initial Public Offering. The registration statement for the Company’s Initial Public Offering was declared effective by the Securities and Exchange Commission (the “SEC”) on October 14, 2021. On October 19, 2021, the Company consummated the Initial Public Offering of units (the “Units” and, with respect to the shares of Class A ordinary shares included in the Units sold, the “Public Shares”), at $per Unit, generating gross proceeds of $316,250,000. The total Units offered on IPO date consisted of Class A shares and exercise of over-allotment option by the underwriters of additional Class A ordinary shares (Note 3).
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of units (the “Private Placement Units”) at a price of $per Private Placement Unit in a private placement to Sponsor and the underwriters of the Initial Public Offering, generating gross proceeds of $14,204,375, which is described in Note 4.
Transaction costs amounted to $18,158,033, consisting of $6,325,000 of underwriting fees, $11,068,750 of deferred underwriting fees and $764,283 of other offering costs. In addition, at October 19, 2021, cash of $2,603,980 was held outside of the Trust Account (as defined below) and is available for working capital purposes.
Following the closing of the Initial Public Offering on October 19, 2021, an amount of $320,993,750 ($per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Units was placed in a trust account (the “Trust Account”) located in the United States and will be invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account, as described below.
F-7 |
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (as defined below) (less any deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of the signing a definitive agreement to enter a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully effect a Business Combination.
The Company will provide its holders of the outstanding Public Shares (the “public shareholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the Company may seek shareholder approval of a Business Combination at a meeting called for such purpose at which shareholder may seek to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 either immediately prior to or upon such consummation of a Business Combination and, if the Company seeks shareholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination.
Notwithstanding the foregoing, the Company’s amended and restated memorandum and articles of association (the “Articles”) provide that, a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to 15% or more of the Public Shares without the Company’s prior written consent.
The Public Shareholders will be entitled to redeem their shares for a pro rata portion of the amount then in the Trust Account (initially $10.15 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The per-share amount to be distributed to shareholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. These Public Shares are recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.”
If the Company is not required to conduct redemptions pursuant to the proxy solicitation rules as described above, the Company will, pursuant to its Articles, offer such redemption pursuant to the tender offer rules of the SEC, and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
The Company’s Sponsor, officers, directors and advisors have agreed (a) to vote their Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to redeem any shares (including the Founder Shares) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination or a vote to amend the provisions of the Articles relating to shareholder’s rights of pre-Business Combination activity and (c) that the Founder Shares shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor and the Company’s officers, directors and advisors will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
F-8 |
If the Company is unable to complete a Business Combination within 15 months (or up to 18 months if we extend the period of time to consummate a business combination) from the closing of the Initial Public Offering (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholder’s rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit $10.15.
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.15 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the day of liquidation of the Trust Account, if less than $10.15 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriter of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure its shareholders that the Sponsor would be able to satisfy those obligations. None of the Company’s officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity and Management’s Plan
As of December 31, 2021, the Company had $761,605 in its operating bank account, and working capital of $1,074,447.
The Company’s liquidity needs up to December 31, 2021 had been satisfied through a payment from the Sponsor of $25,000 (Note 5) for the Founder Shares to cover certain offering costs. In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans, as defined below (Note 5). As of December 31, 2021, there were no amounts outstanding under any Working Capital Loans.
Prior to the completion of the Initial Public Offering, the Company lacked the liquidity it needed to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. The Company has since competed its Initial Public Offering at which time capital in excess of the funds deposited in the Trust Account and/or used to fund offering expenses was released to the Company for general working capital purposes totaling $2,603,980. As of December 31, 2021, approximately $761,605 remains available to use for general working capital purposes. Management has since reevaluated the Company’s liquidity and financial condition and determined that it may not be sufficient to meet the Company’s obligation over the period of twelve months from the issuance date of the financial statements. The Company’s sponsor has agreed to provide support to enable the Company to continue its operations and meet its potential obligations over a period of one year from the issuance date of these financial statements. Management believes current working capital, and the support from its Sponsor, provides sufficient capital to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements and therefore substantial doubt has been alleviated.
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
F-9 |
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As of December 31, 2021, the Company has sufficient cash to meet its obligations as they become due within one year after the date that the financial statement is issued.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and pursuant to the rules and regulations of the SEC.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, 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 the Company’s 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.
Use of Estimates
The preparation of financial statements in conformity with 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 financial statements and the reported amounts of revenues and expenses during the reporting period.
F-10 |
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had $761,605 of cash and no cash equivalents as of December 31, 2021.
Cash Held in Trust Account
At December 31, 2021, the Company has $321,015,932 in cash held in the trust account.
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net (loss)/income per ordinary share is calculated by dividing the net (loss)/income by the weighted average of ordinary shares outstanding for the respective period. The Company did not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private Placement in the calculation of diluted (loss)/income per share because their exercise is contingent upon future events and since their inclusion would be antidilutive under the treasury stock method.
The following table reflects presents a reconciliation of the numerator and denominator used to compute basic and diluted net (loss)/income per share for each class of ordinary shares:
For the Period from April 26, 2021 (inception) to December 31, 2021 |
||||
Class B shares outstanding | 7,906,250 | |||
Class A shares Issued upon IPO | 31,625,000 | |||
Proceeds allocated to Class A | $ | 316,250,000 | ||
Class A redemption amount | $ | 320,993,750 | ||
EPS | ||||
Net (loss)/income | $ | (915,705 | ) | |
Class A accretion to redemption amount | $ | (4,743,750 | ) | |
Net (loss)/ income available to shareholders | $ | (5,659,455 | ) |
Two Class Method | ||||||||
Class A | Class B | |||||||
Allocation of Net (loss)/income available to shareholders | $ | (4,527,564 | ) | $ | (1,131,891 | ) | ||
Accretion of Class A to redemption value | $ | 4,743,750 | ||||||
Net (loss)/income | $ | 216,186 | $ | (1,131,891 | ) | |||
Weighted Average Shares outstanding | 9,271,586 | 7,906,250 | ||||||
EPS | $ | 0.02 | $ | (0.14 | ) |
F-11 |
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
F-12 |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution, which at times may exceed the Federal Depository Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Class A Ordinary Shares Subject to Possible Redemption
All of the shares of Class A ordinary shares sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such shares of Class A ordinary shares in connection with the Company’s liquidation, if there is a shareholder vote or tender offer in connection with our business combination and in connection with certain amendments to the Company’s second amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require ordinary shares subject to redemption to be classified outside of permanent equity. Therefore, all Class A ordinary shares have been classified outside of permanent equity.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, Fair Value Measurement, (“ASC 820”) approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
The Company applies ASC 820, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
Level 1 Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
The investment in Trust account is measured at Level 1 because the amount is invested in US Treasury securities.
F-13 |
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of the Accounting Standards Codification (“ASC”) 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the IPO and were charged to shareholders’ equity upon the completion of the IPO. Offering costs that were charged to stockholders’ equity upon the completion of the IPO amounted to $18,158,033, of which $17,393,750 related to underwriting costs and $764,283 of other offering costs.
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
On August 17, 2021, the Company sold Units at $per Unit, generating gross proceeds of $316,250,000. Each Unit consists of one of the Company’s Class A ordinary shares, par value $per share, and one-half of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one Class A ordinary shares at an exercise price of $11.50 per whole share (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor and Jefferies have purchased an aggregate of 14,204,375 Private Placement Warrants at a price of $1.00 per warrant, generating total proceeds of $14,204,375 to the Company.
Each Private Placement Warrant is identical to the warrants offered in the Initial Public Offering, except there will be no redemption rights or liquidating distributions from the trust account with respect to Private Placement Warrants, which will expire worthless if the Company does not consummate a Business Combination within the Combination Period.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On April 27, 2021, the Sponsor made a capital contribution of $25,000, or approximately $per share, to cover certain of the Company’s expenses, for which the Company issued founder shares to the Sponsor such that they currently hold an aggregate of founder shares.
F-14 |
The Sponsor has agreed not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s shareholders having the right to exchange their shares of ordinary shares for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of the Company’s Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination, the Founder Shares will be released from the lock-up.
Promissory Note Related Party
On April 27, 2021, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note is non-interest bearing and is payable on the earlier of (i) December 31, 2022 or (ii) the consummation of the Initial Public Offering. As of December 31, 2021, the Company had not drawn on the Note.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors have agreed to loan the Company funds as may be required (the “Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of notes may be converted upon consummation of a Business Combination into warrants at a price of $1.00 per warrant. The warrants will be identical to the Private Placement Warrants. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. As of December 31, 2021, the Company had no such related party loans outstanding.
There are expenses that are paid by the Sponsor on behalf of the Company. As of December 31, 2021, the Sponsor spent $102,667, which are presented on the balance sheet as a Due to Sponsor.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of the Working Capital Loans (and in each case holders of their component securities, as applicable) will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of the Initial Public Offering, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the Company’s Class A ordinary shares). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriter’s Agreement
The Company granted the underwriter a 45-day option to purchase up to 4,125,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions. Concurrently with the consummation of the IPO, the underwriters exercised the over-allotment option to purchase an additional units.
F-15 |
The underwriter was paid a cash underwriting discount of 2.00% of the gross proceeds of the Initial Public Offering, or $6,325,000, in connection with the Initial Public Offering. In addition, the underwriter is entitled to a deferred fee of three and half percent (3.50%) of the gross proceeds of the Initial Public Offering, or $11,068,750. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Agreement and Plan of Merger
On December 15, 2021, Founder SPAC, a Cayman Islands exempted company (together with its successors, the “Acquiror”), Ravenclaw Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of the Acquiror (“Merger Sub”), Ravenclaw Merger Sub Corporation 1, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 1”), Ravenclaw Merger Sub Corporation 2, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 2”), Ravenclaw Merger Sub Corporation 3, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 3” and, together with Merger Sub Inc. 1 and Merger Sub Inc. 2, each a “Blocker Merger Sub”), Boom Clover Business Limited, a British Virgin Islands corporation (“Blocker Company 1”), NZSF Frontier Investments Inc., a Delaware corporation (“Blocker Company 2”), PLC Blocker A LLC, a Delaware limited liability company (“Blocker Company 3” and, together with Blocker Company 1 and Blocker Company 2, each a “Blocker Company” and collectively, the “Blocker Companies”), entered into an agreement and plan of merger (“Merger Agreement”) with Rubicon Technologies, LLC, a Delaware limited liability company.
The Merger agreement contains customary representations, warranties, and covenants by the parties thereto and is subject to certain conditions as further described in the Merger Agreement.
NOTE 7. WARRANTS
The Company has accounted for the 30,016,875 warrants in connection with the Initial Public Offering (15,812,500 Public Warrants and 14,204,375 Private Placement Warrants) in accordance with the guidance contained in ASC 815-40. Such guidance provides that the warrants described above are not precluded from equity classification. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable 30 days after the consummation of a Business Combination. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any Class A ordinary shares pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise of the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No Public Warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their Public Warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.
F-16 |
The Company has registered our Class A ordinary shares issuable upon exercise of the warrants because the warrants will become exercisable 30 days after the completion of our initial business combination, which may be within one year of this offering. However, because the warrants will be exercisable until their expiration date of up to five years after the completion of our initial business combination, in order to comply with the requirements of Section 10(a)(3) of the Securities Act following the consummation of our initial business combination, the Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of its initial business combination, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A ordinary shares issuable upon exercise of the warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the 60th business day after the closing of the Company’s initial business combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if our Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In such event, each holder would pay the exercise price by surrendering the warrants for that number or Class A ordinary shares equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” (defined below) less the exercise price of the warrants by (y) the fair market value and (B) 0.361. The “fair market value” as used in this paragraph shall mean the volume weighted average trading price of the Class A ordinary shares for the 10 trading days immediately following the date on which the notice of exercise is received by the warrant agent.
Redemption of public warrants when the price per Class A ordinary shares equals or exceeds $. Once the public warrants become exercisable, the Company may redeem the Public Warrants for redemption:
● | in whole and not in part; |
● | at a price of $0.01 per Public Warrant; |
● | upon not less than 30 days’ prior written notice of redemption to each warrant holder and |
● | if, and only if, the last reported sale price (the “closing price”) of our Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described under the heading “Description of New Rubicon’s Securities—Warrants—Public Warrants”) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the warrant holders. |
The Company will not redeem the warrants as described above unless an effective registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period. If and when the warrants become redeemable by us, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
F-17 |
If and when the Public Warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of ordinary shares upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.
The exercise price and number of shares of Class A ordinary shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of ordinary shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.
The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
At December 31, 2021, the Class A ordinary shares subject to possible redemption reflected in the balance sheet is reconciled in the following table:
F-18 |
NOTE 9. STOCKHOLDERS’ DEFICIT
Preferred stock The Company is authorized to issue shares of $par value preference shares. At December 31, 2021, there were no preferred shares issued or outstanding.
Class A ordinary shares The Company is authorized to issue up to shares of Class A, $par value ordinary shares. Holders of the Company’s ordinary shares are entitled to one vote for each share. At December 31, 2021, there were no shares of Class A ordinary shares issued or outstanding (excluding shares subject to possible redemption).
Class B ordinary shares The Company is authorized to issue up to shares of Class B, $par value ordinary shares. Holders of the Company’s ordinary shares are entitled to one vote for each share. At December 31, 2021, there were Class B ordinary shares issued and outstanding.
The shares of Class B ordinary shares will automatically convert into shares of Class A ordinary shares at the time of the Business Combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like. In the case that additional shares of Class A ordinary shares, or equity linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B ordinary shares shall convert into shares of Class A ordinary shares will be adjusted (unless the holders of a majority of the outstanding shares of Class B ordinary shares agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A ordinary shares issuable upon conversion of all shares of Class B ordinary shares will equal, in the aggregate, on an as converted basis, 20% of the sum of the total number of all shares of ordinary shares outstanding upon the completion of the Initial Public Offering plus all shares of Class A ordinary shares and equity linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity linked securities issued, or to be issued, to any seller in a Business Combination, and any private placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder Shares may also elect to convert their shares of Class B ordinary shares into an equal number of shares of Class A ordinary shares, subject to adjustment as provided above, at any time.
The Company may issue additional ordinary shares or preference shares to complete its Business Combination or under an employee incentive plan after completion of its Business Combination.
NOTE 10. SUBSEQUENT EVENTS
Management of the Company evaluated events that have occurred after the balance sheet date through the date the financial statements were issued. Based upon the review, management did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.
F-19 |
FOUNDER SPAC
UNAUDITED CONDENSED BALANCE SHEET
The accompanying notes are an integral part of the financial statements.
F-20 |
FOUNDER SPAC
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
Three Months Ended 2022 |
Six Months Ended 2022 |
For the (inception) through |
||||||||||
Operating expenses: | ||||||||||||
Formation costs and other operating expenses | $ | 427,311 | $ | 1,058,869 | $ | 8,529 | ||||||
Loss from operations | (427,311 | ) | (1,058,869 | ) | (8,529 | ) | ||||||
Other Income: | ||||||||||||
Income earned on investments in Trust Account | 187,240 | 248,447 | ||||||||||
Net loss | $ | (240,071 | ) | $ | (810,422 | ) | $ | (8,529 | ) | |||
Weighted average Class A ordinary shares outstanding, basic and diluted | 31,625,000 | 31,625,000 | ||||||||||
Basic and diluted net loss per share, Class A | $ | (0.01 | ) | $ | (0.02 | ) | $ | |||||
Weighted average Class B ordinary shares outstanding, basic and diluted | 7,906,250 | 7,906,250 | 6,875,000 | |||||||||
Basic and diluted net loss per share, Class B | $ | (0.01 | ) | $ | (0.02 | ) | $ |
The accompanying notes are an integral part of these financial statements.
F-21 |
FOUNDER SPAC
UNAUDITED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
Class B Ordinary Shares |
Additional Paid-In |
Accumulated | Total Stockholders’ |
|||||||||||||||||
Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
Balance – December 31, 2021 | 7,906,250 | $ | 791 | $ | $ | (9,571,405 | ) | $ | (9,570,614 | ) | ||||||||||
Net loss – March 31, 2022 | - | (570,351 | ) | (570,351 | ) | |||||||||||||||
Balance – March 31, 2022 | 7,906,250 | $ | 791 | $ | $ | (10,141,756 | ) | $ | (10,140,965 | ) | ||||||||||
Net loss – June 30, 2022 | - | $ | (240,071 | ) | $ | (240,071 | ) | |||||||||||||
Balance – June 30, 2022 | 7,906,250 | $ | 791 | $ | $ | (10,381,827 | ) | $ | (10,381,036 | ) |
FOR THE PERIOD FROM APRIL 26, 2021 (INCEPTION) THROUGH JUNE 30, 2021
Class B Ordinary Shares |
Additional Paid-In |
Accumulated | Total Stockholders’ |
|||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance – April 26, 2021 (inception) | $ | $ | $ | $ | ||||||||||||||||
Issuance of Class B ordinary shares to sponsor | 7,906,250 | 791 | 24,209 | 25,000 | ||||||||||||||||
Net loss | - | (8,529 | ) | (8,529 | ) | |||||||||||||||
Balance – June 30, 2021 | 7,906,250 | $ | 791 | $ | 24,209 | $ | (8,529 | ) | $ | 16,471 |
The accompanying notes are an integral part of these financial statements.
F-22 |
FOUNDER SPAC
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended 2022 |
For the Period from April 26, 2021 (inception) through June 30, 2021 |
|||||||
Cash Flow from Operating Activities: | ||||||||
Net loss | $ | (810,422 | ) | $ | (8,529 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Income earned on investments in Trust Account | (248,446 | ) | ||||||
Changes in operating assets and liabilities | ||||||||
Prepaid insurance | 255,754 | |||||||
Accrued expenses | 50,508 | 8,529 | ||||||
Net Cash used in Operating Activities | (752,606 | ) | ||||||
Net change in cash | (752,606 | ) | ||||||
Cash at the beginning of the period | 761,605 | |||||||
Cash at the end of the period | $ | 8,999 | $ | |||||
Non-Cash Investing and financing activities: | ||||||||
Offering costs paid by Sponsor in exchange for issuance of Class B ordinary shares | 25,000 | |||||||
Offering costs included in Due to Sponsor | 246,993 | |||||||
Offering costs included in accrued offering costs | 45,000 |
The accompanying notes are an integral part of these financial statements.
F-23 |
FOUNDER SPAC
NOTES TO UNUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Founder SPAC (the “Company”) is a blank check company incorporated in the Cayman Islands on April 26, 2021. The Company was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (the “Business Combination”). The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of June 30, 2022, the Company had not yet commenced any operations. All activity for the period April 26, 2021 (inception) through June 30, 2022, relates to the Company’s formation and the initial public offering (the “Initial Public Offering”). The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is Founder SPAC Sponsor, LLC (the “Sponsor”) and Jefferies LLC simultaneously with the closing of the Initial Public Offering. The registration statement for the Company’s Initial Public Offering was declared effective by the Securities and Exchange Commission (the “SEC”) on October 14, 2021. On October 19, 2021, the Company consummated the Initial Public Offering of 316,250,000. The total Units offered on IPO date consisted of Class A shares and exercise of over-allotment option by the underwriters of additional Class A ordinary shares (Note 3). units (the “Units” and, with respect to the shares of Class A ordinary shares included in the Units sold, the “Public Shares”), at $ per Unit, generating gross proceeds of $
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 14,204,375, which is described in Note 4. units (the “Private Placement Units”) at a price of $ per Private Placement Unit in a private placement to Sponsor and the underwriters of the Initial Public Offering, generating gross proceeds of $
Transaction costs amounted to $18,158,033, consisting of $6,325,000 of underwriting fees, $11,068,750 of deferred underwriting fees and $764,283 of other offering costs. In addition, at October 19, 2021, cash of $2,603,980 was held outside of the Trust Account (as defined below) and is available for working capital purposes.
Following the closing of the Initial Public Offering on October 19, 2021, an amount of $320,993,750 ($ per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Units was placed in a trust account (the “Trust Account”) located in the United States and will be invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account, as described below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (as defined below) (less any deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of the signing a definitive agreement to enter a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully effect a Business Combination.
F-24 |
The Company will provide its holders of the outstanding Public Shares (the “public shareholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the Company may seek shareholder approval of a Business Combination at a meeting called for such purpose at which shareholder may seek to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 either immediately prior to or upon such consummation of a Business Combination and, if the Company seeks shareholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination.
Notwithstanding the foregoing, the Company’s amended and restated memorandum and articles of association (the “Articles”) provide that, a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to 15% or more of the Public Shares without the Company’s prior written consent.
The Public Shareholders will be entitled to redeem their shares for a pro rata portion of the amount then in the Trust Account (initially $10.15 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The per-share amount to be distributed to shareholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. These Public Shares are recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.”
If the Company is not required to conduct redemptions pursuant to the proxy solicitation rules as described above, the Company will, pursuant to its Articles, offer such redemption pursuant to the tender offer rules of the SEC, and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
The Company’s Sponsor, officers, directors and advisors have agreed (a) to vote their Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to redeem any shares (including the Founder Shares) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination or a vote to amend the provisions of the Articles relating to shareholder’s rights of pre-Business Combination activity and (c) that the Founder Shares shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor and the Company’s officers, directors and advisors will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
If the Company is unable to complete a Business Combination within 15 months (or up to 18 months if we extend the period of time to consummate a business combination) from the closing of the Initial Public Offering (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholder’s rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit $10.15.
F-25 |
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.15 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the day of liquidation of the Trust Account, if less than $10.15 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriter of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure its shareholders that the Sponsor would be able to satisfy those obligations. None of the Company’s officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity and Management’s Plan
As of June 30, 2022, the Company had $8,999 in its operating bank account and working capital of $271,333.
The Company’s liquidity needs up to June 30, 2022 had been satisfied through a payment from the Sponsor of $25,000 (Note 5) for the Founder Shares to cover certain offering costs. In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans, as defined below (Note 5). As of June 30, 2022, there were no amounts outstanding under any Working Capital Loans.
Prior to the completion of the Initial Public Offering, the Company lacked the liquidity it needed to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. The Company has since competed its Initial Public Offering at which time capital in excess of the funds deposited in the Trust Account and/or used to fund offering expenses was released to the Company for general working capital purposes totaling $ 2,603,980. As of June 30, 2022, approximately $8,999 remains available to use for general working capital purposes. Management has since reevaluated the Company’s liquidity and financial condition and determined that it may not be sufficient to meet the Company’s obligation over the period of twelve months from the issuance date of the financial statements. The Company’s sponsor has agreed to provide support to enable the Company to continue its operations and meet its potential obligations over a period of one year from the issuance date of these financial statements. Management believes current working capital, and the support from its Sponsor, provides sufficient capital to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements and therefore substantial doubt has been alleviated.
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As of June 30, 2022, the Company has sufficient cash in hand and the ability to obtain a working capital loan, to meet its obligations as they become due within one year after the date that the financial statement is issued.
F-26 |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and pursuant to the rules and regulations of the SEC.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, 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 the Company’s 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.
Use of Estimates
The preparation of financial statements in conformity with 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 financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had $8,999 and $761,605 of cash and no cash equivalents as of June 30, 2022, and December 31, 2021, respectively.
Cash Held in Trust Account
On June 30, 2022, and December 31, 2021, the Company has $321,264,378 and $321,015,932 in cash held in the trust account, respectively.
F-27 |
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net (loss)/income per ordinary share is calculated by dividing the net (loss)/income by the weighted average of ordinary shares outstanding for the respective period. The Company did not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private Placement in the calculation of diluted (loss)/income per share because their exercise is contingent upon future events and since their inclusion would be antidilutive under the treasury stock method.
The following table presents a reconciliation of the numerator and denominator used to compute basic and diluted net (loss)/income per share for each class of ordinary shares:
For the three months ended June 30, 2022 |
For the six months ended June 30, 2022 |
For the Period from April 26, 2021 (inception) through June 30, 2021 |
||||||||||
Class B shares outstanding | 7,906,250 | 7,906,250 | 7,906,250 | |||||||||
Class A shares Issued upon IPO | 31,625,000 | 31,625,000 | ||||||||||
Net loss available to shareholders | $ | 240,071 | $ | 810,422 | $ | 8,529 |
Two Class Method
For the three months ended June 30, 2022 |
For the six months ended June 30, 2022 |
For the Period from April 26, 2021 (inception) through June 30, 2021 |
||||||||||||||||||
Class A | Class B | Class A | Class B | Class B | ||||||||||||||||
Basic and Diluted net loss per share of common stock: | ||||||||||||||||||||
Numerator: | ||||||||||||||||||||
Allocation of Net loss | $ | 192,057 | $ | 48,014 | $ | 648,338 | $ | 162,084 | $ | 8,529 | ||||||||||
Denominator: | ||||||||||||||||||||
Weighted Average Shares outstanding | 31,625,000 | 7,906,250 | 31,625,000 | 7,906,250 | 7,906,250 | |||||||||||||||
Basic and diluted net loss per common stock | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.00 | ) |
F-28 |
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
The equity-linked warrants, both Public and Private warrants, and rights are considered freestanding and outside the scope of ASC 480 as they are not mandatorily redeemable, are exchanged on a fixed 1:1 ratio and do not obligate the Company to repurchase equity shares. The Company concluded that the warrants are equity classified under ASC 815 as the warrants and rights are indexed in the Company’s Class A common stock.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution, which at times may exceed the Federal Depository Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
F-29 |
Class A Ordinary Shares Subject to Possible Redemption
All of the shares of Class A ordinary shares sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such shares of Class A ordinary shares in connection with the Company’s liquidation, if there is a shareholder vote or tender offer in connection with our business combination and in connection with certain amendments to the Company’s second amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require ordinary shares subject to redemption to be classified outside of permanent equity. Therefore, all Class A ordinary shares have been classified outside of permanent equity.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, Fair Value Measurement, (“ASC 820”) approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
The Company applies ASC 820, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
Level 1 - Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 - Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
The investment in Trust account is measured at Level 1 because the amount is invested in US Treasury securities.
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of the Accounting Standards Codification (“ASC”) 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the IPO and were charged to shareholders’ equity upon the completion of the IPO. Offering costs that were charged to stockholders’ equity upon the completion of the IPO amounted to $18,158,033, of which $17,393,750 related to underwriting costs and $764,283 of other offering costs.
F-30 |
NOTE 3. INITIAL PUBLIC OFFERING
On August 17, 2021, the Company sold 316,250,000. Each Unit consists of one of the Company’s Class A ordinary shares, par value $ per share, and one-half of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one Class A ordinary shares at an exercise price of $11.50 per whole share (see Note 7). Units at $ per Unit, generating gross proceeds of $
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor and Jefferies have purchased an aggregate of 14,204,375 Private Placement Warrants at a price of $1.00 per warrant, generating total proceeds of $14,204,375 to the Company.
Each Private Placement Warrant is identical to the warrants offered in the Initial Public Offering, except there will be no redemption rights or liquidating distributions from the trust account with respect to Private Placement Warrants, which will expire worthless if the Company does not consummate a Business Combination within the Combination Period.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On April 27, 2021, the Sponsor made a capital contribution of $25,000, or approximately $ per share, to cover certain of the Company’s expenses, for which the Company issued founder shares to the Sponsor such that they currently hold an aggregate of founder shares.
The Sponsor has agreed not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s shareholders having the right to exchange their shares of ordinary shares for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of the Company’s Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination, the Founder Shares will be released from the lock-up.
Promissory Note - Related Party
On April 27, 2021, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note is non-interest bearing and is payable on the earlier of (i) December 31, 2022, or (ii) the consummation of the Initial Public Offering. As of June 30, 2022, and December 31, 2021, the Company had not drawn on the Note.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors have agreed to loan the Company funds as may be required (the “Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of notes may be converted upon consummation of a Business Combination into warrants at a price of $1.00 per warrant. The warrants will be identical to the Private Placement Warrants. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. As of June 30, 2022, and December 31, 2021, the Company had no such related party loans outstanding.
There are expenses that are paid by the Sponsor on behalf of the Company. As of June 30, 2022, and December 31, 2021, the Sponsor spent $102,667, which are presented on the balance sheet as a Due to Sponsor.
F-31 |
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of the Working Capital Loans (and in each case holders of their component securities, as applicable) will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of the Initial Public Offering, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the Company’s Class A ordinary shares). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriter’s Agreement
The Company granted the underwriter a 45-day option to purchase up to 4,125,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions. Concurrently with the consummation of the IPO, the underwriters exercised the over-allotment option to purchase an additional units.
The underwriter was paid a cash underwriting discount of 2.00% of the gross proceeds of the Initial Public Offering, or $6,325,000, in connection with the Initial Public Offering. In addition, the underwriter is entitled to a deferred fee of three and half percent (3.50%) of the gross proceeds of the Initial Public Offering, or $11,068,750. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Agreement and Plan of Merger
On December 15, 2021, Founder SPAC, a Cayman Islands exempted company (together with its successors, the “Acquiror”), Ravenclaw Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of the Acquiror (“Merger Sub”), Ravenclaw Merger Sub Corporation 1, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 1”), Ravenclaw Merger Sub Corporation 2, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 2”), Ravenclaw Merger Sub Corporation 3, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 3” and, together with Merger Sub Inc. 1 and Merger Sub Inc. 2, each a “Blocker Merger Sub”), Boom Clover Business Limited, a British Virgin Islands corporation (“Blocker Company 1”), NZSF Frontier Investments Inc., a Delaware corporation (“Blocker Company 2”), PLC Blocker A LLC, a Delaware limited liability company (“Blocker Company 3” and, together with Blocker Company 1 and Blocker Company 2, each a “Blocker Company” and collectively, the “Blocker Companies”), entered into an agreement and plan of merger (“Merger Agreement”) with Rubicon Technologies, LLC, a Delaware limited liability company.
The Merger agreement contains customary representations, warranties, and covenants by the parties thereto and is subject to certain conditions as further described in the Merger Agreement. In connection with the foregoing and concurrently with the execution of the Business Combination Agreement, Rubicon Technologies and Founder SPAC entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”) pursuant to which the PIPE Investors agreed to subscribe for and purchase, and Founder SPAC agreed to issue and sell to such PIPE Investors. As of the date of this subscription agreement, the authorized share capital of the Company consists of (i) 15,812,500 redeemable public warrants to purchase Class A ordinary shares are issued and outstanding, (D) 14,204,375 private placement warrants to purchase Class A ordinary shares of the Company are issued and outstanding and (E) no preference shares are issued and outstanding. The Founder SPAC Ordinary Shares to be issued under the Subscription Agreements are being issued in private placement transactions pursuant to an exemption from registration requirements of the Securities Act and have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended. Founder SPAC will grant the PIPE Investors certain registration rights in connection with the PIPE Financing. The PIPE Financing is contingent upon, among other things, the closing of the Business Combination.
Class A ordinary shares, par value $ per share, (ii) Class B ordinary shares, par value $ per share and (iii) preference shares, par value $ per share. As of the date of this Subscription Agreement, (A) Class A ordinary shares of the Company are issued and outstanding, (B) Class B ordinary shares of the Company are issued and outstanding, (C)
F-32 |
NOTE 7. WARRANTS
The Company has accounted for the 30,016,875 warrants in connection with the Initial Public Offering (15,812,500 Public Warrants and 14,204,375 Private Placement Warrants) in accordance with the guidance contained in ASC 815-40. Such guidance provides that the warrants described above are not precluded from equity classification. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable 30 days after the consummation of a Business Combination. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any Class A ordinary shares pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise of the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No Public Warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their Public Warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.
The Company has registered our Class A ordinary shares issuable upon exercise of the warrants because the warrants will become exercisable 30 days after the completion of our initial business combination, which may be within one year of this offering. However, because the warrants will be exercisable until their expiration date of up to five years after the completion of our initial business combination, in order to comply with the requirements of Section 10(a)(3) of the Securities Act following the consummation of our initial business combination, the Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of its initial business combination, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A ordinary shares issuable upon exercise of the warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the 60th business day after the closing of the Company’s initial business combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if our Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In such event, each holder would pay the exercise price by surrendering the warrants for that number or Class A ordinary shares equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” (defined below) less the exercise price of the warrants by (y) the fair market value and (B) 0.361. The “fair market value” as used in this paragraph shall mean the volume weighted average trading price of the Class A ordinary shares for the 10 trading days immediately following the date on which the notice of exercise is received by the warrant agent.
Redemption of public warrants when the price per Class A ordinary shares equals or exceeds $ . Once the public warrants become exercisable, the Company may redeem the Public Warrants for redemption:
● | in whole and not in part; |
● | at a price of $0.01 per Public Warrant; |
● | upon not less than 30 days’ prior written notice of redemption to each warrant holder and |
F-33 |
● | if, and only if, the last reported sale price (the “closing price”) of our Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described under the heading “Description of Securities-Warrants-Public Warrants”) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the warrant holders. |
The Company will not redeem the warrants as described above unless an effective registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period. If and when the warrants become redeemable by us, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If and when the Public Warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of ordinary shares upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.
The exercise price and number of shares of Class A ordinary shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of ordinary shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.
The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
At June 30, 2022, and December 31, 2021 the Class A ordinary shares subject to possible redemption reflected in the balance sheet is reconciled in the following table:
Gross Proceeds | $ | 316,250,000 | ||
Less: | ||||
Class A ordinary shares issuance costs | (18,057,563 | ) | ||
Add: | ||||
Remeasurement of carrying value to redemption value | 22,801,313 | |||
Class A ordinary shares subject to possible redemption | $ | 320,993,750 |
F-34 |
NOTE 9. STOCKHOLDERS’ DEFICIT
Preferred stock - The Company is authorized to issue shares of $ par value preference shares. At June 30, 2022, and December 31, 2021, there were preferred shares issued or outstanding.
Class A ordinary shares - The Company is authorized to issue up to shares of Class A, $ par value ordinary shares. Holders of the Company’s ordinary shares are entitled to one vote for each share. At June 30, 2022, and December 31, 2021, there were shares of Class A ordinary shares issued or outstanding (excluding shares subject to possible redemption).
Class B ordinary shares - The Company is authorized to issue up to shares of Class B, $ par value ordinary shares. Holders of the Company’s ordinary shares are entitled to one vote for each share. At June 30, 2022, and December 31, 2021, there were Class B ordinary shares issued and outstanding.
The shares of Class B ordinary shares will automatically convert into shares of Class A ordinary shares at the time of the Business Combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like. In the case that additional shares of Class A ordinary shares, or equity linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B ordinary shares shall convert into shares of Class A ordinary shares will be adjusted (unless the holders of a majority of the outstanding shares of Class B ordinary shares agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A ordinary shares issuable upon conversion of all shares of Class B ordinary shares will equal, in the aggregate, on an as converted basis, 20% of the sum of the total number of all shares of ordinary shares outstanding upon the completion of the Initial Public Offering plus all shares of Class A ordinary shares and equity linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity linked securities issued, or to be issued, to any seller in a Business Combination, and any private placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder Shares may also elect to convert their shares of Class B ordinary shares into an equal number of shares of Class A ordinary shares, subject to adjustment as provided above, at any time.
The Company may issue additional ordinary shares or preference shares to complete its Business Combination or under an employee incentive plan after completion of its Business Combination.
NOTE 10. SUBSEQUENT EVENTS
Management of the Company evaluated events that have occurred after the balance sheet date through the date the financial statements were issued. Based upon the review, management did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.
On August 2, 2022, the Company held an extraordinary general meeting of shareholders (the “Meeting”). At the Meeting, the Company’s shareholders approved the proposals (collectively, the “Proposals”) including a proposal to approve by ordinary resolution the business combination between Founder and Rubicon (the “Business Combination” and such proposal, the “Business Combination Proposal”).
On August 4, 2022, Founder SPAC (the “FOUN”) and ACM ARRT F LLC, a Delaware limited liability company (“Seller”), entered into an agreement (the “Forward Purchase Agreement”) for an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Transaction”). Pursuant to the terms of the Forward Purchase Agreement, Seller intends, but is not obligated, to purchase (a) Class A ordinary shares, par value $
per share, of FOUN (the “Shares”) after the date of the Forward Purchase Agreement from holders of Shares (other than FOUN or affiliates of FOUN) who have elected to redeem Shares (such purchased Shares, the “Recycled Shares”) pursuant to the redemption rights set forth in FOUN’s amended and restated memorandum and articles of association (the “Governing Documents”) in connection with the Business Combination (such holders, “Redeeming Holders”) and (b) Shares in an issuance from FOUN at a price per Share equal to the Per-Share Redemption Price (as set forth in Section 1.1 of the Governing Documents) (such Shares, the “Additional Shares” and, together with the Recycled Shares, the “Subject Shares”). In addition, Seller has agreed to purchase Shares from Redeeming Holders (the “Separate Shares”). The aggregate total Subject Shares will be (the “Maximum Number of Shares”). Seller also may not beneficially own greater than 9.9% of the Shares on a post-combination pro forma basis. Seller has agreed to waive any redemption rights with respect to any Subject Shares and Separate Shares in connection with the Business Combination. Such waiver may reduce the number of Shares redeemed in connection with the Business Combination, which reduction could alter the perception of the potential strength of the Business Combination.
F-35 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members
Rubicon Technologies, LLC
Atlanta, Georgia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rubicon Technologies, LLC and subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, members’ (deficit) equity, and cash flows for each of the years in the two-year 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 years in the two-year 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.
Emphasis of a Matter
As discussed in Note 17 to the consolidated financial statements, the Company has incurred recurring losses from operations and negative cash flows from operating activities and has a negative working capital and is in member’s deficit. Management’s plans in regard to these matters are also described in Note 17. Our opinion is not modified with respect to this matter.
/s/ Cherry Bekaert LLP
We have served as the Company’s auditor since 2013.
Atlanta, Georgia
April 8, 2022
F-36 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2021 AND 2020
(in thousands)
2021 | 2020 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 10,617 | $ | 6,021 | ||||
Accounts receivable, net | 42,660 | 45,019 | ||||||
Contract assets | 56,984 | 43,357 | ||||||
Prepaid expenses | 6,227 | 4,290 | ||||||
Other current assets | 1,769 | 2,224 | ||||||
Total Current Assets | 118,257 | 100,911 | ||||||
Property and equipment, net | 2,611 | 2,289 | ||||||
Operating right-of-use assets | 3,920 | 3,884 | ||||||
Other noncurrent assets | 4,558 | 5,535 | ||||||
Goodwill | 32,132 | 32,132 | ||||||
Intangible assets, net | 14,163 | 15,148 | ||||||
Total Assets | $ | 175,641 | $ | 159,899 | ||||
LIABILITIES AND MEMBERS’ EQUITY (DEFICIT) | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 47,531 | $ | 41,915 | ||||
Line of credit | 29,916 | 29,373 | ||||||
Accrued expenses | 65,538 | 48,990 | ||||||
Deferred compensation | 8,321 | 1,079 | ||||||
Contract liabilities | 4,603 | 3,993 | ||||||
Operating lease liabilities, current | 1,675 | 1,412 | ||||||
Warrant liabilities | 1,380 | |||||||
Current portion of long-term debt, net of debt issuance costs | 22,666 | 680 | ||||||
Total Current Liabilities | 181,630 | 127,442 | ||||||
Long-Term Liabilities: | ||||||||
Deferred income taxes | 178 | 1,897 | ||||||
Operating lease liabilities, noncurrent | 3,770 | 4,555 | ||||||
Long-term debt, net of debt issuance costs | 51,000 | 47,024 | ||||||
Other long-term liabilities | 367 | 167 | ||||||
Total Long-Term Liabilities | 55,315 | 53,643 | ||||||
Total Liabilities | 236,945 | 181,085 | ||||||
Commitments and Contingencies (Note 14) | ||||||||
Members’ Equity (Deficit) | (61,304 | ) | (21,186 | ) | ||||
Total Liabilities and Members’ Equity (Deficit) | $ | 175,641 | $ | 159,899 |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-37 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2021 AND 2020
(in thousands, except unit data)
2021 | 2020 | |||||||
Revenue: | ||||||||
Service | $ | 500,911 | $ | 490,122 | ||||
Recyclable commodity | 82,139 | 49,251 | ||||||
Total revenue | 583,050 | 539,373 | ||||||
Costs and Expenses: | ||||||||
Cost of revenue (exclusive of amortization and depreciation): | ||||||||
Service | 481,642 | 471,039 | ||||||
Recyclable commodity | 77,030 | 45,892 | ||||||
Total cost of revenue (exclusive of amortization and depreciation) | 558,672 | 516,931 | ||||||
Sales and marketing | 14,457 | 14,782 | ||||||
Product development | 22,485 | 14,857 | ||||||
General and administrative | 52,915 | 37,754 | ||||||
Amortization and depreciation | 7,128 | 6,450 | ||||||
Total Costs and Expenses | 655,657 | 590,774 | ||||||
Loss from Operations | (72,607 | ) | (51,401 | ) | ||||
Other Income (Expense): | ||||||||
Interest earned | 2 | 8 | ||||||
Gain on forgiveness of debt | 10,900 | |||||||
Loss on change in fair value of warrants | (606 | ) | ||||||
Other expense | (1,055 | ) | (427 | ) | ||||
Interest expense | (11,455 | ) | (8,217 | ) | ||||
Total Other Expense | (2,214 | ) | (8,636 | ) | ||||
Loss Before Income Taxes | (74,821 | ) | (60,037 | ) | ||||
Income Tax Benefit | (1,670 | ) | (1,454 | ) | ||||
Net Loss | $ | (73,151 | ) | $ | (58,583 | ) | ||
Net loss per unit, basic and diluted | $ | (2.21 | ) | $ | (1.81 | ) | ||
Weighted-average units used in computing net loss per unit, basic and diluted | 33,048,809 | 32,426,264 |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-38 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2021 AND 2020
(in thousands)
Common | Preferred | |||||||||||
Unit Holders | Unit Holders | Total | ||||||||||
Balance, January 1, 2020 | (116,033 | ) | 152,962 | 36,929 | ||||||||
Compensation costs related to incentive units | 468 | 468 | ||||||||||
Net loss | (17,388 | ) | (41,195 | ) | (58,583 | ) | ||||||
Balance, December 31, 2020 | (133,421 | ) | 112,235 | (21,186 | ) | |||||||
Compensation costs related to incentive units | 543 | 543 | ||||||||||
Warrants exercised | 32,490 | 32,490 | ||||||||||
Net loss | (20,895 | ) | (52,256 | ) | (73,151 | ) | ||||||
Balance, December 31, 2021 | $ | (154,316 | ) | $ | 93,012 | $ | (61,304 | ) |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-39 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2021 AND 2020
(in thousands)
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (73,151 | ) | $ | (58,583 | ) | ||
Adjustments to reconcile net loss to net cash flows from operating activities: |
||||||||
Amortization and depreciation | 7,128 | 6,450 | ||||||
Amortization of debt issuance costs | 1,563 | 1,319 | ||||||
Bad debt reserve | 4,926 | 4,783 | ||||||
Loss on change in fair value of warrants | 606 | |||||||
Equity-based compensation | 543 | 468 | ||||||
Phantom unit expense | 7,242 | 271 | ||||||
Gain on forgiveness of debt | (10,900 | ) | ||||||
Deferred income tax benefit | (1,720 | ) | (1,144 | ) | ||||
Change in operating assets and liabilities (net of effects of acquisitions): |
||||||||
Accounts receivable | (2,567 | ) | (10,235 | ) | ||||
Contract assets | (13,627 | ) | 11,731 | |||||
Other current assets | 117 | (1,557 | ) | |||||
Prepaid expenses | (2,470 | ) | 695 | |||||
Operating lease assets | (36 | ) | 716 | |||||
Accounts payable | 5,616 | 15,099 | ||||||
Accrued expenses | 16,670 | (863 | ) | |||||
Other noncurrent assets | (89 | ) | (601 | ) | ||||
Contract liabilities | 610 | 1,114 | ||||||
Operating lease liabilities | (522 | ) | (1,176 | ) | ||||
Other liabilities | 200 | 31 | ||||||
Net cash flows from operating activities | (59,861 | ) | (31,482 | ) | ||||
Cash flows from investing activities: | ||||||||
Property and equipment purchases | (1,971 | ) | (1,288 | ) | ||||
Intangible asset purchases | (2,031 | ) | (218 | ) | ||||
Net cash flows from investing activities | (4,002 | ) | (1,506 | ) | ||||
Cash flows from financing activities: | ||||||||
Net borrowings (payments) on line of credit | 543 | (6,578 | ) | |||||
Proceeds from long-term debt | 42,254 | 30,778 | ||||||
Repayments of long-term debt | (3,000 | ) | (2,254 | ) | ||||
Financing costs paid | (2,771 | ) | (603 | ) | ||||
Proceeds from warrant exercise | 32,490 | |||||||
Payments of deferred offering costs | (1,057 | ) | ||||||
Net cash flows from financing activities | 68,459 | 21,343 | ||||||
Net change in cash and cash equivalents | 4,596 | (11,645 | ) | |||||
Cash, beginning of year | 6,021 | 17,666 | ||||||
Cash, end of year | $ | 10,617 | $ | 6,021 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 8,366 | $ | 6,413 | ||||
Fair value of warrants issued as debt discount | 773 |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-40 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 1Nature of operations and summary of significant accounting policies
Description of Business Rubicon Technologies, LLC is a digital marketplace for waste and recycling services and provides cloud-based waste and recycling solutions to businesses and governments. Rubicon’s sustainable waste and recycling solutions provide comprehensive management of customers’ waste streams through a platform that powers a modern, digital experience and delivers data-driven insights and transparency for the customers and hauling and recycling partners.
Rubicon provides consultation and management services to customers for waste removal, waste management, logistics, and recycling solutions. Consultation and management services include planning, consolidation of billing and administration, cost savings analyses, and vendor performance monitoring and management. The combination of Rubicon’s technology and services provides a holistic audit of customer waste streams. Rubicon also provides logistics services and markets and resells recyclable commodities.
The operations presented in these consolidated financial statements include the operations of Rubicon Technologies, LLC and subsidiaries for the years ended December 31, 2021 and 2020. Operations for the years ended December 31, 2021 and 2020 were primarily through Rubicon Global, LLC.
Rubicon Technologies, LLC and all subsidiaries are hereafter referred to as “Rubicon” or the “Company.”
Principles of Consolidation The consolidated financial statements include the accounts of Rubicon Technologies, LLC; Rubicon Global, LLC; Charter Waste Management, Inc.; RiverRoad Waste Solutions, Inc.; Rubicon Technologies International, Inc. and Rubicon Technologies Germany UG; and one inactive subsidiary. All significant intercompany and related accounts and transactions have been eliminated.
Segments The Company operates in one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assessing performance. The Company’s CODM role is fulfilled by the Executive Leadership Team (“ELT”), who allocates resources and assesses performance based upon consolidated financial information.
Basis of Accounting The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Financial Accounting Standards Board (“FASB”) has established the FASB Accounting Standards Codification (“ASC”) as the single source of authoritative U.S. GAAP.
Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of any contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition In accordance with the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), the Company recognizes revenue when it transfers control of the promised goods or services to customers, in an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, estimates may be required, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation.
Pursuant to ASC 606, the Company applies the following five-step model:
1. | Identify the contract(s) with a customer. |
2. | Identify the performance obligation(s) in the contract. |
F-41 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
3. | Determine the transaction price. |
4. | Allocate the transaction price to the performance obligations in the contract. |
5. | Recognize revenue when (or as) the Company satisfies a performance obligation. |
The Company recognizes service revenue over time, consistent with efforts performed and when the customer simultaneously receives and consumes the benefits provided by the Company’s services. The Company recognizes recyclable commodity revenue point in time when the ownership, risks and rewards transfer. The Company derives its revenue from waste removal, waste management and consultation services, software subscriptions, and the purchase and sale of recyclable commodities.
Service Revenue:
Service revenues are primarily derived from long-term contracts with waste generator customers including multiple promises delivered through the Company’s digital marketplace platform. The promises include waste removal, consultation services, billing administration and consolidation, cost savings analyses, and vendor procurement and performance management, each of which constitutes an input to the combined service managed through the digital platform. The digital platform and services are highly interdependent, and accordingly, each contractual promise is not considered a distinct performance obligation in the context of the contract and is combined into a single performance obligation. In general, fees are invoiced, and revenue is recognized over time as control is transferred. Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing the service. The Company invoices for certain services prior to performance. These advance invoices are included in contract liabilities and recognized as revenue in the period service is provided.
Service revenues also include software-as-a-service subscription, maintenance, equipment and other professional services, which represent separate performance obligations. Once the performance obligations and the transaction price are determined, including an estimate of any variable consideration, the Company then allocates the transaction price to each performance obligation in the contract using a relative standalone selling price method. The Company determines standalone selling price based on the price at which the good or service is sold separately.
Recyclable Commodity Revenue:
The Company recognizes recyclable commodity revenue through the purchase and sale of old corrugated cardboard (OCC), old newsprint (ONP), aluminum, glass, pallets, and other recyclable materials at market prices. The Company purchases recyclable commodities from certain waste generator customers and sells the recyclable materials to recycling and processing facilities. Revenue recognized under these agreements is variable in nature based on the market, type and volume or weight of the materials sold. The amount of revenue recognized is based on commodity prices at the time of sale, which are unknown at contract inception. Fees are billed, and revenue is recognized at a point in time when control is transferred to the recycling and processing facilities.
Management reviews contracts and agreements the Company has with its waste generator customers and hauling and recycling partners and performs an evaluation to consider the most appropriate manner in accordance with ASC 606-10, Revenue Recognition: Principal Agent Considerations, by which revenue is presented within the consolidated statements of operations.
Judgment is required in evaluating the presentation of revenue on a gross versus net basis based on whether the Company controls the service provided to the end-user and are the principal in the transaction (gross), or the Company arranges for other parties to provide the service to the end-user and are the agent in the transaction (net). Management concluded that Rubicon is the principal in most arrangements as the Company controls the waste removal service and are the primary obligor in the transactions.
F-42 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Cost of Revenue, exclusive of amortization and depreciation Cost of service revenues primarily consists of expenses related to delivering the Company’s service and providing support, including third-party hauler costs, costs of data center capacity, certain fees paid to various third parties for the use of their technology, services and data, and employee-related costs such as salaries and benefits.
Cost of recyclable commodity revenues primarily consists of expenses related to purchase of old corrugated cardboard (OCC), old newsprint (ONP), aluminum, glass, pallets and other recyclable materials, and any associated transportation fees.
The Company recognizes the cost of revenue exclusive of any amortization or depreciation expenses, which are recognized in operating expense on the consolidated statements of operations.
Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times exceed the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced losses in such accounts and does not believe it is exposed to any significant credit risk.
Accounts Receivable Accounts receivable consists of trade accounts receivable for services provided to customers. Accounts receivable is stated at the amount the Company expects to collect. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past-due balances and other higher-risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.
Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to operations and a credit to an allowance for doubtful accounts. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. As of December 31, 2021 and 2020, the allowance for doubtful accounts was $8.6 million and $7.1 million, respectively.
Contract Balances The Company recognizes revenue when services are performed, and corresponding performance obligations are satisfied. Timing of invoicing to customers may differ from the timing of revenue recognition and these timing differences result in contract assets (unbilled accounts receivables) or contract liabilities (deferred revenue) on the Company’s consolidated balance sheets.
Contract assets represent the Company’s right to consideration based on satisfied performance obligations from contracts with customers but have not yet been billed to the customer. Accounting for contract assets requires estimates and assumptions regarding the quantity of waste collected by their vendors. The Company estimates quantities using historical transaction and market data based on the waste stream composition, equipment type, and equipment size.
The changes in contract assets during 2021 and 2020 were follows (in thousands):
Balance, January 1, 2020 | $ | 55,088 | ||
Invoiced to customers in the current period | (56,892 | ) | ||
Changes in estimate related to prior period | 1,804 | |||
Estimated accrual related to current period | 43,357 | |||
Balance, December 31, 2020 | 43,357 | |||
Invoiced to customers in the current period | (43,513 | ) | ||
Changes in estimate related to prior period | 156 | |||
Estimated accrual related to current period | 56,984 | |||
Balance, December 31, 2021 | $ | 56,984 |
F-43 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Contract liabilities consists of amounts collected prior to having satisfied the performance obligation. The Company periodically invoices customers for recurring front load services in advance on a monthly basis. During the year ended December 31, 2021, the Company recognized $4.0 million of revenue that was included in the contract liabilities balance as of December 31, 2020. During the year ended December 31, 2020, the Company recognized $2.9 million of revenue that was included in the contract liabilities balance as of December 31, 2019.
Accrued Hauler Expenses The Company recognizes hauler costs and the cost of recyclable products when services are performed. Accounting for accrued hauler costs and the cost of recyclable products requires estimates and assumptions regarding the quantity of waste collected by their vendors. The Company estimates quantities using historical transaction and market data based on the waste stream composition, equipment type, and equipment size. Accrued hauler expenses are presented within accrued expenses on the consolidated balance sheets.
The changes in accrued hauler expenses during 2021 and 2020 were follows (in thousands):
Balance, January 1, 2020 | $ | 41,339 | ||
Invoiced by vendors in the current period | (43,288 | ) | ||
Changes in estimate related to prior period | 1,949 | |||
Estimated accrual related to current period | 37,429 | |||
Balance, December 31, 2020 | 37,429 | |||
Invoiced by vendors in the current period | (37,726 | ) | ||
Changes in estimate related to prior period | 297 | |||
Estimated accrual related to current period | 49,607 | |||
Balance, December 31, 2021 | $ | 49,607 |
Fair Value Measurements In accordance with U.S. GAAP, the Company groups its financial assets and financial liabilities at fair value in three levels, based on the markets in which the financial assets and financial liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 Valuations for financial assets and financial liabilities traded in active exchange markets, such as the New York Stock Exchange.
Level 2 Valuations are obtained from readily available pricing sources via independent providers for market transactions involving similar financial assets and financial liabilities.
Level 3 Valuations for financial assets and financial liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models, and similar techniques and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such financial assets or financial liabilities.
The compensation costs recorded in conjunction with phantom units issued under the terms of the Company’s Unit Appreciation Rights Plan are recorded at fair value and remeasured periodically based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of phantom units are based on the number of units granted, forfeited, and vested during the period along with changes in the Company’s fair market value. As the fair value measure is based on significant inputs that are not observable in the market, it is categorized as Level 3.
The contingent consideration and earnout liabilities related to business combinations are recorded at fair value and remeasured periodically based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value are based on significant inputs that are not observable in the market and are categorized as Level 3.
F-44 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Property and Equipment Property and equipment are stated at cost; additions and major improvements are capitalized, while regular maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets.
Lives used for depreciation calculations are as follows:
Computers, equipment and software | 3-5 years | ||
Furniture and fixtures | 3-5 years | ||
Customer equipment | 3-10 years | ||
Leasehold improvements | Lesser of useful life or remaining lease term |
Leases The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and noncurrent operating lease liabilities on the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term. The corresponding lease liabilities represent its obligation to make lease payments arising from the lease. The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less for any asset classes.
Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement, net of any future tenant incentives. The Company’s lease terms may include options to extend or terminate the lease. Periods beyond the noncancelable term of the lease are included in the measurement of the lease liability when it is reasonably certain that the Company will exercise the associated extension option or waive the termination option. The Company reassesses the lease term if and when a significant event or change in circumstances occurs within the control of the Company. As most of the Company’s leases do not provide an implicit rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate. The Company’s incremental borrowing rate is an estimate of the interest rate the Company would have to pay to borrow on a collateralized basis with similar terms and payments.
The lease ROU asset is recognized based on the lease liability, adjusted for any rent payments or initial direct costs incurred or tenant incentives received prior to commencement. Lease expenses for minimum lease payments for operating leases are recognized on a straight-line basis over the lease term.
The Company has entered into subleases or has made decisions and taken actions to exit and sublease certain unoccupied leased office space. Similar to the Company’s other long-lived assets, management tests ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. For leased assets, such circumstances would include the decision to leave a leased facility prior to the end of the minimum lease term or subleases for which estimated cash flow do not fully cover the costs of the associated lease.
Deferred Offering Costs Offering costs, consisting of legal, accounting, printer and filing fees related to the Mergers (as defined in Note 17), are deferred and will be offset against proceeds from the Mergers upon consummation of the transactions. In the event the transactions are terminated, all deferred offering costs would be expensed at that time. Deferred offering costs capitalized as of December 31, 2021 and 2020 were $1.1 million and $-0-, respectively, and included in other noncurrent assets on the consolidated balance sheets.
Advertising Advertising expenses are charged to income as incurred. The total advertising costs were $1.5 million and $2.1 million for the years ended December 31, 2021 and 2020, respectively. Advertising costs are included in selling, general, and administrative expenses on the consolidated statements of operations.
F-45 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Goodwill and Intangible Assets Goodwill represents the excess of the purchase price over fair value of net assets acquired. Goodwill and intangible assets determined to have an indefinite useful life at acquisition are not amortized, but instead tested for impairment at least annually. Any intangible assets with estimated useful lives are amortized over their respective estimated useful lives to their residual values and reviewed for impairment in accordance with accounting standards. The customer and hauler relationship assets are being amortized on a straight-line basis over a period ranging from two to eight years.
The Company evaluates and tests the recoverability of its goodwill for impairment at least annually during its fourth quarter of each fiscal year or more often if and when circumstances indicate that goodwill may not be recoverable.
During the years ended December 31, 2021 and 2020, the Company considered the impacts of the COVID-19 pandemic as qualitative factors in the annual goodwill impairment test. Based on the cumulative evidence, management concluded the qualitative indicators did not meet the more likely than not threshold; thus, no impairment losses were recorded for the years ended December 31, 2021 and 2020.
Impairment of Long-Lived Assets In accordance with U.S. GAAP, long-lived assets such as property and equipment, including intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company determined there were no impairment charges during 2021 or 2020.
Debt Issuance Costs Debt issuance costs related to term loans are capitalized and reported net of the current and long-term debt. The Company amortizes debt issuance costs to interest expense on the term loan using the effective interest method over the life of the debt agreement. Debt issuance costs related to lines of credit are capitalized and reported as a prepaid asset and are amortized to interest expense on a straight-line basis over the life of the debt agreement.
Customer Acquisition Costs The Company makes certain expenditures related to acquiring contracts for future services. These expenditures are capitalized and amortized in proportion to the expected future revenue from the customer, which in most cases results in straight-line amortization over the life of the customer. Amortization of these customer incentive costs is presented within amortization and depreciation on the consolidated statements of operations. Total customer acquisition costs capitalized for the years ended December 31, 2021 and 2020 totaled $-0- and $0.5 million, respectively, and are included in other current assets and other noncurrent assets on the consolidated balance sheets. Total amortization of these capitalized costs was $2.5 million and $1.5 million for the years ended December 31, 2021 and 2020, respectively.
The diluted net loss per unit attributable to common unit holders is computed by giving effect to all potential dilutive common unit equivalents outstanding for the period. The dilutive effect of these potential common units is reflected in diluted earnings per unit by application of the treasury stock method. The dilutive effect of outstanding warrants is reflected in diluted earnings per unit by application of the if-converted method. For purposes of this calculation, unvested incentive units and any outstanding warrants have been excluded from the calculation of diluted net loss per common unit as their effect is anti-dilutive.
F-46 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Income Taxes As a limited liability company, Rubicon Technologies, LLC is a non-taxpaying entity for federal income tax purposes. Accordingly, its taxable income or losses are allocated to members based on the provisions of the operating agreement and are included in the members’ income tax returns. Similar provisions apply for state income tax purposes.
The consolidated financial statements include a provision for income taxes related to the RiverRoad Waste Solutions, Inc. (“RiverRoad”), one of Rubicon Technologies, LLC’s subsidiaries which is organized as a C-Corporation. RiverRoad is subject to both state and federal income tax, and both the state and federal tax obligations associated with RiverRoad are reflected in the accompanying consolidated balance sheets as a component of accrued liabilities.
The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return and provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by taxing authorities. The Company recognizes interest and penalties related to income tax matters, including those related to uncertain tax positions, in income tax expense.
Under the guidance, the Company first determines whether it would more likely than not sustain its position if it were analyzed with full knowledge of all the relevant facts and other information. For those tax positions that meet this threshold, the Company measures the amount of tax benefit based on the largest amount of tax benefit that the Company has a greater than 50% chance of realizing in a final settlement with the relevant authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. At December 31, 2021 or 2020, the Company has no tax positions that meet this threshold and, therefore, has not recognized any adjustments.
Note 2Recent accounting pronouncements
Accounting pronouncements adopted during 2021
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017- 04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The Company adopted this ASU as of January 1, 2021. The adoption did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplified the accounting for income taxes. The new accounting guidance removes (i) the exception to the incremental approach for intra-period tax allocations when there is a loss from continuing operations and income or gain from other items such as discontinued operation or other comprehensive income, (ii) the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, (iii) the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and (iv) the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.
F-47 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The new accounting guidance also simplifies the accounting for income taxes by (i) requiring an entity to recognize franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (ii) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, (iii) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, (iv) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and (v) making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The Company adopted this ASU as of January 1, 2021. The adoption did not have a material impact on the Company’s consolidated financial statements.
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. ASU 2020-04 addresses the risks from the discontinuation of the London Interbank Offered Rate (LIBOR) and provides optional expedients and exceptions to contracts, hedging relationships and other transactions that reference LIBOR if certain criteria are met. This ASU is effective and may be applied beginning March 12, 2020 through December 31, 2022. The Company adopted this ASU as of October 15, 2021, in connection with the amendments of the Revolving Credit Facility and the Term Loan agreement (see Note 4). The adoption did not have a material impact on the Company’s consolidated financial statements.
Accounting pronouncements issued, but not adopted as of December 31, 2021
In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. ASU 2016-13 is effective for the Company at the beginning of 2023, with early adoption permitted. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 will be effective for the Company at the beginning of 2024 on a prospective basis, with early adoption permitted. The Company is currently evaluating the impact of this ASU will have on the Company’s consolidated financial statements.
Note 3Property and equipment
Property and equipment, net is comprised of the following at December 31 (in thousands):
2021 | 2020 | |||||||
Computers, equipment and software | $ | 2,968 | $ | 2,431 | ||||
Customer equipment | 1,122 | 913 | ||||||
Furniture and fixtures | 1,570 | 1,130 | ||||||
Leasehold improvements | 3,769 | 3,020 | ||||||
9,429 | 7,494 | |||||||
Less accumulated amortization and depreciation | (6,818 | ) | (5,205 | ) | ||||
Property and equipment, net | $ | 2,611 | $ | 2,289 |
Property and equipment amortization and depreciation expenses for the years ended December 31, 2021 and 2020 totaled $1.6 million and $1.6 million, respectively.
F-48 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 4Debt
Revolving Credit Facility On December 14, 2018, the Company entered into a $60.0 million “Revolving Credit Facility” secured by all assets of the Company including accounts receivable, intellectual property, and general intangibles. The loan’s original maturity was December 31, 2021 and bears an interest rate of LIBOR plus 4.50% (6.00% and 6.00% at December 31, 2021 and 2020, respectively). On February 27, 2020, the Company amended the Revolving Credit Facility extending the maturity date to December 31, 2022. On March 24, 2021, the Company amended the Revolving Credit Facility which modified the calculation of qualified billed and unbilled receivables. The amendment incrementally increased the qualified unbilled receivables resulting in additional availability on the Revolving Credit Facility. On October 15, 2021, the Company amended the Revolving Credit Facility, adding terms permitting the Company to enter into additional subordinated loan agreements. The borrowing capacity is calculated based on qualified billed and unbilled receivables. The fee on the average daily balance of unused loan commitments is 0.70%. Interest and fees are payable monthly with principal due upon maturity. In accordance with ASC 470-50, Debt Modifications and Extinguishments, it was determined that the Revolving Credit Facility amendments were considered a debt modification.
The Revolving Credit Facility requires a lockbox arrangement, which provides for receipts to be swept daily to reduce borrowings outstanding at the discretion of the lender. This arrangement, combined with the existence of the subjective acceleration clause in the “Line of Credit” agreement, necessitates the Line of Credit be classified as a current liability on the consolidated balance sheets. The acceleration clause allows for amounts due under the facility to become immediately due in the event of a material adverse change in the Company’s business condition (financial or otherwise), operations, properties or prospects, change of management, or change in control. As of December 31, 2021, the Company’s total outstanding borrowings under the Line of Credit were $29.9 million and $23.0 million remained available to draw. As of December 31, 2020, the Company’s total outstanding borrowings under the Line of Credit were $29.4 million and $21.3 million remained available to draw. The Revolving Credit Facility is subject to certain financial covenants. As of December 31, 2021, the Company was in compliance with these financial covenants.
The Company capitalized a total of $1.9 million in deferred debt charges related to the Revolving Credit Facility for its origination and subsequent amendments, which have been recorded to prepaid expenses in the consolidated balance sheet and are expensed over the term of the Revolving Credit Facility. Amortization of deferred debt charges were $0.5 million and $0.6 million for the years ended December 31, 2021 and 2020, respectively.
Term Loan Facilities On March 29, 2019, the Company entered into a $20.0 million “Term Loan” agreement secured by a second lien on all assets of the Company including accounts receivable, intellectual property and general intangibles. The Term Loan bore an interest rate of LIBOR plus 9.00% with the maturity date of the earlier of March 29, 2024 or the maturity date of the Revolving Credit Facility. The Company capitalized $1.2 million in deferred debt charges related to the Term Loan agreement.
On February 27, 2020, the Company amended the Term Loan agreement, increasing the principal amount of the facility to $40.0 million. The amended term loan bears an interest rate of LIBOR plus 9.50% and includes covenants for minimum qualified billed and unbilled receivables. In accordance with ASC 470-50, Debt Modifications and Extinguishments, it was determined that this Term Loan amendment was considered a debt modification. The Company capitalized an additional $0.6 million in deferred debt charges related to the amendment.
On March 24, 2021, the Company amended the Term Loan agreement, increasing the principal amount of the facility to $60.0 million and deferring principal payments to July 2021. The Company committed to minimum equity raise of $100.0 million, which if not completed by July 31, 2021, could require the use of available funds under the Line of Credit as term loan collateral by an amount up to $20.0 million. In accordance with ASC 470-50, Debt Modifications and Extinguishments, it was determined that this Term Loan amendment was considered a debt modification. The Company capitalized an additional $0.8 million in deferred debt charges related to the amendment.
F-49 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
On October 15, 2021, the Company amended the Term Loan agreement, adding terms permitting the Company to enter into additional subordinated loan agreements. The amendment also modified the qualified equity contributions requirement of $100.0 million by July 31, 2021 to $50.0 million during the period after October 15, 2021 and on or prior to February 28, 2022. Since the Mergers (see Note 17) had not consummated on or prior to February 28, 2022, the Company did not meet the amended qualified equity contributions requirement. The lender has temporarily waived the requirement to use the available funds under the Line of Credit as term loan collateral through June 30, 2022 while the Company and the lender negotiate a term loan amendment. The Company does not believe that any term loan collateral reduction corresponding to the qualified equity contribution would impact the Company’s ability to meet its liquidity requirements over the next twelve months. Pursuant to the amended Term Loan agreement, on October 15, 2021, the Company entered into warrant agreements and issued common unit purchase warrants (see Note 9). In accordance with ASC 470-50, Debt Modifications and Extinguishments, it was determined that this Term Loan amendment was considered a debt modification. The Company capitalized an additional $1.3 million in deferred debt charges related to the amendment.
Amortization of deferred debt charges related to the Term Loan agreement was $1.0 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively.
On December 22, 2021, the Company entered into a $20.0 million “Subordinated Term Loan” agreement secured by a third lien on all assets of the Company including accounts receivable, intellectual property and general intangibles. The Subordinated Term Loan matures on December 22, 2022 and bears an interest rate of 15.00%. Pursuant to the Subordinated Term Loan agreement, the Company entered into warrant agreements and issued common unit purchase warrants (see Note 9). The Company capitalized $1.5 million in deferred debt charges that are expensed over the term of the Subordinated Term Loan agreement. Amortization of deferred debt charges related to the Subordinated Term Loan agreement was insignificant for the year ended December 31, 2021 and $-0- for the years ended December 31, 2020.
Components of long-term debt were as follows (in thousands):
As of December 31, |
||||||||
2021 | 2020 | |||||||
Term loan balance | $ | 77,000 | $ | 48,524 | ||||
Less unamortized loan origination costs | (3,334 | ) | (820 | ) | ||||
Total borrowed | 73,666 | 47,704 | ||||||
Less short-term loan balance | (22,666 | ) | (680 | ) | ||||
Long-term loan balance | $ | 51,000 | $ | 47,024 |
At December 31, 2021, the future aggregate maturities of long-term debt are as follows (in thousands):
Schedule of Maturities of Long-term Debt | ||||
Fiscal Years Ending December 31, | ||||
2022 | $ | 26,000 | ||
2023 | 6,000 | |||
2024 | 45,000 | |||
Total | $ | 77,000 |
F-50 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
PPP Loans In 2020, the Company received loans under the Paycheck Protection Program for an amount totaling $10.8 million, which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the Small Business Administration (“SBA”). The PPP Loans had a maturity date of 2 years from the initial disbursement and carry an interest rate of 1% per year. The application for the PPP Loan required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operation of the Company. This certification further required the Company to consider current business activity and ability to access other sources of liquidity sufficient to support the ongoing operations in a manner that was not significantly detrimental to the business. The receipt of the funds from the PPP Loans and the forgiveness of the PPP Loans were dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of such PPP Loans based on funds being used for certain expenditures such as payroll costs and rent, as required by the terms of the PPP Loans.
The Company elected to repay $2.3 million of the PPP Loans during the year ended December 31, 2020. The SBA forgave the PPP loans in the full amount of $10.8 million along with associated accumulated interest during the year ended December 31, 2021, which resulted in a refund of $2.3 million the Company had repaid in 2020. The Company recognized $10.9 million to gain on forgiveness of debt on the consolidated statements of operations for the year ended December 31, 2021. The PPP Loan balances totaled $-0- and $8.5 million as of December 31, 2021 and 2020, respectively, and are presented in long-term debt on the consolidated balance sheets. Presently, the SBA and other government communications have indicated that all loans in excess of $2.0 million will be subject to audit and that those audits could take up to seven years to complete. If the SBA determines that the PPP Loans were not properly obtained and/or expenditures supporting forgiveness were not appropriate, the Company would be required to repay some or all of the PPP Loans and record additional expense which could have a material adverse effect on the Company business, financial condition and results of operations in a future period.
Interest expense related to the Revolving Credit Facility, Term Loan Facilities, and PPP Loans was $11.5 million and $8.2 million for the years ended December 31, 2021 and 2020, respectively.
Note 5Accrued expenses
Accrued expenses consist of the following at December 31 (in thousands):
2021 | 2020 | |||||||
Accrued hauler expenses | $ | 49,607 | $ | 37,429 | ||||
Accrued compensation | 9,656 | 8,783 | ||||||
Accrued income taxes | 3 | 61 | ||||||
Other accrued expenses | 6,272 | 2,717 | ||||||
$ | 65,538 | $ | 48,990 |
F-51 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 6Goodwill and other intangibles
The Company holds certain intangible assets recorded in accordance with the accounting policies disclosed in Note 1. Intangible assets consisted of the following (in thousands):
December 31, 2021 |
||||||||||||||||
Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization | Net Carrying Amount |
|||||||||||||
Trade Name | 5 | $ | 728 | $ | (728 | ) | $ | |||||||||
Customer and hauler relationships | 2 to 8 | 20,976 | (9,582 | ) | 11,394 | |||||||||||
Non-competition agreements | 3 to 4 | 550 | (487 | ) | 63 | |||||||||||
Technology | 3 | 3,178 | (1,307 | ) | 1,871 | |||||||||||
25,432 | (12,104 | ) | 13,328 | |||||||||||||
Domain Name | Indefinite | 835 | - | 835 | ||||||||||||
$ | 26,267 | $ | (12,104 | ) | $ | 14,163 |
December 31, 2020 |
||||||||||||||||
Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization | Net Carrying Amount |
|||||||||||||
Trade Name | 5 | $ | 728 | $ | (719 | ) | $ | 9 | ||||||||
Customer and hauler relationships | 2 to 8 | 20,976 | (7,023 | ) | 13,953 | |||||||||||
Non-competition agreements | 3 to 4 | 550 | (349 | ) | 201 | |||||||||||
Technology | 3 | 1,197 | (997 | ) | 200 | |||||||||||
23,451 | (9,088 | ) | 14,363 | |||||||||||||
Domain Name | Indefinite | 785 | - | 785 | ||||||||||||
$ | 24,236 | $ | (9,088 | ) | $ | 15,148 |
Amortization of these intangible assets for the years ended December 31, 2021 and 2020 was $3.0 million and $3.3 million, respectively, and future amortization expense is as follows (in thousands):
Fiscal Years Ending December 31, | ||||
2022 | $ | 3,282 | ||
2023 | 3,220 | |||
2024 | 3,110 | |||
2025 | 2,559 | |||
2026 | 1,157 | |||
Future amortization of intangible assets | $ | 13,328 |
Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired. Goodwill amounts are not amortized but are tested for impairment at least annually during the fourth quarter. The carrying amounts of goodwill were as follows (in thousands):
Balance at January 1, 2020 | $ | 32,132 | ||
Balance at December 31, 2020 | $ | 32,132 | ||
Balance at December 31, 2021 | $ | 32,132 |
F-52 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 7Leases
The Company leases its office facilities under operating lease agreements expiring through 2031. While each of the leases includes renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities as it is not reasonably certain to utilize the renewal options. The Company does not have any finance leases.
Balance sheet information related to operating leases is as follows (in thousands):
As of December 31, |
||||||||
2021 | 2020 | |||||||
Assets | ||||||||
Right-of-use assets | $ | 3,920 | $ | 3,884 | ||||
Liabilities | ||||||||
Current lease liabilities | 1,675 | 1,412 | ||||||
Non-current lease liabilities | 3,770 | 4,555 | ||||||
Total liabilities | $ | 5,445 | $ | 5,967 |
Lease expense information related to operating leases is as follows (in thousands):
2021 | 2020 | |||||||
Lease expense | ||||||||
Operating lease expense | $ | 1,507 | $ | 1,479 | ||||
Short-term lease expense | 601 | 586 | ||||||
Less: Sublease income | (802 | ) | (605 | ) | ||||
Total lease expense | $ | 1,306 | $ | 1,460 |
Lease expenses are included in “General and administrative” expenses on the Company’s consolidated statements of operations. The impact of the Company’s leases on the consolidated statement of cash flows is presented in the operating activities section, which mainly consisted of cash paid for operating lease liabilities of approximately $2.0 million and $1.9 million during the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021 and 2020, operating leases had weighted-average remaining lease terms of approximately 4.6 years and 3.5 years, respectively, and a weighted-average discount rate of 11.43% and 11.50%, respectively, to measure operating lease liabilities.
The following table presents information regarding the maturities of the undiscounted remaining operating lease payments, with a reconciliation to the amount of the liabilities representing such payments as presented on the December 31, 2021 consolidated balance sheet (in thousands).
Years Ending December 31, | ||||
2022 | $ | 2,224 | ||
2023 | 2,276 | |||
2024 | 1,228 | |||
2025 | 151 | |||
2026 | 152 | |||
Thereafter | 732 | |||
Total minimum lease payments | 6,763 | |||
Less: Imputed interest | (1,318 | ) | ||
Total operating lease liabilities | $ | 5,445 |
Operating lease amounts above do not include sublease income. The Company has entered into a sublease agreement with a third party. Under the agreement, the Company expects to receive sublease income of approximately $1.9 million over the next three years.
F-53 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 8Members’ equity (deficit)
Authorized | Held by Members | |||||||||||||||
as of December 31, |
as of December 31, |
|||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Common units | 34,438,298 | 34,438,298 | 9,440,108 | 9,440,108 | ||||||||||||
Series A Preferred | 4,834,906 | 4,834,906 | 4,834,906 | 4,834,906 | ||||||||||||
Series B Preferred | 6,820,450 | 6,820,450 | 6,774,923 | 6,774,923 | ||||||||||||
Series C Preferred | 3,142,815 | 3,142,815 | 3,141,500 | 3,141,500 | ||||||||||||
Series D Preferred | 2,816,403 | 2,816,403 | 2,787,707 | 2,787,707 | ||||||||||||
Series E Preferred | 7,451,981 | 7,451,981 | 6,530,128 | 5,447,120 | ||||||||||||
59,504,853 | 59,504,853 | 33,509,272 | 32,426,264 |
The founding member holds 8,278,000 common units.
During 2021, the Company received $32.5 million from warrant holders in exchange for Series E preferred units.
Under the terms of the LLC Operating Agreement (“Agreement”), allocations of profits, losses, capital gains, and distributions are in the following priorities:
Profits and Losses After giving effect to any required regulatory allocations, net profits and net losses (and to the extent necessary, individual items of income, gain, loss, deduction, or credit) of the Company shall be allocated to and among the members in a manner such that, as of the end of each allocation period, the sum of (i) the capital account of each member, (ii) each member’s share of partnership minimum gain (as determined in accordance with Treasury Regulations Section 1.704-2(g)), and (iii) each member’s partner nonrecourse debt minimum gain, shall be equal, as nearly as possible, to the respective net amounts that would be distributed to such member if the Company were dissolved, its affairs wound up and its assets sold for cash equal to their book value, all Company liabilities were satisfied (limited with respect to each nonrecourse liability to the book value of the assets securing such liability), and the net assets of the Company were distributed in accordance with the Agreement to the members immediately after making such allocations.
Distributions Distributable cash from operations shall be distributed to the members as follows:
First, to members for tax distributions based on the highest applicable individual income tax rate applied to the allocation of net taxable income.
Second, to preferred unit holders on a pro rata basis until each preferred unit holder has received aggregate distributions in full repayment of their capital contributions.
Last, to preferred and common unit holders pro rata according to the number of units held by each member.
The Agreement also contains provisions governing the sale of the founding member’s interest in certain circumstances. The Agreement also provides for certain limitations of liability of operating managers upon good faith distributions of funds in accordance with the Agreement and limits each member’s liability to their respective capital contribution.
F-54 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 9Warrants
Series E Warrants As part of the pre-funding Series E raise during 2018, the Company issued to the Series E unit holders a total of 844,000 Series E warrants, providing a right to purchase one unit each of Series E units at a price of $30.00 per unit any time prior to the third anniversary of the grant date. Grant dates ranged from April 30, 2018 to October 29, 2018. The Series E warrants were evaluated at issuance and were determined to be equity classified.
During 2019, the Company issued to the Series E unit holders a total of 240,725 Series E warrants, providing a right to purchase one unit each of Series E units at a price of $30.00 per unit any time prior to the second anniversary of the grant date. Grant dates ranged from July 9, 2019 to August 30, 2019. The Series E warrants were evaluated at issuance and were determined to be equity classified.
During 2021, the Company received $32.5 million from warrant holders in exchange for 1,083,008 Series E preferred units.
The following table summarizes equity-classified warrant activity as of and for the years ended December 31, 2021 and 2020:
Number | Weighted Average Exercise Price Per Warrant | |||||||
Outstanding January 1, 2020 | 1,084,725 | 30.00 | ||||||
Granted | ||||||||
Exercised | ||||||||
Expired | ||||||||
Outstanding - December 31, 2020 | 1,084,725 | 30.00 | ||||||
Granted | ||||||||
Exercised | (1,083,008 | ) | 30.00 | |||||
Expired | (1,717 | ) | 30.00 | |||||
Outstanding - December 31, 2021 | $ |
Warrant Liabilities Pursuant to the amended Term Loan agreement entered on October 15, 2021 (see Note 4), the Company concurrently entered into warrant agreements and issued common unit purchase warrants, which granted the lender the right to purchase up to 62,003 units of the Company’s common units at the exercise price of $0.01 any time prior to the earlier of the tenth anniversary of the issuance date of October 15, 2021, or certain triggering events, including a sale of the Company, the Company’s initial public offering and a merger between the Company and a special purpose acquisition company (“SPAC”), where the warrants are fully redeemed or exchanged. The Company determined that the warrants required liability classification pursuant to ASC 480 Distinguishing Liabilities from Equity. As such, the outstanding warrants are recognized as warrant liabilities on the consolidated balance sheets and were measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income (expense) on the consolidated statements of operations. The Company measured the fair value of the warrants at issuance and December 31, 2021, and recognized $0.7 million and $1.3 million of warrant liabilities on the consolidated balance sheets, respectively, with the difference of $0.6 million recorded as other expense on the consolidated statement of operations for the year ended December 31, 2021. During the year ended December 31, 2021, none of the warrants issued to the lender of the Term Loan were exercised.
F-55 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Pursuant to the Subordinated Term Loan agreement entered on December 22, 2021 (see Note 4), the Company concurrently entered into warrant agreements and issued common unit purchase warrants under the condition that if the Company does not repay the term loans on or prior to the maturity date, the lender receives right to purchase up to (i) the number of the Company’s common units worth $2.0 million if the Company consummates a SPAC transaction on or before the maturity date or (ii) 54,600 units of the Company’s common units in case the SPAC transaction is not consummated on or before the maturity date, at the exercise price of $0.01 any time after the maturity date prior to the earlier of the date principal and interest on all outstanding term loans under this Subordinated Term Loan agreement are repaid or the tenth anniversary of the issuance date. If the Company repays the Subordinated Term Loan on or prior to the maturity date, the warrants will automatically terminate and be voided and no warrant will be exercisable. The Company determined that the warrants required liability classification pursuant to ASC 480 Distinguishing Liabilities from Equity. The Company measured the fair value of the warrants at issuance and December 31, 2021, and recognized $0.1 million and $0.1 million of warrant liabilities on the consolidated balance sheets, respectively. The impact to the consolidated statement of operations from the changes in the fair value of the warrants was insignificant for the year ended December 31, 2021. During the year ended December 31, 2021, none of the warrants issued to the lender of the Subordinated Term Loan were exercisable.
Note 10Equity incentive plan
The 2014 Profits Participation Plan and Unit Appreciation Rights Plan (“2014 Plan”) is a board-approved plan. Under the 2014 Plan, the Company has the authority to grant incentive and phantom units to acquire common units. Unit awards generally vest at 25% of the units on the one year anniversary of continued employment, with the remaining 75% vesting in equal monthly installments over the next three years, unless otherwise specified.
Incentive Units Calculating incentive unit compensation expense requires the input of highly subjective assumptions pertaining to the fair value of its units. The Company utilized an independent valuation specialist to assist with the Company’s determination of the fair value per unit. The methods used to determine the fair value per unit included discounted cash flow analysis, comparable public company analysis, and comparable acquisition analysis. Starting in the beginning of 2021, the probability-weighted expected return method was used and considered multiple exit scenarios. The assumptions used in calculating the fair value of incentive unit awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. The Company estimates volatility based on a comparable market index and has calculated the historical volatility for the index for a period of time that corresponds to the expected term of the option. The expected term is calculated based on the estimated time for which the option will be held by the awardee. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
Management used the Black-Scholes-Merton option pricing model to determine the fair value of units issued during the years ended December 31, 2021 and 2020. Incentive units granted in 2021 had a weighted average value of $13.40 per unit, resulting in an aggregate fair value of $ million. Incentive units granted in 2020 had a weighted average value of $4.08 per unit, resulting in an aggregate fair value of $ million. Compensation expense for all options awarded to date is recognized over the vesting term of the underlying options. The Company recognized $ million and $ million in equity compensation costs for the years ended December 31, 2021 and 2020.
The assumptions used to calculate fair value of incentive units granted for the years ended December 31, 2021 and 2020 are as follows:
As of December 31, |
||||||||
2021 | 2020 | |||||||
Expected dividend yield | % | % | ||||||
Risk-free interest rate | % | % | ||||||
Expected life in years | ||||||||
Expected volatility | % | % |
F-56 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The following represents a summary of the Company’s incentive unit activity and related information for the years ended December 31, 2021 and 2020:
Units | |||
Outstanding - January 1, 2020 | 2,848,050 | ||
Granted | 176,117 | ||
Forfeited/redeemed | (6,976 | ) | |
Outstanding - December 31, 2020 | 3,017,191 | ||
Granted | 214,642 | ||
Forfeited/redeemed | (147,183 | ) | |
Outstanding - December 31, 2021 | 3,084,650 | ||
Vested - December 31, 2021 | 2,886,439 |
A summary of nonvested incentive units and changes for the years ended December 31, 2021 and 2020 is as follows:
Units | Weighted Average Grant Date Fair Value | |||||||
Nonvested - January 1, 2020 | 244,964 | 3.49 | ||||||
Granted | 176,117 | 4.08 | ||||||
Vested | (138,659 | ) | 3.37 | |||||
Forfeited/redeemed | (6,976 | ) | 4.08 | |||||
Nonvested - December 31, 2020 | 275,446 | 3.91 | ||||||
Granted | 214,642 | 13.40 | ||||||
Vested | (144,695 | ) | 3.75 | |||||
Forfeited/redeemed | (147,183 | ) | 9.36 | |||||
Nonvested - December 31, 2021 | 198,210 | $ | 10.25 |
As of December 31, 2021, there was $ million of total unrecognized compensation cost related to incentive unit arrangements granted under the plan. That cost is expected to be recognized over a weighted-average period of years.
Additionally, the Company is authorized to issue phantom units to eligible employees under the terms of the Company’s Unit Appreciation Rights Plan. The Company estimates the fair value of the phantom units as of the end of each reporting period and expenses the vested fair market value of each award. During the years ended December 31, 2021 and 2020, the Company awarded -
- and units, respectively. Compensation cost recognized during the years ended December 31, 2021 and 2020 was $ million and $ million, respectively.
Note 11Employee benefits plan
Employees are offered the opportunity to participate in the Company’s 401(k) Plan, which is intended to be a tax-qualified defined contribution plan under Section 401(k) of the Code. Eligible employees may contribute up to $19,500 of their salary to the 401(k) Plan annually during the years ended December 31, 2021 and 2020. The Company’s contributions to the 401(k) Plan were $0.5 million and $0.4 million for the years ended December 31, 2021 and 2020, respectively.
F-57 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 12Net loss per common unit
The following table sets forth the calculation of basic and diluted net loss per common unit during the periods presented:
Schedule of Earnings Per Share, Basic and Diluted | ||||||||
Year ended December 31, |
||||||||
2021 | 2020 | |||||||
Net loss attributable to unitholders (in thousands) | $ | (73,151 | ) | $ | (58,583 | ) | ||
Weighted-average units used in computing net loss per unit, basic and diluted | 33,048,809 | 32,426,264 | ||||||
Net loss per common and preferred unit, basic and diluted | $ | (2.21 | ) | $ | (1.81 | ) |
Incentive units described in Note 10 do not participate in losses and have been excluded from the net loss per common unit.
Due to their anti-dilutive effect, the warrants described in Note 9 have been excluded from diluted net loss per common unit.
Note 13Income taxes
Deferred tax attributes resulting from differences between financial accounting amounts and tax basis of assets and liabilities follow (in thousands):
December 31, | ||||||||
Deferred tax assets (liabilities): | 2021 | 2020 | ||||||
Allowance for doubtful accounts | $ | 55 | $ | 161 | ||||
Accrued vacation | 21 | 21 | ||||||
Accrued bonuses | 137 | 134 | ||||||
Deferred rent liability | 21 | |||||||
Interest expense limitation | 1 | 1 | ||||||
Lease liability | 221 | 224 | ||||||
Intangible assets | (1,831 | ) | (2,835 | ) | ||||
Net operating losses | 2,366 | 1,523 | ||||||
Capitalized transaction costs | 53 | 59 | ||||||
Right of use asset | (206 | ) | (209 | ) | ||||
Depreciation | 11 | (54 | ) | |||||
Goodwill | (1,027 | ) | (922 | ) | ||||
Deferred tax liability, net | $ | (178 | ) | $ | (1,897 | ) |
The provision for income taxes consists of the following (in thousands):
F-58 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The reconciliation between the federal statutory rate and the effective income tax rate is as follows:
December 31, | ||||||||
2021 | 2020 | |||||||
Statutory U.S. federal tax rate | 21.00 | % | 21.00 | % | ||||
State income taxes (net of federal benefit) | 0.50 | % | -0.11 | % | ||||
Income passed through to Members | -19.27 | % | -18.47 | % | ||||
Permanent differences | 0.00 | % | 0.00 | % | ||||
Other | 0.00 | % | 0.00 | % | ||||
Effective income tax rate | 2.23 | % | 2.42 | % |
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated the new tax provisions of the CARES Act and is planning to utilize the reinstated NOL carryback provisions for its subsidiary, RiverRoad. All other CARES Act provisions are determined to have an immaterial impact to the Company.
Pursuant to the provisions of the CARES Act above, the RiverRoad subsidiary carried back its Federal 2020 tax loss to tax year 2018. The estimated tax benefit for this carryback claim is approximately $0.4 million and is recorded as a current tax benefit for the year ended December 31, 2020. The corresponding $0.4 million tax receivable is presented within other current assets on the consolidated balance sheets as of December 31, 2021 and 2020.
The provision for income taxes differs from the amount that would result from applying statutory rates because of differences in the deductibility of certain book and tax expenses. Significant book to tax temporary differences that result in taxable income to the Company for the year ended December 31, 2021 include accrued bonuses and accounts receivable allowances not deductible for tax purposes and variations between both amortization and depreciation methods.
Goodwill related to the Company’s business combinations in prior years is tax deductible and amortized over 15 years for tax purposes, but generally not amortized for book purposes. As such, a deferred tax liability is created from this indefinite-lived asset. As of December 31, 2021 and 2020, the net deferred tax liability on such indefinite-lived assets was $1.0 million and $0.9 million, respectively.
As of December 31, 2021, the Company has a federal net operating loss carryforward of $9.7 million, and a state net operating loss carryforward of $7.4 million, fully attributable to its RiverRoad corporate subsidiary purchased in 2018. The federal operating loss carryforward will begin to expire in 2032. Pursuant to Section 382, RiverRoad, prior to acquisition, underwent a substantial ownership change during 2017, which triggered a limitation to the Company’s future net operating loss deductions. The annual limitation of the deduction will be approximately $0.2 million, computed as the approximate fair value of the Company (at the time of ownership change in 2017) multiplied by the long-term tax-exempt rate. Any amount of the NOL deduction limitation not used in any given year carries over to the following year. Depending on a variety of factors, this limitation, if applicable, could cause a portion or all the NOLs to expire before utilization occurs. No Section 382 limitation, if any, has been determined in connection with Rubicon’s purchase of RiverRoad in 2018; however, a second change in ownership can only potentially further limit annual limitations on utilization, and any such reduction would be immaterial to the consolidated financial statements.
F-59 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 14—Commitments and contingencies
In the ordinary course of business, the Company is or may be involved in various legal or regulatory proceedings, claims or purported class actions related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour and other claims.
The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. At this time, the Company is not able to reasonably estimate the amount or range of possible losses in excess of any amounts accrued, including losses that could arise as a result of application of non-monetary remedies, with respect to the contingencies it faces, and the Company’s estimates may not prove to be accurate.
In management’s opinion, resolution of all current matters is not expected to have a material adverse impact on the Company’s consolidated results of operations, cash flows or financial position. However, depending on the nature and timing of any such dispute or other contingency, an unfavorable resolution of a matter could materially affect the Company’s current or future results of operations or cash flows, or both.
Software subscription
The Company entered into a certain software subscription agreement with Palantir Technologies, Inc., including related support and update services on September 22, 2021. The Company subsequently amended the agreement on December 15, 2021. The term of the amended agreement is through December 31, 2024. Pursuant to the agreement, as of December 31, 2021, $17.0 million will become due in the next 12 months and $30.0 million thereafter through October 2024, unless the Company exercises its right to terminate the agreement prior to the closing of the Mergers (as defined in Note 17).
Note 15Related party transactions
Sales to related party investors in the amount of $1.6 million and $1.9 million were included in revenues on the consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively. The corresponding billed and unbilled accounts receivable balance was $0.3 million and $0.2 million as of December 31, 2021 and 2020, respectively. All outstanding balances with the related party were priced on an arms-length basis and are to be settled in cash. None of the balances is secured. No expense has been recognized in the current year or prior year for bad or doubtful debts in respect of amounts owed by related parties.
Note 16Concentrations
During the years ended December 31, 2021 and 2020, the Company had two significant customers that accounted for approximately 30% and 28% of total revenues, respectively. As of December 31, 2021 and 2020, approximately 23% and 23%, respectively, of the Company’s accounts receivable and contract assets were due from these two customers.
F-60 |
RUBICON TECHNOLOGIES, LLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 17Liquidity and pending mergers
During 2021, and in each fiscal year since the Company’s inception, it has incurred losses from operations and generated negative cash flows from operating activities. The Company also has negative working capital and member’s deficit as of December 31, 2021 and 2020 and debt that is maturing in 2022. Management believes that additional capital will be needed to support the Company’s debt and growth. Management plans to refinance its existing debt obligations and fund its future operations, product development, and acquisitions by raising additional capital through debt and equity financing.
On December 15, 2021, the Company entered into a Merger Agreement with Founder SPAC (“FOUN”), a Special Purpose Acquisition Company (the “Mergers”). The Mergers are subject to approval by stockholders of the Company and FOUN. Pursuant to the Merger Agreement, the newly-formed Ravenclaw Merger Sub LLC (“Merger Sub”), as a wholly-owned subsidiary of FOUN, will merge with and into Rubicon, with Rubicon surviving as a wholly-owned subsidiary of FOUN. As a result of the Mergers, the Company may receive up to $352.7 million of additional cash on its balance sheet assuming no redemptions and $36.7 million in a maximum redemption scenario.
In management’s opinion, additional debt or equity financing, combined with extending the Company’s line of credit, will provide liquidity for the Company for at least one year. However, it is possible additional funding, if needed, may have terms that are less favorable to the Company than its existing terms.
Note 18Subsequent events
Subsequent events have been evaluated through April 8, 2022, the date these financial statements were available to be issued.
F-61 |
RUBICON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
F-62 |
RUBICON TECHNOLOGIES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue: | ||||||||||||||||
Service | $ | 162,789 | $ | 127,256 | $ | 437,755 | $ | 365,511 | ||||||||
Recyclable commodity | 22,194 | 21,952 | 71,640 | 54,251 | ||||||||||||
Total revenue | 184,983 | 149,208 | 509,395 | 419,762 | ||||||||||||
Costs and Expenses: | ||||||||||||||||
Cost of revenue (exclusive of amortization and depreciation): | ||||||||||||||||
Service | 157,504 | 122,771 | 423,382 | 351,287 | ||||||||||||
Recyclable commodity | 20,234 | 20,340 | 65,856 | 51,098 | ||||||||||||
Total cost of revenue (exclusive of amortization and depreciation) | 177,738 | 143,111 | 489,238 | 402,385 | ||||||||||||
Sales and marketing | 4,840 | 3,808 | 13,336 | 10,604 | ||||||||||||
Product development | 9,803 | 4,827 | 28,336 | 13,350 | ||||||||||||
General and administrative | 186,640 | 11,561 | 212,520 | 34,968 | ||||||||||||
Amortization and depreciation | 1,439 | 1,344 | 4,331 | 4,958 | ||||||||||||
Total Costs and Expenses | 380,460 | 164,651 | 747,761 | 466,265 | ||||||||||||
Loss from Operations | (195,477 | ) | (15,443 | ) | (238,366 | ) | (46,503 | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Interest earned | 1 | 1 | 2 | |||||||||||||
Gain on forgiveness of debt | 10,900 | |||||||||||||||
Gain (loss) on change in fair value of warrant liabilities | 74 | (436 | ) | |||||||||||||
Gain on change in fair value of earn-out liabilities | 67,100 | 67,100 | ||||||||||||||
Loss on change in fair value of forward purchase option derivative | (76,919 | ) | (76,919 | ) | ||||||||||||
Excess fair value over the consideration received for SAFE | (800 | ) | ||||||||||||||
Other income (expense) | (1,307 | ) | (326 | ) | (1,994 | ) | (730 | ) | ||||||||
Interest expense | (4,578 | ) | (2,611 | ) | (12,264 | ) | (7,461 | ) | ||||||||
Total Other Income (Expense) | (15,629 | ) | (2,937 | ) | (25,312 | ) | 2,711 | |||||||||
Loss Before Income Taxes | (211,106 | ) | (18,380 | ) | (263,678 | ) | (43,792 | ) | ||||||||
Income tax expense (benefit) | 19 | (252 | ) | 60 | (961 | ) | ||||||||||
Net Loss | (211,125 | ) | (18,128 | ) | (263,738 | ) | (42,831 | ) | ||||||||
Net loss attributable to Holdings LLC unitholders prior to the Mergers | (176,384 | ) | (18,128 | ) | (228,997 | ) | (42,831 | ) | ||||||||
Net loss attributable to noncontrolling interests | (16,933 | ) | (16,933 | ) | ||||||||||||
Net Loss Attributable to Class A Common Stockholders | $ | (17,808 | ) | $ | $ | (17,808 | ) | $ |
As a result of the Mergers, the capital structure has changed and loss per share information is only presented for the period after the Closing Date of the Mergers. See Notes 3 and 14.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
F-63 |
RUBICON TECHNOLOGIES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY (UNAUDITED)
(in thousands, except shares, units, per share, and per unit data)
Members’ Units | Common Stock – Class A |
Common Stock – Class V |
Preferred Stock | Additional Paid-in | Accumulated | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||
Units | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2022 | 33,509,272 | $ | (61,304 | ) | - | $ | - | $ | - | $ | $ | $ | $ | $ | (61,304 | ) | ||||||||||||||||||||||||||||||||
Compensation costs related to incentive units | - | 184 | - | - | - | 184 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | - | (52,613 | ) | - | - | - | (52,613 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 33,509,272 | (113,733 | ) | - | - | - | (113,733 | ) | ||||||||||||||||||||||||||||||||||||||||
Activities prior to the Mergers: | ||||||||||||||||||||||||||||||||||||||||||||||||
Compensation costs related to incentive units | - | 46 | - | - | - | 46 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | - | (176,384 | ) | - | - | - | (176,384 | ) | ||||||||||||||||||||||||||||||||||||||||
Effects of the Mergers: | ||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds, net of redemptions | - | - | - | - | 196,775 | 196,775 | ||||||||||||||||||||||||||||||||||||||||||
Transaction costs related to the Mergers | - | (36,075 | ) | - | - | - | (31,249 | ) | (67,324 | ) | ||||||||||||||||||||||||||||||||||||||
Accelerated vesting and conversion of incentive units | 3,070,151 | 77,403 | - | - | - | 77,403 | ||||||||||||||||||||||||||||||||||||||||||
Exchange of liability classified warrants | 62,003 | 1,717 | - | - | - | 1,717 | ||||||||||||||||||||||||||||||||||||||||||
Reclassification of SAFE | - | - | - | - | 8,800 | 8,800 | ||||||||||||||||||||||||||||||||||||||||||
Phantom units rollover | - | - | - | 15,104 | 15,104 | |||||||||||||||||||||||||||||||||||||||||||
Reverse recapitalization | (36,641,426 | ) | 247,026 | - | - | - | (189,430 | ) | (57,596 | ) | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon the Mergers - Class A and Class V | - | 46,300,005 | 5 | 118,677,880 | 12 | - | (14 | ) | 3 | |||||||||||||||||||||||||||||||||||||||
Establishment of earn-out liabilities | - | - | - | - | (74,100 | ) | (74,100 | ) | ||||||||||||||||||||||||||||||||||||||||
Establishment of noncontrolling liability | - | - | - | - | (177,698 | ) | 177,698 | |||||||||||||||||||||||||||||||||||||||||
Activities subsequent to the Mergers | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | - | - | - | - | 10,913 | 10,913 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with SEPA – Class A | - | 200,000 | 0 | - | - | 892 | 892 | |||||||||||||||||||||||||||||||||||||||||
Exchange of Class V Common Stock to Class A Common Stock | - | 3,214,234 | 0 | (3,214,234 | ) | (0 | ) | - | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | (17,808 | ) | (16,933 | ) | (34,741 | ) | ||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | - | $ | 49,714,239 | $ | 5 | 115,463,646 | $ | 12 | - | $ | $ | 11,805 | $ | (327,216 | ) | $ | 160,765 | $ | (154,629 | ) |
Members’ Units | Common Stock – Class A |
Common Stock – Class V |
Preferred Stock | Additional Paid-in | Accumulated | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||
Units | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
Balance, January 1, 2021 | 32,426,264 | $ | (21,186 | ) | - | $ | - | $ | - | $ | $ | $ | $ | $ | (21,186 | ) | ||||||||||||||||||||||||||||||||
Compensation costs related to incentive units | - | 364 | - | - | - | 364 | ||||||||||||||||||||||||||||||||||||||||||
Warrants exercised | 1,016,540 | 30,496 | - | - | - | 30,496 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | - | (24,703 | ) | - | - | - | (24,703 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 33,442,804 | (15,029 | ) | - | - | - | (15,029 | ) | ||||||||||||||||||||||||||||||||||||||||
Compensation costs related to incentive units | - | 122 | - | - | - | 122 | ||||||||||||||||||||||||||||||||||||||||||
Warrants exercised | 66,468 | 1,994 | - | - | - | 1,994 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | - | (18,128 | ) | - | - | - | (18,128 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 33,509,272 | $ | (31,041 | ) | - | $ | - | $ | - | $ | $ | $ | $ | $ | (31,041 | ) |
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
F-64 |
RUBICON TECHNOLOGIES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (263,738 | ) | $ | (42,831 | ) | ||
Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
Loss (Gain) on disposal of property and equipment | 23 | (30 | ) | |||||
Amortization and depreciation | 4,026 | 4,958 | ||||||
Amortization of debt issuance costs | 2,378 | 1,018 | ||||||
Bad debt reserve | (2,366 | ) | 3,143 | |||||
Loss on change in fair value of warrant liabilities | 436 | |||||||
Loss on change in fair value of forward purchase option derivative | 76,919 | |||||||
Gain on change in fair value of earn-out liabilities | (67,100 | ) | ||||||
Excess fair value over the consideration received for SAFE | 800 | |||||||
SEPA commitment fee settled in Class A Common Stock | 892 | |||||||
Equity-based compensation | 88,546 | 486 | ||||||
Phantom unit expense | 6,783 | 2,907 | ||||||
Deferred compensation expense | 1,250 | |||||||
Gain on forgiveness of debt | (10,900 | ) | ||||||
Deferred income taxes | 41 | (1,006 | ) | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (13,636 | ) | (5,774 | ) | ||||
Contract assets | (5,821 | ) | (11,819 | ) | ||||
Prepaid expenses | (5,528 | ) | (1,842 | ) | ||||
Other current assets | (131 | ) | (328 | ) | ||||
Operating right-of-use assets | 801 | 633 | ||||||
Other noncurrent assets | 355 | (67 | ) | |||||
Accounts payable | 10,967 | 11,773 | ||||||
Accrued expenses | 52,450 | 5,816 | ||||||
Contract liabilities | (142 | ) | (399 | ) | ||||
Operating lease liabilities | (1,273 | ) | (996 | ) | ||||
Other liabilities | 150 | 148 | ||||||
Net cash flows from operating activities | (112,918 | ) | (45,110 | ) | ||||
Cash flows from investing activities: | ||||||||
Property and equipment purchases | (1,150 | ) | (1,294 | ) | ||||
Forward purchase option derivative purchase | (68,715 | ) | ||||||
Intangible asset purchases | (50 | ) | ||||||
Net cash flows from investing activities | (69,865 | ) | (1,344 | ) | ||||
Cash flows from financing activities: | ||||||||
Net borrowings(payments) on line of credit | 179 | (4,373 | ) | |||||
Proceeds from long-term debt | 22,254 | |||||||
Repayments of long-term debt | (4,500 | ) | (1,500 | ) | ||||
Financing costs paid | (2,000 | ) | (800 | ) | ||||
Warrants exercised | 32,490 | |||||||
Proceeds from SAFE | 8,000 | |||||||
Proceeds from the Mergers | 196,778 | |||||||
Equity issuance costs | (21,827 | ) | ||||||
Net cash flows from financing activities | 176,630 | 48,071 | ||||||
Net change in cash and cash equivalents | (6,153 | ) | 1,617 | |||||
Cash, beginning of period | 10,617 | 6,021 | ||||||
Cash, end of period | $ | 4,464 | $ | 7,638 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 9,023 | $ | 6,119 | ||||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Exchange of warrant liability for Class A and Class V Common Stock | $ | 1,716 | $ | |||||
Conversion of SAFE for Class V Common Stock | $ | 8,000 | $ | |||||
Establishment of earn-out liabilities | $ | 74,100 | $ | |||||
Equity issuance costs accrued but not paid | $ | 44,235 | $ |
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
F-65 |
RUBICON TECHNOLOGIES, INC AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Nature of operations and summary of significant accounting policies
Description of Business – Rubicon Technologies, Inc. is a digital marketplace for waste and recycling services and provides cloud-based waste and recycling solutions to businesses and governments. Rubicon’s sustainable waste and recycling solutions provide comprehensive management of customers’ waste streams through a platform that powers a modern, digital experience and delivers data-driven insights and transparency for the customers and hauling and recycling partners.
Rubicon provides consultation and management services to customers for waste removal, waste management, logistics, and recycling solutions. Consultation and management services include planning, consolidation of billing and administration, cost savings analyses, and vendor performance monitoring and management. The combination of Rubicon’s technology and services provides a holistic audit of customer waste streams. Rubicon also provides logistics services and markets and resells recyclable commodities.
Rubicon Technologies, Inc. and all subsidiaries are hereafter referred to as “Rubicon” or the “Company.”
Mergers – Rubicon Technologies, Inc. was initially incorporated in the Cayman Islands on April 26, 2021 as a special purposes acquisition company under the name “Founder SPAC” (“Founder”). Founder was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. On August 15, 2022 (the “Closing Date”), Founder consummated the mergers described below (collectively the “Mergers”), pursuant to that certain Agreement and Plan of Merger, dated December 15, 2021 (the “Merger Agreement”), by and among Founder, Ravenclaw Merger Sub LLC, a Delaware limited liability company and a wholly owned direct subsidiary of Founder (“Merger Sub”), Ravenclaw Merger Sub Corporation 1, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 1”), Ravenclaw Merger Sub Corporation 2, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 2”), Ravenclaw Merger Sub Corporation 3, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 3” and, together with Merger Sub Inc. 1 and Merger Sub Inc. 2, each a “Blocker Merger Sub”), Boom Clover Business Limited, a British Virgin Islands corporation (“Blocker Company 1”), NZSF Frontier Investments Inc., a Delaware corporation (“Blocker Company 2”), PLC Blocker A LLC, a Delaware limited liability company (“Blocker Company 3” and, together with Blocker Company 1 and Blocker Company 2, each a “Blocker Company” and collectively, the “Blocker Companies”), and Rubicon Technologies, LLC, a Delaware limited liability company (“Holdings LLC”). On the Closing Date, and in connection with the closing of the Mergers (the “Closing”), pursuant to the Merger Agreement, (a) Founder was domesticated and continues as a Delaware corporation, changing its name to Rubicon Technologies, Inc., (b) Merger Sub merged with and into Holdings LLC (the “Merger”), with Holdings LLC surviving the Merger as a wholly owned subsidiary of Rubicon, and (c) in a series of sequential two-step mergers (i) each Blocker Merger Sub merged with and into its corresponding Blocker Company, with each Blocker Company surviving as a wholly owned subsidiary of Rubicon, following which (ii) each surviving Blocker Company merged with and into Rubicon, with Rubicon surviving the merger (collectively the “Blocker Mergers”).
In connection with the Mergers, the Company was reorganized into an Up-C structure, in which substantially all of the assets and business of the Company are held by Rubicon Technologies Holdings, LLC and continue to operate through Rubicon Technologies Holdings, LLC and its subsidiaries, and Rubicon Technologies, Inc.’s material assets are the equity interests of Rubicon Technologies Holdings, LLC indirectly held by it. Pursuant to the Merger Agreement, the Mergers were accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) (the “Reverse Recapitalization”). Under this method of accounting, Founder was treated as the acquired company and Holdings LLC was treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Holdings LLC issuing stock for the net assets of Founder, accompanied by a recapitalization. Thus, these condensed consolidated financial statements reflect (i) the historical operating results of Holdings LLC prior to the Mergers; (ii) the results of Rubicon Technologies, Inc. following the Mergers; and (iii) the acquired assets and liabilities of Founder stated at historical cost, with no goodwill or other intangible assets recorded.
See Note 3 for further information regarding the Mergers.
F-66 |
Basis of Presentation and Consolidation – The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to U.S. GAAP and reflect all adjustments which are, in the opinion of management, necessary to a fair presentation of the results of the interim periods presented, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements include all adjustments consisting of only normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. The Company’s condensed consolidated financial statements include the accounts of Rubicon Technologies, Inc., and subsidiaries. The Company’s condensed consolidated financial statements reflect the elimination of all significant inter-company accounts and transactions. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2022. Certain information and note disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes prepared in accordance with U.S. GAAP have been condensed in, or omitted from, these interim financial statements. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements for the fiscal year ended December 31, 2021 included in the Company’s Registration Statement on Form S-1 filed with the SEC on August 22, 2022.
Segments – The Company operates in one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assessing performance. The Company’s CODM role is fulfilled by the Executive Leadership Team (“ELT”), who allocates resources and assesses performance based upon consolidated financial information.
Use of Estimates – The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of any contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Emerging Growth Company The Company is an emerging growth company (“EGC”), as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company did not opt out of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an EGC, will be required to adopt the new or revised standard at the time the new or revised standard becomes applicable to private companies. The effective dates shown in Note 2 below reflect the election to use the extended transition period.
Revenue Recognition – The Company recognizes service revenue over time, consistent with efforts performed and when the customer simultaneously receives and consumes the benefits provided by the Company’s services. The Company recognizes recyclable commodity revenue at the point in time when the ownership, risks, and rewards transfer. The Company derives its revenue from waste removal, waste management and consultation services, software subscriptions, and the purchase and sale of recyclable commodities.
F-67 |
Service Revenue:
Service revenues are primarily derived from long-term contracts with waste generator customers including multiple promises delivered through the Company’s digital marketplace platform. The promises include waste removal, consultation services, billing administration and consolidation, cost savings analyses, and vendor procurement and performance management, each of which constitutes an input to the combined service managed through the digital platform. The digital platform and services are highly interdependent, and accordingly, each contractual promise is not considered a distinct performance obligation in the context of the contract and is combined into a single performance obligation. In general, fees are invoiced, and revenue is recognized over time as control is transferred. Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing the service. The Company invoices for certain services prior to performance. These advance invoices are included in contract liabilities and recognized as revenue in the period service is provided.
Service revenues also include software-as-a-service subscription, maintenance, equipment and other professional services, which represent separate performance obligations. Once the performance obligations and the transaction price are determined, including an estimate of any variable consideration, the Company then allocates the transaction price to each performance obligation in the contract using a relative standalone selling price method. The Company determines standalone selling price based on the price at which the good or service is sold separately.
Recyclable Commodity Revenue:
The Company recognizes recyclable commodity revenue through the purchase and sale of old corrugated cardboard (“OCC”), old newsprint (“ONP”), aluminum, glass, pallets, and other recyclable materials at market prices. The Company purchases recyclable commodities from certain waste generator customers and sells the recyclable materials to recycling and processing facilities. Revenue recognized under these agreements is variable in nature based on the market, type and volume or weight of the materials sold. The amount of revenue recognized is based on commodity prices at the time of sale, which are unknown at contract inception. Fees are billed, and revenue is recognized at a point in time when control is transferred to the recycling and processing facilities.
Management reviews contracts and agreements the Company has with its waste generator customers and hauling and recycling partners, and performs an evaluation to consider the most appropriate manner in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606-10, Revenue Recognition: Principal Agent Considerations, by which revenue is presented within the condensed consolidated statements of operations.
Judgment is required in evaluating the presentation of revenue on a gross versus net basis based on whether the Company controls the service provided to the end-user and are the principal in the transaction (gross), or the Company arranges for other parties to provide the service to the end-user and are the agent in the transaction (net). Management has concluded that the Company is the principal in most arrangements as it controls the waste removal service and is the primary obligor in the transactions.
Cost of Revenue, exclusive of amortization and depreciation – Cost of service revenues primarily consists of expenses related to delivering the Company’s service and providing support, including third-party hauler costs, costs of data center capacity, certain fees paid to various third parties for the use of their technology, services and data, and employee-related costs such as salaries and benefits.
Cost of recyclable commodity revenues primarily consists of expenses related to purchase of OCC, ONP, aluminum, glass, pallets and other recyclable materials, and any associated transportation fees.
The Company recognizes the cost of revenue exclusive of any amortization or depreciation expenses, which are recognized in operating expense on the condensed consolidated statements of operations.
F-68 |
Cash and Cash Equivalents – The Company considers all highly liquid investments purchased with an original maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times exceed the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced losses in such accounts and does not believe it is exposed to any significant credit risk.
Accounts Receivable – Accounts receivable consists of trade accounts receivable for services provided to customers. Accounts receivable are stated at the amount the Company expects to collect. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past-due balances and other higher-risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.
Contract Balances – In cases where our customers pay for services in arrears, the Company accrues for revenue in advance of billings as long as the criteria for revenue recognition are met, thus creating a contract asset (unbilled receivable). As of September 30, 2022 and December 31, 2021, the Company had unbilled receivables of $62.8 million and $57.0 million, respectively. These unbilled balances were the result of services provided in period, but not yet billed to the customer. During the nine months ended September 30, 2022, the Company invoiced its customers $50.0 million pertaining to contract assets for services delivered prior to December 31, 2021.
Contract liabilities (deferred revenue) consists of amounts collected prior to having satisfied the performance obligation. The Company periodically invoices customers for recurring front load services in advance on a monthly basis. As of September 30, 2022 and December 31, 2021, the Company had deferred revenue balances of $4.5 million and $4.6 million, respectively. During the nine months ended September 30, 2022, the Company recognized $4.1 million of revenue that was included in the contract liabilities balance as of December 31, 2021.
Accrued Hauler Expenses – The Company recognizes hauler costs and the cost of recyclable products when services are performed. Accounting for accrued hauler costs and the cost of recyclable products requires estimates and assumptions regarding the quantity of waste collected by their vendors. The Company estimates quantities using historical transaction and market data based on the waste stream composition, equipment type, and equipment size. Accrued hauler expenses are presented within accrued expenses on the condensed consolidated balance sheets.
Fair Value Measurements – U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions. See Note 15.
Offering Costs – Offering costs, consisting of legal, accounting, printer and filing fees related to the Mergers, were deferred and offset against proceeds from the Mergers and additional paid-in capital upon consummation of the Mergers. Deferred offering costs capitalized as of September 30, 2022 and December 31, 2021 were $-0- and $1.1 million, respectively, and included in other noncurrent assets on the condensed consolidated balance sheets. The total amount of the offering costs recognized as offset against additional paid-in capital on the accompanying condensed consolidated balance sheet as of September 30, 2022 was $67.3 million, $23.1 million of which has been paid while remaining $44.2 million is included in accrued expenses as of September 30, 2022.
Customer Acquisition Costs – The Company makes certain expenditures related to acquiring contracts for future services. These expenditures are capitalized and amortized in proportion to the expected future revenue from the customer, which in most cases results in straight-line amortization over the life of the customer. Amortization of these customer incentive costs is presented within amortization and depreciation on the condensed consolidated statements of operations.
F-69 |
Warrants – The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s Class A common stock, par value $ per share (“Class A Common Stock”), among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded in liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the liability-classified warrants are recognized in other income (expense) on the consolidated statement of operations.
As of September 30, 2022, the Company has both liability-classified and equity-classified warrants outstanding. See Note 9 for further information.
Earn-out Liabilities – Pursuant to the Merger Agreement, (i) Blocked Unitholders (as defined in Note 3) immediately before the Closing received a right to receive a pro rata portion of shares of Class A Common Stock (the “Earn-Out Class A Shares”) and (ii) Rubicon Continuing Unitholders (as defined in Note 3) immediately before the Closing received a right to receive a pro rata portion of Class B Units (as defined in Note 3) (“Earn-Out Units”) and an equivalent number of shares of the Company’s Class V common stock, par value $ (“Class V Common Stock”) (“Earn-Out Class V Shares”, and together with Earn-Out Class A Shares and Earn-Out Units, “Earn-Out Interests”), in each case, depending upon the performance of Class A Common Stock during the five (5) year period after the Closing (the “Earn-Out Period”), as set forth below upon satisfaction of any of the following conditions (each, an “Earn-Out Condition”).
(1) | 50% of the Earn-Out Interests if the volume weighted average price (the “VWAP”) of the Class A Common Stock equals or exceeds $14.00 per share (as adjusted for stock splits, stock dividends, reorganizations, and recapitalizations) for twenty (20) of thirty (30) consecutive trading days during the Earn-Out Period; and |
(2) | 50% of the Earn-Out Interests if the VWAP of the Class A Common Stock equals or exceeds $16.00 per share (as adjusted for stock splits, stock dividends, reorganizations, and recapitalizations) for twenty (20) of any thirty (30) consecutive trading days during the Earn-Out Period. |
Earn-Out Interests are classified as liability transactions at initial issuance which offset against additional paid-in capital as of the Closing. At each period end, Earn-Out Interests are remeasured to their fair value with the changes during that period recognized in other income (expense) on the consolidated statement of operations. Upon issuance and release of the shares after each Earn-Out Condition is met, the related Earn-Out Interests will be remeasured to their fair value at that time with the changes recognized in other income (expense), and such Earn-Out Interests will be reclassed to stockholders’ equity (deficit) on the consolidated balance sheet. As of the Closing Date, the Earn-Out Interests had a fair value of $74.1 million. As of September 30, 2022, the Earn-out Interests had a fair value of $7.0 million, with the changes in the fair value between the Closing Date and September 30, 2022 of $67.1 million recognized as a gain in fair value of earn-out liabilities under other income (expense) within accompanying condensed consolidated statements of operations.
Noncontrolling Interest – Noncontrolling interest represents the Company’s noncontrolling interest in consolidated subsidiaries which are not attributable, directly or indirectly, to the controlling Class A Common Stock ownership of the Company.
F-70 |
Upon completion of the Mergers, Rubicon Technologies, Inc. issued an aggregate shares of Class V Common Stock, each of which is exchangeable into an equal number of Class A Common Stock. Shares of Class V Common Stock are non-economic voting shares in Rubicon Technologies, Inc. where shares of Class V Common Stock each have one vote per share.
The financial results of Holdings LLC were consolidated into Rubicon Technologies, Inc. and 70.5% of Holdings LLC’s net loss during the period of August 15, 2022, the Closing Date, through September 30, 2022 was allocated to noncontrolling interests (“NCI”).
Income Taxes – Rubicon Technologies, Inc. is a corporation and is subject to U.S. federal as well as state income tax including the income or loss allocated from its investment in Rubicon Technologies Holdings, LLC. Rubicon Technologies Holdings, LLC is taxed as a partnership for which the taxable income or loss is allocated to its members. Certain of the Rubicon Technologies Holdings, LLC operating subsidiaries are considered taxable Corporations for U.S. income tax purposes. Prior to the Mergers, Holdings LLC was not subject to U.S. Federal and certain state income taxes at the entity level.
The Company accounts for income taxes in accordance with ASC Topic 740, Accounting for Income Taxes (“ASC Topic 740”), which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and tax bases of its assets and liabilities by applying the enacted tax rates in effect for the year in which the differences are expected to reverse. Such net tax effects on temporary differences are reflected on the Company’s consolidated balance sheets as deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when the Company believes that it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The Company calculates the interim tax provision in accordance with the provisions of ASC Subtopic 740-270, Income Taxes; Interim Reporting. For interim periods, the Company estimates the annual effective income tax rate (“AETR”) and applies the estimated rate to the year-to-date income or loss before income taxes.
ASC Topic 740 prescribes a two-step approach for the recognition and measurement of tax benefits associated with the positions taken or expected to be taken in a tax return that affect amounts reported in the financial statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and adjustment at a later date based on ongoing analyses of tax laws, regulations and interpretations thereof. To the extent that the Company’s assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period in which such determination is made. The Company reports income tax-related interest and penalties relating to uncertain tax positions, if applicable, as a component of income tax expense.
The Company’s income tax expense (benefit) was $-0- million and $(0.3) million for the three months ended September 30, 2022 and 2021, respectively, with an effective tax rate of (0.0)% and 1.4%, respectively. The Company’s income tax expense (benefit) was $0.1 million and $(1.0) million for the nine months ended September 30, 2022 and 2021, respectively, with an effective tax rate of (0.0)% and 2.2%, respectively. The provision for income taxes differs from the amount that would result from applying statutory rates because of differences in the deductibility of certain book and tax expenses. Significant book to tax temporary differences that result in taxable income to the Company for the nine months ended September 30, 2022 include accounts receivable allowances not deductible for tax purposes and variations between both amortization and depreciation methods.
During the nine months ended September 30, 2022, the Company recorded a full valuation allowance against its deferred tax assets. The Company intends to maintain this position until there is sufficient evidence to support the reversal of all or some portion of the allowance. The Company also has certain assets with indefinite lives for which the basis is different for book and tax. In accordance with ASC 740-10-30-18, the deferred tax liability related to these intangible assets cannot be used to offset deferred tax assets when determining the amount of the valuation allowance for deferred tax assets which are not more-likely-than-not to be realized. As a result, the Company is in a net deferred tax liability position of $0.2 million as of September 30, 2022.
F-71 |
Tax Receivable Agreement Obligation – The Company and Holdings LLC entered into a Tax Receivable Agreement (the “Tax Receivable Agreement” or “TRA”) with Rubicon Continuing Unitholders (as defined in Note 3) and Blocked Unitholders (as defined in Note 3) (together, the “TRA Holders”). Pursuant to the Tax Receivable Agreement, among other things, the Company is required to pay to the TRA Holders 85% of certain of the Company’s realized (or in certain cases deemed realized) tax savings as a result of certain tax benefits related to the transactions contemplated by the Merger Agreement and future exchanges of Class B Units for Class A Common Stock or cash. The actual tax benefit, as well as the amount and timing of any payments under the TRA, will vary depending on a number of factors, including the price of the Company’s Class A Common Stock at the time of the exchange; the timing of future exchanges; the extent to which exchanges are taxable; the amount and timing of the utilization of tax attributes; the amount, timing and character of the Company’s income; the U.S. federal, state and local tax rates then applicable; the depreciation and amortization periods that apply to the increases in tax basis; the timing and amount of any earlier payments that the Company may have made under the TRA; and the portion of the Company’s payments under the TRA that constitute imputed interest or give rise to depreciable or amortizable tax basis.
The Company accounts for the effects of these increases in tax basis and associated payments under the TRAs if and when exchanges occur as follows:
a. | recognizes a contingent liability for the TRA obligation when it is deemed probable and estimable, with a corresponding adjustment to additional paid-in-capital, based on the estimate of the aggregate amount that the Company will pay; |
b. | records an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the exchange; |
c. | to the extent the Company estimates that the full benefit represented by the deferred tax asset will not be fully realized based on an analysis that will consider, among other things, the expectation of future earnings, the Company reduces the deferred tax asset with a valuation allowance; and |
d. | the effects of changes in any of the estimates and subsequent changes in the enacted tax rates after the initial recognition will be included in the Company’s net loss. |
As of September 30, 2022, no TRA liability was recorded based on current projections of the Company’s future taxable income taking into consideration the Company’s full valuation allowance against its deferred tax asset.
Diluted income (loss) per share is computed giving effect to all potential weighted-average dilutive shares for the period. The dilutive effect of outstanding awards or financial instruments, if any, is reflected in diluted income (loss) per share by application of the treasury stock method or if converted method, as applicable. Stock awards are excluded from the calculation of diluted EPS in the event they are antidilutive or subject to performance conditions for which the necessary conditions have not been satisfied by the end of the reporting period. See Note 14 for additional information on dilutive securities.
Prior to the Mergers, the membership structure of Holdings LLC included units which had liquidation preferences. The Company analyzed the calculation of loss per unit for periods prior to the Mergers and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements. As a result, loss per share information has not been presented for periods prior to the Mergers on August 15, 2022.
F-72 |
Derivative Financial Instruments – From time to time, the Company utilizes instruments which may contain embedded derivative instruments as part of our overall strategy. The Company’s derivative instruments are recorded at fair value on the consolidated balance sheets. These derivative instruments have not been designated as hedges; therefore, both realized and unrealized gains and losses are recognized in earnings. For the purposes of cash flow presentation, realized and unrealized gains or losses are included within cash flows from operating activities. Upfront cash payments received upon the issuance of derivative instruments are included within cash flows from financing activities, while the prepayments made upon the issuance of derivative instruments are included within cash flows from investing activities within the consolidated statements of cash flows.
The Company accounts for nonemployee stock-based transactions using the fair value of the consideration received (i.e., the value of the goods or services) or the fair value of the equity instruments issued, whichever is more reliably measurable.
Note 2—Recent accounting pronouncements
Accounting pronouncements adopted during 2022
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and contracts in an Entity’s Own Equity, which reduced the number of models used to account for convertible instruments, amends the accounting for certain contracts in an entity’s own equity that would have been previously been accounted for as derivatives and modifies the diluted per share calculations for convertible instruments. The Company adopted this ASU as of January 1, 2022 using the modified retrospective method. The adoption did not have a material impact on the Company’s consolidated financial statements.
Accounting pronouncements issued, but not adopted as of September 30, 2022
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. ASU 2016-13 is effective for the Company at the beginning of 2023, with early adoption permitted. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 will be effective for the Company at the beginning of 2024 on a prospective basis, with early adoption permitted. The Company is currently evaluating the impact of this ASU will have on the Company’s consolidated financial statements.
F-73 |
Note 3—Mergers
As further discussed in Note 1, on August 15, 2022, the Mergers were consummated pursuant to the Merger Agreement. In connection with the Closing, the following occurred in addition to the disclosures in Note 1:
- | (a) Each then-issued and outstanding Class A ordinary share, par value $each representing a right to acquire one Founder Class A Share for $11.50 (a “Founder Public Warrant”), converted automatically, on a one-for-one basis, into a public warrant of the Company (a “Public Warrant”) that represents a right to acquire one share of Class A Common Stock for $11.50 pursuant to the Warrant Agreement, dated October 14, 2021, by and between Founder and Continental Stock Transfer and Trust Company (as amended, the “Warrant Agreement”), (d) each then-issued and outstanding private placement warrant of Founder, each representing a right to acquire one Founder Class A Share for $11.50 (a “Founder Private Placement Warrant”), converted automatically, on a one-for-one basis, into a private placement warrant of the Company (the “Private Warrant” and together with the Public Warrants, the “Warrants”) that represents a right to acquire one share of Class A Common Stock for $11.50 pursuant to the Warrant Agreement, and (e) each then-issued and outstanding unit of Founder, each representing a Founder Class A Share and one-half of a Founder Public Warrant (a “Founder Unit”), that had not been previously separated into the underlying Founder Class A Share and one-half of one Founder Public Warrant upon the request of the holder thereof, was separated and automatically converted into one share of Class A Common Stock and one-half of one Public Warrant. No fractional Public Warrants were issued upon separation of the Founder Units. per share, of Founder (“Founder Class A Shares”) automatically converted into one share of Class A Common Stock, (b) each then-issued and outstanding Class B ordinary share, par value $ per share, of Founder (“Founder Class B Shares” and, together with Founder Class A Shares, “Founder Ordinary Shares”), converted into one share of Class A Common Stock, pursuant to the Sponsor Agreement, dated December 15, 2021, by and among Founder, Founder SPAC Sponsor LLC (“Sponsor”), Holdings LLC, and certain insiders of Founder, (c) each then-issued and outstanding public warrant of Founder, |
- | The Company was issued Class A Units in Holdings LLC (“Class A Units”) and all preferred units, common units, and incentive units of Holdings LLC (including such convertible instruments, the “Rubicon Interests”) outstanding as of immediately prior to the Merger were automatically recapitalized into Class A Units and Class B Units of Holdings LLC (“Class B Units”), as authorized by the Eighth Amended and Restated Limited Liability Company Agreement of Holdings LLC (“A&R LLCA”) that was adopted at the time of the Merger. Following the Blocker Mergers, (a) holders of Rubicon Interests immediately before the Closing, other than the Blocker Companies (the “Blocked Unitholders”), were issued Class B Units (the “Rubicon Continuing Unitholders”), (b) Rubicon Continuing Unitholders were issued a number of shares of Class V Common Stock equal to the number of Class B Units issued to the Rubicon Continuing Unitholders, (c) Blocked Unitholders were issued shares of Class A Common Stock (as a result of the Blocker Mergers), and (d) following the adoption of the equity incentive award plan of Rubicon adopted at the Closing (the “2022 Plan”) and the effectiveness of a registration statement on Form S-8 filed on October 19, 2022, holders of phantom units of Holdings LLC immediately prior to the Closing (“Rubicon Phantom Unitholders”) and those current and former directors, officers and employees of Holdings LLC entitled to certain cash bonuses (the “Rubicon Management Rollover Holders”) are to receive restricted stock units (“RSUs”) and deferred stock units (“DSUs”), and such RSUs and DSUs will vest into shares of Class A Common Stock on February 11, 2023, the date that is 180 days following the Closing. $47.6 million of compensation expenses related to the Rubicon Management Rollover Holders’ RSUs and DSUs have been recognized in accrued expenses on the accompanying unaudited condensed consolidated balance sheet as of September 30, 2022. In addition to the securities issuable at the Closing and the RSUs and DSUs, certain of the Rubicon Management Rollover Holders received one-time cash payments (the “Cash Transaction Bonuses”). In addition, pursuant to the Merger Agreement, (i) Blocked Unitholders immediately before the Closing received a right to receive a pro rata portion of the Earn-Out Class A Shares and (ii) Rubicon Continuing Unitholders immediately before the Closing received a right to receive a pro rata portion of the Earn-Out Units and an equivalent number of shares of Class V Common Stock, in each case, depending upon the performance of Class A Common Stock during the five year period after the Closing, as discussed in greater detail in Note 1. |
F-74 |
- | Certain investors (the “PIPE Investors”) purchased, and the Company sold to such PIPE Investors an aggregate of shares of Class A Common Stock at a price of $ per share pursuant to and as set forth in the subscription agreements against payment by such PIPE Investors of the respective amounts set forth therein. |
- | Certain investors (the “FPA Sellers”) purchased, and the Company issued and sold to such FPA Sellers, an aggregate of shares of Class A Common Stock pursuant to and as set forth in the Forward Purchase Agreement entered into between Founder and ACM ARRT F LLC (“ACM Seller”) on August 4, 2022, against payment by such FPA Sellers of the respective amounts set forth therein. See Note 11 for further information. |
- | The Company (a) caused to be issued to certain investors Class B Units pursuant to the Merger Agreement, (b) issued shares of Class A Common Stock to certain investors, and (c) Sponsor forfeited Founder Class B Shares. See Note 10 for further information. |
- | Blocked Unitholders and Rubicon Continuing Unitholders retained aggregate 83.5% of voting power in the Company at the Closing. shares of Class A Common Stock and shares of Class B Common Stock, representing |
- | The Company and Holdings LLC entered into the Tax Receivable Agreement with the TRA Holders. See Note 1 for further information. |
- | The Company contributed approximately $73.8 million of cash to Rubicon Technologies Holdings, LLC, representing the net amount held in the Company’s trust account following the redemption of Class A Common Stock originally sold in Founder’s initial public offering, less (b) cash consideration of $28.9 million paid to Holdings LLC’s certain management members, plus (c) $121.0 million in aggregate proceeds received from the PIPE Investors, less (d) the aggregate amount of transaction expenses incurred by the parties to the Merger Agreement and (e) payment to the FPA Sellers pursuant to the Forward Purchase Agreement. |
- | The Company incurred $67.3 million in transaction costs relating to the Mergers, $23.1 million of which was paid as of September 30, 2022 and the remaining amount was recognized in accrued expenses on the accompanying condensed consolidated balance sheet as of September 30, 2022. The Company has the option to settle a majority of the transaction costs that were unpaid and accrued as of September 30, 2022 in cash or Class A Common Stock at the Company’s discretion. The transaction costs have been offset against additional paid-in capital in the accompanying condensed consolidated statements of stockholders’ equity (deficit) and noncontrolling interest. |
F-75 |
Note 4—Property and equipment
Property and equipment, net is comprised of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022 |
December 31, 2021 |
|||||||
Computers, equipment and software | $ | 3,668 | $ | 2,968 | ||||
Customer equipment | 1,380 | 1,122 | ||||||
Furniture and fixtures | 1,699 | 1,570 | ||||||
Leasehold improvements | 3,771 | 3,769 | ||||||
Total property and equipment | 10,518 | 9,429 | ||||||
Less accumulated depreciation and amortization | (7,777 | ) | (6,818 | ) | ||||
Total property and equipment, net | $ | 2,741 | $ | 2,611 |
Depreciation and amortization expense reflected in operating expense for the three months ended September 30, 2022 and 2021 was $0.3 million and $0.4 million, respectively. Depreciation and amortization expense for the nine months ended September 30, 2022 and 2021 was $1.0 million and $1.2 million, respectively.
Note 5—Debt
Revolving Credit Facility – On December 14, 2018, the Company entered into a $60.0 million “Revolving Credit Facility” secured by all assets of the Company including accounts receivable, intellectual property, and general intangibles. The Revolving Credit Facility was subsequently amended, and bore SOFR plus 4.6% (7.6% at September 30, 2022) with the maturity date of December 14, 2022. On November 18, 2022, the Company entered into an amendment to the Revolving Credit Facility, extending the maturity date to December 14, 2023 and modifying the interest rate the Revolving Credit Facility bears to SOFR plus 5.6% (see Note 20). The borrowing capacity of the Revolving Credit Facility is calculated based on qualified billed and unbilled receivables. Interest and fees are payable monthly with principal due upon maturity.
The Revolving Credit Facility requires a lockbox arrangement, which provides for receipts to be swept daily to reduce borrowings outstanding at the discretion of the lender. This arrangement, combined with the existence of the subjective acceleration clause, necessitates the Revolving Credit Facility be classified as a current liability on the consolidated balance sheets. The acceleration clause allows for amounts due under the facility to become immediately due in the event of a material adverse change in the Company’s business condition (financial or otherwise), operations, properties or prospects, change of management, or change in control. As of September 30, 2022, the Company’s total outstanding borrowings under the Revolving Credit Facility were $30.1 million and $21.2 million remained available to draw. As of December 31, 2021, the Company’s total outstanding borrowings under the Revolving Credit Facility were $29.9 million and $23.0 million remained available to draw. The Revolving Credit Facility is subject to certain financial covenants. As of September 30, 2022, the Company was in compliance with these financial covenants.
Term Loan Facilities – On March 29, 2019, the Company entered into a $20.0 million “Term Loan” agreement secured by a second lien on all assets of the Company including accounts receivable, intellectual property and general intangibles. The Term Loan agreement was subsequently amended, and currently has the principal amount of $60.0 million, bears an interest rate of LIBOR plus 9.5% (13.1% at September 30, 2022) with the maturity date of the earlier of March 29, 2024 or the maturity date of the Revolving Credit Facility. The Term Loan was amended on November 18, 2022 to, among other things, require the Company to repay the Term Loan with any net proceeds provided by the SEPA until such time that the Term Loan is repaid in full. (see Note 20).
The Term Loan also includes a qualified equity contributions requirement, requiring the Company to raise $50.0 million in equity contribution on or prior to February 28, 2022. The lender had previously waived the requirement through June 30, 2022, but the Company did not meet the minimum equity raise requirement of $50.0 million by June 30, 2022, allowing the lender to reduce the Term Loan collateral by $20.0 million and requiring the use of available funds under the Revolving Credit Facility as additional Term Loan collateral. As a result of the $20.0 million reduction in the Term Loan collateral, the availability under the Revolving Credit Facility was reduced by approximately $8.7 million as of September 30, 2022.
F-76 |
Pursuant to the amended Term Loan agreement, on October 15, 2021, the Company entered into warrant agreements and issued common unit purchase warrants (the “Term Loan Warrants”). The Term Loan Warrants were converted into Class A Common Stock and Class B Units upon the consummation of the Mergers.
On December 22, 2021, the Company entered into a $20.0 million “Subordinated Term Loan” agreement secured by a third lien on all assets of the Company including accounts receivable, intellectual property and general intangibles. The Subordinated Term Loan was scheduled to mature on December 22, 2022 and bears an interest rate of 15.0%. On November 18, 2022, the Company entered into an amendment to the Subordinated Term Loan agreement, extending its maturity date to December 31, 2023 (see Note 20). Pursuant to the Subordinated Term Loan agreement, the Company entered into warrant agreements and issued common unit purchase warrants (the “Subordinated Term Loan Warrants”). If the Company does not repay the Subordinated Term Loan on or before its maturity, the Subordinated Term Loan Warrants will be exercisable for additional Class A Common Stock until the Company fully pays the principal and interest in cash.
See Note 9 for further information regarding the Term Loan Warrants and the Subordinated Term Loan Warrants. See Note 20 for further information regarding the amended agreements entered into for the Revolving Credit Facility, Term Loan, and Subordinated Term Loan on November 18, 2022.
Amortization of deferred debt charges were $0.8 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively. Amortization of deferred debt charges were $2.5 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively.
Components of long-term debt were as follows (in thousands):
September 30, 2022 |
December 31, 2021 |
|||||||
Term loan balance | $ | 72,500 | $ | 77,000 | ||||
Less unamortized loan origination costs | (2,957 | ) | (3,334 | ) | ||||
Total borrowed | 69,543 | 73,666 | ||||||
Less short-term loan balance | (22,666 | ) | ||||||
Long-term loan balance | $ | 69,543 | $ | 51,000 |
At September 30,2022, the aggregate maturities of long-term debt for the remainder of 2022 and subsequent years are as follows (in thousands):
Fiscal Years Ending December 31, | ||||
2022 | $ | 1,500 | ||
2023 | 71,000 | |||
Total | $ | 72,500 |
PPP Loans – In 2020, the Company received loans under the Paycheck Protection Program (“PPP”) for an amount totaling $10.8 million, which was established under the Coronavirus Aid, Relief, and Economic Security Act approved by the U.S. Congress on March 27, 2020 (the “CARES Act”) and administered by the Small Business Administration (“SBA”). The PPP Loans had a maturity date of 2 years from the initial disbursement and carried an interest rate of 1% per year. The application for the PPP Loan required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operation of the Company. This certification further required the Company to consider current business activity and ability to access other sources of liquidity sufficient to support the ongoing operations in a manner that was not significantly detrimental to the business. The receipt of the funds from the PPP Loans and the forgiveness of the PPP Loans were dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of such PPP Loans based on funds being used for certain expenditures such as payroll costs and rent, as required by the terms of the PPP Loans.
F-77 |
The PPP Loans were eligible for forgiveness as part of the CARES Act, if certain requirements were met. The Company applied for forgiveness with the SBA in December 2020. On March 30, 2021, the SBA forgave the principal balance and associated accumulated interest of one of the two PPP Loans in full. On June 10, 2021, the SBA forgave the principal balance and associated accumulated interest of the second PPP Loans in full. As a result, the Company recognized $10.9 million to gain on forgiveness of debt in the condensed consolidated statements of operations in the nine months ended September 30, 2021. Presently, the SBA and other government communications have indicated that all loans in excess of $2.0 million will be subject to audit and that those audits could take up to seven years to complete. If the SBA determines that the PPP Loan was not properly obtained and/or expenditures supporting forgiveness were not appropriate, the Company would be required to repay some or all of the PPP Loan and record additional expense which could have a material adverse effect on the Company’s business, financial condition and results of operations in a future period.
The Company elected to repay $2.3 million of the PPP Loans during 2020, which the SBA paid back to the Company upon forgiveness of the PPP loan on June 10, 2021. The PPP Loan balances were $-0- as of September 30, 2022 and December 31, 2021.
Interest expense related to the Revolving Credit Facility, the Term Loan, the Subordinated Term Loan, and PPP Loan, as applicable, was $4.6 million and $2.6 million for the three months ended September 30, 2022 and 2021, respectively. Interest expense for the applicable borrowings was $12.3 million and $7.5 million for the nine months ended September 30, 2022 and 2021, respectively.
Note 6—Accrued expenses
Accrued expenses consist of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022 |
December 31, 2021 |
|||||||
Accrued hauler expenses | $ | 55,773 | $ | 49,607 | ||||
Accrued compensation | 57,632 | 9,656 | ||||||
Accrued income taxes | 3 | |||||||
Accrued Mergers transaction expenses | 44,235 | |||||||
Other accrued expenses | 4,788 | 6,272 | ||||||
Total accrued expenses | $ | 162,428 | $ | 65,538 |
Note 7—Goodwill and other intangibles
There were no additions to goodwill for the year ended December 31, 2021 or the nine months ended September 30, 2022. No impairment of goodwill was identified for the year ended December 31, 2021 or the nine months ended September 30, 2022.
Intangible assets consisted of the following (in thousands, except years):
September 30, 2022 | |||||||||||||||
Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
Trade Name | 5 | $ | 728 | $ | (728 | ) | $ | ||||||||
Customer and hauler relationships | 2 to 8 | 20,976 | (11,502 | ) | 9,474 | ||||||||||
Non-competition agreements | 3 to 4 | 550 | (550 | ) | |||||||||||
Technology | 3 | 3,178 | (1,802 | ) | 1,376 | ||||||||||
Total finite-lived intangible assets | 25,432 | (14,582 | ) | 10,850 | |||||||||||
Domain Name | Indefinite | 835 | 835 | ||||||||||||
Total intangible assets | $ | 26,267 | $ | (14,582 | ) | $ | 11,685 |
F-78 |
December 31, 2021 | |||||||||||||||
Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
Trade Name | 5 | $ | 728 | $ | (728 | ) | $ | ||||||||
Customer and hauler relationships | 2 to 8 | 20,976 | (9,582 | ) | 11,394 | ||||||||||
Non-competition agreements | 3 to 4 | 550 | (487 | ) | 63 | ||||||||||
Technology | 3 | 3,178 | (1,307 | ) | 1,871 | ||||||||||
Total finite-lived intangible assets | 25,432 | (12,104 | ) | 13,328 | |||||||||||
Domain Name | Indefinite | 835 | 835 | ||||||||||||
Total intangible assets | $ | 26,267 | $ | (12,104 | ) | $ | 14,163 |
Amortization expense for intangible assets was $0.8 million and $0.7 million for the three months ended September 30, 2022 and 2021, respectively. Amortization expense for intangible assets was $2.5 million and $2.2 million for the nine months ended September 30, 2022 and 2021, respectively. Future amortization expense for the remainder of fiscal year 2022 and subsequent years is as follows (in thousands):
Fiscal Years Ending December 31, | ||||
2022 | $ | 804 | ||
2023 | 3,220 | |||
2024 | 3,110 | |||
2025 | 2,559 | |||
2026 | 1,157 | |||
Total finite-lived intangible assets, net | $ | 10,850 |
Note 8—Stockholders’ (deficit) equity
Upon closing of the Mergers on August 15, 2022, as discussed in Note 3, the Company’s capital stock consisted of (i) shares of Class A Common Stock issued as a result of the automatic conversion of Founder Class A Shares on a one-for-one basis, (ii) shares of Class A Common Stock issued to the PIPE Investors, (iii) shares of Class A Common Stock issued to the Blocked Unitholders and (iv) shares of Class V Common Stock issued to the Rubicon Continuing Unitholders.
The table set forth below reflects information about the Company’s equity, as of September 30, 2022. The Earn-Out Interests are considered contingently issuable shares and therefore excluded from the number of shares of Class A Common Stock and Class V Common Stock issued and outstanding in the table below.
Authorized | Issued | Outstanding | ||||||||||
Class A Common Stock | 690,000,000 | 49,714,239 | 49,714,239 | |||||||||
Class V Common Stock | 275,000,000 | 115,463,646 | 115,463,646 | |||||||||
Preferred Stock | 10,000,000 | |||||||||||
Total shares as of September 30, 2022 | 975,000,000 | 165,177,885 | 165,177,885 |
Each share of Class A Common Stock and Class V Common Stock entitles the holder one vote per share. Only holders of Class A Common Stock have the right to receive dividend distributions. In the event of liquidation, dissolution or winding up of the affairs of the Company, only holders of Class A Common Stock have the right to receive liquidation proceeds, while the holders of Class V Common Stock are entitled to only the par value of their shares. The holders of Class V Common Stock have the right to exchange Class V Common Stock for an equal number of shares of Class A Common Stock. The Company’s board of directors has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
F-79 |
Note 9—Warrants
Public Warrants and Private Warrants – In connection with the Closing, on August 15, 2022, the Company assumed a total of 30,016,875 outstanding Warrants to purchase one share of the Company’s Class A Common Stock with an exercise price of $11.50 per share. Of these Warrants, the 15,812,500 Public Warrants were originally issued in Founder’s initial public offering (the “IPO”) and 14,204,375 Private Warrants were originally issued in a private placement in connection with the IPO. The Private Warrants are identical to the Public Warrants, except the Private Warrants are exercisable on a cashless basis, at the holder’s option, and are non-redeemable by the Company so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
In accordance with the guidance contained in ASC 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Equity, the Company concluded that the Warrants are not precluded from equity classification. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
The Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Warrants. The Warrants became exercisable on September 14, 2022, 30 days after the Closing and no Warrant has been exercised through September 30, 2022. The Warrants will expire five years from the Closing or earlier upon redemption.
The Company may redeem the Public Warrants and any Private Warrants no longer held by the initial purchaser thereof or its permitted transferee:
- | in whole and not in part; |
- | at a price of $0.01 per Warrant; |
- | upon not less than 30 days’ prior written notice to each Warrant holder and |
- | if and only if, the last reported price of the Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders. |
The Company determined the initial fair value of its Public Warrants based on the publicly listed trading price as of the valuation date. Accordingly, the Public Warrants are classified as Level 1 financial instruments. As the terms of the Private Warrants are identical to those of the Public Warrants except as otherwise stated above, the Company determined the initial fair value of its Private Warrants based on the publicly listed trading price of the Public Warrants as of the valuation date and have classified the Private Warrants as Level 2 financial instruments.
Warrant Liabilities – Pursuant to the amended Term Loan agreement entered on October 15, 2021 (see Note 5), the Company concurrently entered into warrant agreements and issued the Term Loan Warrants, which granted the lender the right to purchase up to 62,003 of Holdings LLC’s common units at the exercise price of $0.01 any time prior to the earlier of the tenth anniversary of the issuance date of October 15, 2021, or certain triggering events, including a sale of Holdings LLC, Holdings LLC’s initial public offering and a merger between Holdings LLC and a special purpose acquisition company (“SPAC”), where the warrants are fully redeemed or exchanged. The Company determined that the Term Loan Warrants required liability classification pursuant to ASC 480 Distinguishing Liabilities from Equity. As such, the outstanding Term Loan Warrants were recognized as warrant liabilities on the consolidated balance sheets and were measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income (expense) on the consolidated statements of operations. The Company measured the fair value of the Term Loan Warrants as of the Closing Date and December 31, 2021, and recognized $1.8 million and $1.3 million of warrant liabilities in the Company’s consolidated balance sheets as of such dates, respectively, with the difference of $0.5 million recorded as other expense on the condensed consolidated statement of operations for the nine months ended September 30, 2022. The impact to the condensed consolidated statements of operations from the changes in the fair value of the Term Loan Warrants was insignificant for the three months ended September 30, 2022. The Term Loan Warrants were converted into Class A Common Stock and Class B Units and reclassified from liability to the stockholders’ deficit upon the consummation of the Mergers.
F-80 |
Pursuant to the Subordinated Term Loan agreement entered on December 22, 2021 (see Note 5), the Company concurrently entered into warrant agreements and issued the Subordinated Term Loan Warrants under the condition that if the Company does not repay the Subordinated Term Loan on or prior to the maturity date, the lender receives right to purchase up to the number of Class A Common Stock worth $2.0 million, at the exercise price of $0.01 any time after the maturity date prior to the earlier of the date principal and interest on all outstanding term loans under this Subordinated Term Loan agreement are repaid or the tenth anniversary of the issuance date. Additionally, if the Company does not repay the Subordinated Term Loan on or prior to the maturity date, the Subordinated Term Loan Warrants will be exercisable for additional $0.2 million of Class A Common Stock each additional full calendar month after the maturity date until the Company fully repays the principal and interest in cash. If the Company repays the Subordinated Term Loan on or prior to the maturity date, the Subordinated Term Loan Warrants will automatically terminate and be voided and no Subordinated Term Loan Warrant will be exercisable. The Company determined that the Subordinated Term Loan Warrants required liability classification pursuant to ASC 480 Distinguishing Liabilities from Equity. The Company measured the fair value of the Subordinated Term Loan Warrants as of September 30, 2022 and December 31, 2021, and recognized $0.1 million and $0.1 million of warrant liabilities in the accompanying condensed consolidated balance sheets, respectively. The impact to the condensed consolidated statements of operations from the changes in the fair value of the Subordinated Term Loan Warrants was insignificant for the three months and the nine months ended September 30, 2022. During the nine months ended September 30, 2022 and the year ended December 31, 2021, none of the Subordinated Term Loan Warrants were exercisable.
See Note 20 regarding the amendment to Subordinated Term Loan Warrants agreements the Company entered into on November 18, 2022.
Note 10—Equity Investment Agreement
On May 25, 2022, the Company entered into the Rubicon Equity Investment Agreement with certain investors, whereby, the investors have agreed to advance to the Company up to $8.0 million and, upon consummation of the Mergers, and in exchange for the advancements, (a) the Company will cause to be issued up to 880,000 Class B Units of the Company and 160,000 shares of Class A Common Stock to the investors and (b) Sponsor will forfeit up to 160,000 shares of Class A Common Stock, in each case subject to actual amounts advanced by the investors. In accordance with the Rubicon Equity Investment Agreement, on May 25, 2022, the Company received $8.0 million of cash from the investors. The Company determined that the Rubicon Equity Investment Agreement required liability classification pursuant to ASC 480 Distinguishing Liabilities from Equity. As such, the Rubicon Equity Investment Agreement was recognized as simple agreement for future equity (SAFE) under current liabilities on the consolidated balance sheets, measured at the agreement execution date fair value and subsequently remeasured at each reporting period with changes being recorded as a component of other income (expense) on the consolidated statements of operations. The Company measured its fair value as of the agreement execution and recognized $8.8 million of simple agreement for future equity on the condensed consolidated balance sheets, with the $0.8 million difference between the fair value and the amount of cash received recorded as other expense on the condensed consolidated statements of operations. Between the agreement execution date and the Closing Date, there was no change in the fair value of the Rubicon Equity Investment Agreement. On August 15, 2022, the Mergers closed, and the Company issued Class B Units and shares of Class A Common Stock to the investors and Sponsor forfeited shares of Class A Common Stock.
F-81 |
Note 11—Forward Purchase Agreement
On August 4, 2022, the Company and ACM Seller entered into the Forward Purchase Agreement for an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Transaction”). Pursuant to the terms of the Forward Purchase Agreement, the FPA Sellers intended, but were not obligated, to purchase (a) Founder Class A Shares after the date of the Forward Purchase Agreement from holders of the Founder Class A Shares (other than Founder or affiliates of Founder) who elected to redeem Founder Class A Shares (such purchased Founder Class A Shares, the “Recycled Shares”) pursuant to redemption rights set forth in Founder’s amended and restated memorandum and articles of association (the “Governing Documents”) in connection with the Mergers (such holders, “Redeeming Holders”) and (b) Founder Class A Shares in an issuance from Founder at a price per Founder Class A Share equal to approximately $10.17 per share, the per-share redemption price as set forth in the Governing Documents (such Founder Class A Shares, the “Additional Shares” and, together with the Recycled Shares, the “Subject Shares”). Pursuant to the terms of the FPA Agreement, the aggregate number of Subject Shares could not exceed 15 million shares (the “Maximum Number of Shares”). In addition, the FPA Sellers purchased an additional 1 million Founder Class A Shares from other Redeeming Holders (the “Separate Shares”). The FPA Sellers may not beneficially own greater than 9.9% of the Common Stock on a post-Mergers pro forma basis.
Pursuant to the terms of the Forward Purchase Agreement, the FPA Sellers purchased 7,082,616 Founder Class A Shares, which included 6,082,616 Subject Shares and 1,000,000 Separate Shares, at the per-share redemption price prior to the closing of the Mergers, in exchange for the prepayment by Founder of $68.7 million out of the funds in Founder’s trust account that were to be received by the Company at the Closing. The prepayment amount was calculated as (a) the per-share redemption price multiplied by the 6,082,616 Subject Shares, less (b) 50% of the product of the 6,082,616 Subject Shares multiplied by $1.33 (the “Prepayment Shortfall”) and (c) an amount equal to the product of Separate Shares multiplied by the per-share redemption price. The FPA Sellers did not purchase any Additional Shares.
From time to time following the Closing, the FPA Sellers, in their discretion, may sell the Subject Shares, the effect of which is to terminate the Forward Purchase Agreement in respect of such Subject Shares sold (the “Terminated Shares”) and repay to the Company a portion of the forward price, in amounts corresponding to the number of shares sold. The Forward Purchase Agreement is to mature on the earlier of (a) the third anniversary of the Closing and (b) the date specified by the FPA Sellers at the FPA Sellers’ discretion after the occurrence of a VWAP Trigger Event (the “FPA Maturity Date”). A VWAP Triggering Event occurs if (i) during the first 90 days following the Closing, the VWAP for 20 trading days during any 30 consecutive trading day period is less than $3.00 per share and (ii) from the 91st day following the Closing, the VWAP for 20 trading days during any 30 consecutive trading day period is less than $5.00 per share. At maturity, the Company is obligated to pay to the FPA Sellers an amount equal to the product of (a) (x) the Maximum Number of Shares, less (y) the number of the Terminated Shares, plus (z) the number of the Subject Shares sold whereby the proceeds of such sales were applied as a Prepayment Shortfall, multiplied by (b) $2.00 (the “Maturity Consideration”). The Company is obligated to pay the Maturity Consideration in shares of Class A Common Stock, with the price per share equal to the average daily VWAP for the 30 trading days following the FPA Maturity Date. As of September 30, 2022, the FPA Sellers sold 93,310 shares of Class A Common Stock that were Subject Shares covered by the Forward Purchase Agreement.
In accordance with ASC 815, Derivatives and Hedging, the Company has determined that the forward option within the Forward Purchase Agreement is (i) a freestanding financial instrument and (ii) a derivative. This derivative, referred to throughout as the “forward purchase option derivative” is recorded as a liability on the accompanying condensed consolidated balance sheet as of September 30, 2022. The Company has performed fair value measurements for this derivative as of the Closing and as of September 30, 2022, which is described in Note 15. The Company will remeasure the fair value of the forward purchase option derivative each reporting period.
See Note 20 regarding certain subsequent event related to the Forward Purchase Agreement specific to the occurrence of a VWAP Trigger Event.
Note 12—Standby Equity Purchase Agreement
On August 31, 2022, the Company entered into a Standby Equity Purchase Agreement (“SEPA”) with YA II PN, Ltd. (the “Yorkville Investor”). Pursuant to the SEPA, the Company has the right to sell to the Yorkville Investor, from time to time, up to $200.0 million of shares of Class A Common Stock until the earlier of the 36-month anniversary of the SEPA or until the date on which the facility has been fully utilized, subject to certain limitations and conditions set forth in the SEPA, including the requirement that there be an effective registration statement registering such shares and limitations on the volume of shares that may be sold. Shares will be sold to the Yorkville Investor at a price equal to 97% of the lowest daily VWAP of the Class A Common Stock during the three consecutive trading days immediately prior to any notice to sell such securities provided by the Company. The Yorkville Investor may not beneficially own greater than 9.99% of the outstanding shares of Class A Common Stock. Sales of Class A Common Stock to the Yorkville Investor under the SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any securities to the Yorkville Investor under the SEPA. Pursuant to the SEPA, on August 31, 2022, the Company issued the Yorkville Investor shares of Class A Common Stock, which represented an initial up-front commitment fee and was recognized in other income (expense) within the accompanying condensed consolidated statements of operations. The Company did not sell any shares of Class A Common Stock under the SEPA during the period between August 31, 2022 and September 30, 2022.
F-82 |
2014 Plan
The 2014 Profits Participation Plan and Unit Appreciation Rights Plan (the “2014 Plan”) was a Board-approved plan of Holdings LLC. Under the 2014 Plan, Holdings LLC had the authority to grant incentive and phantom units to acquire common units. Unit awards generally vest at 25% of the units on the one year anniversary of continued employment, with the remaining 75% vesting in equal monthly installments over the next three years, unless otherwise specified.
As further described in Note 3, upon consummation of the Mergers, all incentive units granted under the 2014 Plan vested and converted into the Class V Common Stock and all phantom units granted under the 2014 Plan converted into RSUs and DSUs which will vest into shares of Class A Common Stock on February 11, 2023. The unrecognized compensation cost related to the 2014 Plan that was remaining at the Closing was recognized as expense as of upon consummation of the Mergers.
Incentive Units – Calculating incentive unit compensation expense required the input of highly subjective assumptions pertaining to the fair value of its units. The Company utilized an independent valuation specialist to assist with the Company’s determination of the fair value per unit. The methods used to determine the fair value per unit included discounted cash flow analysis, comparable public company analysis, and comparable acquisition analysis. In addition, the probability-weighted expected return method was used and multiple exit scenarios were considered. The assumptions used in calculating the fair value of incentive unit awards represented the Company’s best estimates, but these estimates involved inherent uncertainties and the application of management’s judgment. The Company estimated volatility based on a comparable market index and calculated the historical volatility for the index for a period of time that corresponded to the expected term of the incentive unit. The expected term was calculated based on the estimated time for which the incentive unit would be held by the awardee. The risk-free rate for periods within the contractual life of the incentive unit was based on the U.S. Treasury yield curve in effect at the time of the grant.
Management utilized the Black-Scholes-Merton option pricing model to determine the fair value of units issued. There were no incentive units granted during the nine months ended September 30, 2022. Compensation expense for all incentive units awarded to date was recognized over the vesting term of the underlying incentive units.
The following represents a summary of the Company’s incentive unit activity and related information during 2022 immediately prior to the consummation of the Mergers:
Units | ||||
Outstanding - January 1, 2022 | 3,084,650 | |||
Granted | ||||
Forfeited | (14,499 | ) | ||
Outstanding – August 15, 2022 | 3,070,151 | |||
Vested – August 15, 2022 | 3,070,151 |
A summary of nonvested incentive units and changes during 2022 immediately prior to the consummation of the Mergers follows:
Units | Weighted Average Grant Date Fair Value |
|||||||
Nonvested - January 1, 2022 | 198,210 | $ | 10.25 | |||||
Granted | - | |||||||
Vested | (183,711 | ) | 10.25 | |||||
Forfeited | (14,499 | ) | ||||||
Nonvested – August 15, 2022 | $ |
F-83 |
Holdings LLC was authorized to issue phantom units to eligible employees under the terms of the Unit Appreciation Rights Plan. The Company estimated the fair value of the phantom units as of the end of each reporting period and expensed the vested fair market value of each award. The fair value of the phantom units was measured using the same independent valuation assessment as the incentive units.
The Company did not award any phantom units during the nine months ended September 30, 2022. At the Closing of the Mergers, all vested and unvested phantom units were exchanged for 970,389 vested RSUs and 540,032 vested DSUs.
2022 Plan
The 2022 Equity Incentive Plan (the “2022 Plan”), which became effective on August 15, 2022 in connection with the Closing, provides for the grant to certain employees, officers, non-employee directors and other services providers of options, stock appreciation rights, RSUs, restricted stock and other stock-based awards, any of which may be performance-based, and for incentive bonuses, which may be paid in cash, Common Stock or a combination thereof, as determined by the Company’s Compensation Committee. Under the 2022 Plan,
shares of Class A Common Stock are authorized to be issued. Subject to Board approval, an additional shares of Class A Common Stock will be available for issuance on January 1, 2023 under the 2022 Plan as a result of the plan’s evergreen provision.
The following represents a summary of the Company’s RSU activity and related information during 2022 immediately after the consummation of the Mergers:
RSUs | ||||
Outstanding – August 15, 2022 (prior to the Mergers consummation) | ||||
Granted – Phantom Unit exchanges | 970,389 | |||
Granted – Morris Employment Agreement | 4,821,358 | |||
Granted – Partial settlement of Management Rollover Consideration | 3,561,469 | |||
Forfeited | ||||
Outstanding – August 15, 2022 (subsequent to the Mergers consummation) | 9,353,216 | |||
Vested – August 15, 2022 (subsequent to the Mergers consummation) | 970,389 |
The RSUs exchanged for phantom units vested upon the Closing of the Mergers. The remaining RSUs will vest over the requisite services periods ranging from six to thirty-six months from the grant date.
The Company recognized $ million and $ million in total equity compensation costs during the three months ended September 30, 2022 and 2021, respectively. The Company recognized $ million and $ million in total equity compensation costs during the nine months ended September 30, 2022 and 2021, respectively.
Pursuant to an Employment Agreement with Mr. Nate Morris, the Company’s former Chief Executive Officer, dated February 9, 2021 and amended on April 26, 2022 and August 10, 2022, the Company is obligated to grant Mr. Morris an additional RSU award with a value equal to $ million based on the fair market value of Class A Common Stock on the grant date. Such RSUs shall become fully vested and non-forfeitable on the six-month anniversary of the Closing. The associated liability is presented as deferred compensation expense on the accompanying condensed consolidated balance sheet as of September 30, 2022. See Note 20 for further information.
Deferred compensation cost recognized during the three months ended September 30, 2022 and 2021 was $1.3 million and $-0- million, respectively. Deferred compensation cost recognized during the nine months ended September 30, 2022 and 2021 was $1.3 million and $-0- million, respectively.
F-84 |
Basic net loss per share of Class A Common Stock is computed by dividing net loss attributable to the Company by the weighted average number of shares of Class A Common Stock outstanding during the period from August 15, 2022 (the Closing Date) to September 30, 2022. Diluted net loss per share of Class A Common Stock is computed dividing net loss attributable to the Company, adjusted for the assumed exchange of all potentially dilutive securities, by weighted average number of shares of Class A Common Stock outstanding adjusted to give effect to potentially dilutive shares.
Prior to the Mergers, the membership structure of Holdings LLC included units which had profit interests. The Company analyzed the calculation of loss per unit for periods prior to the Mergers and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements. Therefore, net loss per share information has not been presented for periods prior to August 15, 2022. The basic and diluted loss per share for the three and nine months ended September 30, 2022 represent only the period from August 15, 2022 to September 30, 2022. Furthermore, shares of the Company’s Class V Common Stock do not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class V Common Stock under the two-class method has not been presented.
The computation of net loss per share attributable to Rubicon Technologies, Inc. and weighted-average shares of the Company’s Class A Common Stock outstanding for period from August 15, 2022 (the Closing Date) to September 30, 2022 are as follows (amounts in thousands, except for share and per share amounts):
Numerator: | ||||
Net loss for the period from August 15, 2022 through September 30, 2022 | $ | (34,741 | ) | |
Less: Net loss attributable to non-controlling interests for the period from August 15, 2022 through September 30, 2022 | (16,933 | ) | ||
Net loss for the period from August 15, 2022 through September 30, 2022 attributable to Rubicon Technologies, Inc. – Basic and diluted | $ | (17,808 | ) | |
Denominator: | ||||
Weighted average shares of Class A Common Stock outstanding – Basic and diluted | 48,670,776 | |||
Net loss per share attributable to Class A Common Stock – Basic and diluted | $ | (0.37 | ) |
The Company’s potentially dilutive securities below were excluded from the computation of diluted loss per share as their effect would be anti-dilutive:
- | Public Warrants and Private Warrants. |
- | Earn-Out Class A Shares. |
- | vested RSUs and vested DSUs. |
F-85 |
Note 15—Fair value measurements
The following tables summarize the Company’s financial assets and liabilities measured at fair value on recurring basis by level within the fair value hierarchy as of the dates indicated (in thousands):
September 30, 2022 | ||||||||||||
Liabilities | Level 1 | Level 2 | Level 3 | |||||||||
Forward purchase option derivative | (8,205 | ) | ||||||||||
Earn-out liabilities | (7,000 | ) | ||||||||||
Warrant liabilities | (100 | ) | ||||||||||
Total | (15,305 | ) |
December 31, 2021 | ||||||||||||
Liabilities | Level 1 | Level 2 | Level 3 | |||||||||
Warrant liabilities | (1,380 | ) | ||||||||||
Deferred compensation – phantom units | (8,321 | ) | ||||||||||
Total | (9,701 | ) |
Level 3 Rollfoward | Forward purchase option derivative | Earn-out liabilities | Warrant liabilities | Deferred compensation – phantom units | ||||||||||||
Beginning balances | (1,380 | ) | (8,321 | ) | ||||||||||||
Additions | 16,615 | (74,100 | ) | |||||||||||||
Changes in fair value | (24,820 | ) | 67,100 | (436 | ) | (6,783 | ) | |||||||||
Reclassified to equity | 1,716 | 15,104 | ||||||||||||||
Ending balances | (8,205 | ) | (7,000 | ) | (100 | ) |
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and contract assets and liabilities, approximate fair value due to their short-term maturities and are excluded from the fair value table above.
The fair value of the forward purchase option derivative was estimated using a Monte-Carlo Simulation in a risk-neutral framework. Specifically, the future stock price is simulated assuming a Geometric Brownian Motion (“GBM”). For each simulated path, the forward purchase value is calculated based on the contractual terms and then discounted at the term-matched risk-free rate. Finally, the value of the forward is calculated as the average present value over all simulated paths. The Company measured the fair value of the forward purchase option derivative as of the Closing Date and September 30, 2022, with the respective fair value adjustments recorded within the accompanying condensed consolidated statement of operations.
For the contingent consideration related to the Earn-Out Interests, the fair value was estimated using a Monte-Carlo Simulation in which the fair value was based on the simulated stock price of the Company over the maturity date of the contingent consideration. The key inputs used in the determination of the fair value included current stock price, volatility, and expected term. The Company measured the fair value of the Earn-Out Interests as of the Closing Date and September 30, 2022, with the respective fair value adjustments recorded within the accompanying condensed consolidated statement of operations.
F-86 |
Note 16—Commitments and contingencies
Legal Matters
In the ordinary course of business, the Company is or may be involved in various legal or regulatory proceedings, claims or purported class actions related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour and other claims.
The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. At this time, the Company is not able to reasonably estimate the amount or range of possible losses in excess of any amounts accrued, including losses that could arise as a result of application of non-monetary remedies, with respect to the contingencies it faces, and the Company’s estimates may not prove to be accurate.
In management’s opinion, resolution of all current matters is not expected to have a material adverse impact on the Company’s condensed consolidated results of operations, cash flows or financial position. However, depending on the nature and timing of any such dispute or other contingency, an unfavorable resolution of a matter could materially affect the Company’s current or future results of operations or cash flows, or both.
Leases
The Company leases its office facilities under operating lease agreements expiring through 2031. While each of the leases includes renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities as it is not reasonably certain to utilize the renewal options. The Company does not have any finance leases.
The following table presents information regarding the maturities of the undiscounted remaining operating lease payments, with a reconciliation to the amount of the liabilities representing such payments as presented on the September 30, 2022 condensed consolidated balance sheet (in thousands).
Years Ending December 31, | ||||
2022 | $ | 563 | ||
2023 | 2,276 | |||
2024 | 1,228 | |||
2025 | 151 | |||
2026 | 152 | |||
Thereafter | 732 | |||
Total minimum lease payments | $ | 5,102 | ||
Less: Imputed interest | (930 | ) | ||
Total operating lease liabilities | $ | 4,172 |
Note 17—Related party transactions
The Company entered into a certain software subscription agreement with Palantir Technologies, Inc., including related support and update services on September 22, 2021. The Company subsequently amended the agreement on December 15, 2021. The term of the agreement is through December 31, 2024. Pursuant to the agreement, as of September 30, 2022, the Company is committed to pay $15.5 million in the next 12 months and $18.8 million thereafter through October 2024. Palantir Technologies, Inc. was a PIPE Investor and purchased $35.0 million of Class A Common Stock at $10.00 per share on the Closing Date.
F-87 |
Note 18—Concentrations
During the three months ended September 30, 2022 and 2021, the Company had two significant customers that accounted for approximately 24% and 31% of total revenues, respectively. During the nine months ended September 30, 2022 and 2021, the Company had two significant customers that accounted for approximately 27% and 29% of total revenues, respectively. As of September 30, 2022 and December 31, 2021, approximately 22% and 23%, respectively, of the Company’s accounts receivable and contract assets were due from these two customers.
Note 19—Liquidity
During the nine months ended September 30, 2022, and in each fiscal year since the Company’s inception, it has incurred losses from operations and generated negative cash flows from operating activities. The Company also has negative working capital and stockholders’ deficit as of September 30, 2022.
As of September 30, 2022, cash and cash equivalents totaled $4.5 million, accounts receivable totaled $58.7 million and unbilled accounts receivable totaled $62.8 million. Availability under the Revolving Credit Facility, which provides the ability to borrow up to $60.0 million, was $21.2 million. Pursuant to the SEPA, the Company has the right to sell up to $ million of shares of Class A Common Stock to the Yorkville Investor, subject to certain limitations and conditions set forth in the SEPA, including the requirement that there be an effective registration statement registering such shares for resale and limitations on the volume of shares that may be sold. Additionally, because shares issued under the SEPA are sold at a discount to the then-current market price, in light of the current market price and the NYSE rules limiting the number of shares that can be issued without the approval of the Company’s shareholders, the amount that could currently be raised pursuant to the SEPA is significantly lower than $200.0 million. Furthermore, the amended Term Loan agreement entered into on November 18, 2022 requires the Company to repay the Term Loan with any net proceeds provided by the SEPA until such time that the Term Loan is repaid in full (see Note 20). The Company’s outstanding indebtedness includes the Revolving Credit Facility, the Term Loan and the Subordinated Term Loan, under which the principal of $36.2 million, $51.0 million and $20.0 million, respectively, were outstanding as of November 15, 2022 and are scheduled to mature in December 2023.
The Company currently projects that it will not have sufficient cash on hand or available liquidity under existing arrangements to meet the Company’s projected liquidity needs for the next 12 months. In the absence of additional capital, there is substantial doubt about the Company’s ability to continue as a going concern.
To address the Company’s projected liquidity needs for the next 12 months, the Company has negotiated and received a binding commitment for $30.0 million of additional financing (the “Financing Commitment”), pursuant to which certain existing investors agreed to contribute cash up to the $30.0 million commitment amount to the extent other equity capital of an equivalent amount has not been provided to the Company by January 15, 2023 (see Note 20). In addition to the proceeds from the Financing Commitment, the Company has begun to execute its plans to modify its operations to further reduce spending. Initiatives the Company has undertaken in the fourth quarter of 2022 include (i) increased focus on operational efficiencies and cost reduction measures, (ii) eliminating redundancies that have been the byproduct of the Company’s recent growth and expansion, (iii) evaluating the Company’s portfolio and less profitable accounts to better ensure the Company is deploying resources efficiently, and (iv) exercising strict capital discipline for future investments, such as requiring investments to meet minimum hurdle rates.
The Company believes that the extended maturity of the Revolving Credit Facility and the Financing Commitment along with cash on hand and available under the Revolving Credit Facility, and other cash flows from operations are expected to provide sufficient liquidity to meet the Company’s known liquidity needs for the next 12 months. The Company believes this plan is probable of being achieved and alleviates substantial doubt about the Company’s ability to continue as a going concern.
F-88 |
Note 20—Subsequent events
On October 13, 2022 (the “Transition Date”), the Company entered into a CEO Transition Agreement with Mr. Nate Morris, the former Chief Executive Officer (the “CEO”) of the Company. Pursuant to the CEO Transition Agreement, Mr. Morris ceased serving as the Company’s CEO, but continued his role as Chairman of the Board of the Directors of the Company (the “Board”) and was given the title of Founder, Chairman and Strategic Advisor through February 10, 2023 (the “End Date”). Mr. Morris will also continue to serve as a member of the Board until the earlier of (a) the first anniversary of the Transition Date, (b) the date of the Company’s annual shareholder meeting in 2023, and (c) the 10th day following notice by Mr. Morris that he intends to resign from the Board. The Company will make a series of transition payments to Mr. Morris in the aggregate amount of $1.9 million between the Transition Date and the End Date and pay Mr. Morris a $0.7 million bonus on the End Date with respect to his service in 2022. Additionally, in lieu of any obligation to deliver RSUs to Mr. Morris pursuant to his Employment Agreement described in Note 13, the Company granted Mr. Morris RSUs on October 19, 2022 pursuant to the CEO Transition Agreement.
In October 2022, a VWAP Trigger Event occurred and the Forward Purchase Agreement could mature on the date specified by the FPA Sellers at the FPA Sellers’ discretion. The FPA Sellers have not specified the Maturity Date of the Forward Purchase Agreement as of the issuance of these unaudited interim condensed consolidated financial statements.
On November 4, 2022, the Company entered into an amended agreement for certain professional services provided in connection with the Mergers. Pursuant to the amended agreement, the Company agreed to settle the unpaid fees with $1.0 million paid in cash upon execution of the amendment, plus the Company will issue the advisor a variable number of shares of Class A Common Stock by November 18, 2022, in such an amount equal to $ million based on the fair market value of Class A Common Stock. The Company had previously recognized $12.7 million for the related professional services within its accrued expenses as of September 30, 2022 on the accompanying unaudited interim condensed consolidated balance sheets. The difference of $10.7 million between the amount recognized in the accrued expense as of September 30, 2022 and the settlement amount in the amended agreement was recognized as other income on the Company’s consolidated statement of operations on the execution date of the amended agreement.
On November 14, 2022, the Company entered into a binding Financing Commitment with certain existing investors, whereby the investors intend to provide $30.0 million of financing to the Company through the issuance by the Company of debt and/or equity securities including, without limitation, shares of capital stock, securities convertible into or exchangeable for shares of capital stock, warrants, options, or other rights for the purchase or acquisition of such shares and other ownership or profit interests of the Company. Any debt issued pursuant to this letter would have a term of at least 12 months and any equity or equity linked securities issued under this letter would have a fixed price such that no other shareholder or other exchange approvals would be required. The amount the investors agreed to contribute under the Financing Commitment will be reduced on a dollar-for-dollar basis by the amount of any other equity capital the Company receives through January 15, 2023.
On November 17, 2022, the Company’s Board of Directors committed to a reduction in force plan (the “Plan”) as part of the Company’s measures to reduce spending and preserve cash available for the Company’s operations. The Plan involves a reduction of 55 employees, which is approximately 11% of the Company’s workforce. The Company currently estimates that it will incur one-time cash charges of approximately $0.6 million, primarily consisting of an estimated $0.5 million in severance payments, and $0.1 million in related costs. The Company expects that most of these charges will be incurred in the fourth quarter of 2022, and that the reduction in force will be substantially complete by the end of 2022. In aggregate, over the next twelve months, the reduction in force is expected to result in approximately $5.5 million in annual cash savings for the Company. The Company may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of the Plan.
F-89 |
On November 18, 2022, the Company entered into an amendment to the Revolving Credit Facility agreement, in which the lender consented to the amendment to the Subordinated Term Loan agreement. The amendment also extended its term through December 14, 2023 and modified the interest rate the Revolving Credit Facility bears to SOFR plus 5.6%. Additionally, the Company committed to raise $5.0 million from the Financing Commitment or a similar Additionally, the Company committed to raise $5.0 million from the Financing Commitment or a similar commitment by November 23, 2022, and an additional $25.0 million from the issuance of equity by the earlier of (i) 5 business days after the date the Company’s S-1 filed with the SEC on August 22, 2022 becomes effective, or (ii) January 31, 2023.
On November 18, 2022, the Company entered into an amendment to the Term Loan agreement, in which the lender consented to the amendments to the Revolving Credit Facility agreement and the Subordinated Term Loan agreement. Additionally, the Company committed to raise $5.0 million from the Financing Commitment or a similar commitment by November 23, 2022, and an additional $25.0 million from the issuance of equity by the earlier of (i) 5 business days after the date the Company’s S-1 filed with the SEC on August 22, 2022 becomes effective, or (ii) January 31, 2023. The amended Term Loan agreement also requires the Company to cause the Yorkville Investor to purchase the maximum amount of the Company’s equity interests available under the SEPA and to utilize the net proceeds from such drawdowns to repay the Term Loan until it is fully repaid. If the Company does not repay the Term Loan in full by March 27, 2023, the Company will be liable for an additional fee in the amount of $2.0 million, out of which $1.0 million will be due in cash on March 27, 2023, and the other $1.0 million will accrue to the principal balance of the Term Loan. Furthermore, beginning on March 27, 2023, an additional $0.15 million fee will accrue to the principal balance of the Term Loan each week thereafter until the Term Loan is fully repaid.
The Company may not use the SEPA to fund the new equity financing commitments it agreed to in the amendments to the Revolving Credit Facility and the Term Loan, and the financings used to satisfy the commitments under the Revolving Credit Facility amendment may be used to also satisfy the commitments under the Term Loan amendment.
On November 18, 2022, the Company entered into an amendment to the Subordinated Term Loan agreement. The amendment extended the Subordinated Term Loan maturity through December 31, 2023. Concurrently, the Company entered into an amendment to the Subordinated Term Loan Warrants agreements, which (i) increased the number of Class A Common Stock the lender has the right to purchase with the Subordinated Term Loan Warrants to such number of Class A Common Stock worth $2.6 million ($2.0 million prior to the amendment), (ii) caused the Subordinated Term Loan Warrants to be immediately exercisable upon execution of the amended Subordinated Term Loan Warrants agreements, and (iii) increased the value of Class A Common Stock the Subordinated Term Loan Warrants will earn each additional full calendar month after March 22, 2023 to $0.25 million ($0.2 million prior to the amendment) until the Company repays the Subordinated Term Loan in full.
F-90 |
Up to 44,884,579 Shares of Class A Common Stock
PROSPECTUS
, 2023
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses payable by us in connection with the sale and distribution of the securities being registered hereby.
SEC registration fee | $ | 4,946.28 | ||
Legal fees and expenses | $ | 50,000.00 | ||
Printing fees and expenses | - | |||
Accounting fees and expenses | $ | 20,000.00 | ||
FINRA fee | * | |||
Registrar and transfer agent fees | * | |||
Total | $ | 74,946.28 |
* | Estimates not presently known. |
We will bear all costs, expenses and fees in connection with the registration of the securities, including with regard to compliance with state securities or “blue sky” laws. The Selling Securityholders, however, will bear all underwriting commissions and discounts, if any, attributable to their sale of the securities. All amounts are estimates except the SEC registration fee.
Item 14. Indemnification of Directors and Officers.
The Charter and Bylaws provide for the indemnification of current and former officers and directors of the Company to the fullest extent permitted by Delaware law. We have entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our Charter. In connection with the consummation of the Business Combination, Founder purchased a tail policy with respect to liability coverage for the benefit of former Founder officers and directors. Rubicon will maintain such tail policy for a period of no less than six (6) years following the Closing.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.
Item 15. Recent Sales of Unregistered Securities.
The Class A Common Stock and Warrants issued in connection with the sales below were not registered under the Securities Act, and were issued in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act.
On April 27, 2021, the Sponsor purchased 7,906,250 Founder Class B Shares for $25,000 in the aggregate. Immediately prior to the Closing, Sponsor forfeited (a) 160,000 Founder Class B Shares pursuant to the Rubicon Equity Investment Agreement and (b) 1,000,000 Founder Class B Shares pursuant to the Sponsor Forfeiture Agreement. In connection with the Domestication on the Closing Date, the 6,746,250 Founder Class B Shares converted into 6,746,250 shares of Class A Common Stock.
On October 19, 2021, Sponsor and Jefferies LLC purchased an aggregate of 14,204,375 Founder Private Placement Warrants for an aggregate purchase price of $14,204,375. On August 15, 2022, the 14,204,375 Founder Private Placement Warrants converted into 14,204,375 Private Warrants exercisable on the same terms to acquire Class A Common Stock.
II-1 |
On the Closing Date, pursuant to the Rubicon Equity Investment Agreement, Rubicon issued 160,000 shares of Class A Common Stock in partial satisfaction of a $8.0 million advance by the New Equity Holders.
On the Closing Date, pursuant to the Subscription Agreements, the PIPE Investors purchased 12,100,000 shares of Class A Common Stock at a price of $10.00 per share, or $121.0 million in the aggregate.
On August 31, 2022, pursuant to the SEPA, Rubicon issued to the Yorkville Investor 200,000 shares of Class A Common Stock as an initial up-front commitment fee.
Pursuant to the Cowen Deferred Fee Arrangement, Rubicon issued (i) 440,529 shares of Class A Common Stock to Cowen on November 18, 2022 at a price of $2.26 per share and (ii) 2,812 shares of Class A Common Stock to Cowen on December 6, 2022 at a price of $2.26 per share. Pursuant to the Moelis Deferred Fee Arrangement, Rubicon issued 4,373,210 shares of Class A Common Stock to Moelis on December 13, 2022 at a price of $2.29 per share. Pursuant to the Cohen Deferred Fee Arrangement, Rubicon issued 2,485,604 shares of Class A Common Stock to Cohen on December 19, 2022 at a price of $2.41 per share. Pursuant to the Jefferies Deferred Fee Arrangement, Rubicon issued 3,877,750 shares of Class A Common Stock to Jefferies on February 2, 2023 at a price of approximately $1.82 per share.
On November 30, 2022, Rubicon issued the First YA Convertible Debenture to the Yorkville Investor in the principal amount of $7.0 million, for aggregate proceeds of approximately $4.96 million. On February 3, 2023, Rubicon issued the Second YA Convertible Debenture to the Yorkville Investor in the principal amount of $10.0 million, for aggregate proceeds of $10.0 million.
On November 30, 2022, Rubicon issued the YA Warrant to the Yorkville Investor, whereby Rubicon agreed to issue to the Yorkville Investor up to $20.0 million of shares of Class A Common Stock, subject to certain adjustments thereunder, for aggregate proceeds of approximately $6.0 million.
On December 16, 2022, Rubicon issued to the First Closing Insider Investors the First Closing Insider Convertible Debentures in an aggregate amount of $10.5 million in United States dollars, net of an original issuance discount of $1.4 million, for a total principal amount of $11.9 million in First Closing Insider Convertible Debentures.
On December 21, 2022, Rubicon issued to Mizzen Capital, LP and Star Strong Capital LLC 819,313 and 273,104 shares of Class A Common Stock, respectively, each pursuant to cashless exercises under those certain Common Unit Purchase Warrants, dated as of December 22, 2021, with Rubicon Technologies Holdings, LLC, each with an exercise price of $0.01 per share.
On February 1, 2023, Rubicon issued to the Second Closing Insider Investors the Second Closing Insider Convertible Debentures in an aggregate of $5.7 million in United States dollars, net of an original issuance discount of $0.8 million, for a total principal amount of $6.5 million in Second Closing Insider Convertible Debentures.
II-2 |
Item 16. Exhibits.
II-3 |
II-4 |
II-5 |
II-6 |
14.1 | Code of Business Conduct and Ethics of Rubicon Technologies, Inc. | Form 8-K | 001-40910 | 14.1 | August 19, 2022 | |||||
21.1 | List of Subsidiaries of Rubicon. | Form S-4/A | 333-262465 | 21.1 | May 12, 2022 | |||||
23.1 | Consent of Grant Thornton LLP. | |||||||||
23.2 | Consent of Cherry Bekaert LLP. | |||||||||
23.3 | Consent of Winston & Strawn LLP (Included as Exhibit 5.1). | |||||||||
24.1 | Power of Attorney (included in the signature page hereof). | |||||||||
101.INS | Inline XBRL Instance 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). | |||||||||
107 | Filing Fee Table |
# | Schedules and exhibits to this Exhibit omitted pursuant to Regulation S-K Item 601(b)(2). A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. |
* | Indicates management contract or compensatory plan or arrangement. |
II-7 |
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
A. | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(i) | To include any prospectus required by section 10(a)(3) of the Securities Act; |
(ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. |
(iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
B. | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
C. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
D. | That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
II-8 |
E. | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
F. | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
II-9 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lexington, State of Kentucky, on February 8, 2023.
RUBICON TECHNOLOGIES, INC. | ||
By: | /s/ Philip Rodoni | |
Philip Rodoni | ||
Chief Executive Officer |
II-10 |
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip Rodoni and Jevan Anderson and each of them, his or her true and lawful attorneys-in-fact and agents with full and several power of substitution, for him or her and his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Name | Title | Date | ||
/s/ Philip Rodoni | Chief Executive Officer and Director | February 8, 2023 | ||
Philip Rodoni | (principal executive officer) | |||
/s/ Jevan Anderson | Chief Financial Officer | February 8, 2023 | ||
Jevan Anderson | (principal financial officer and principal accounting officer) | |||
/s/ Nathaniel R. Morris | Chairman | February 8, 2023 | ||
Nathaniel R. Morris | ||||
/s/ Osman Ahmed | Director | February 8, 2023 | ||
Osman Ahmed | ||||
/s/ Jack Selby | Director | February 8, 2023 | ||
Jack Selby | ||||
/s/ Paula Dobriansky | Director | February 8, 2023 | ||
Paula J. Dobriansky | ||||
/s/ Brent Callinicos | Director | February 8, 2023 | ||
Brent Callinicos | ||||
/s/ Barry Caldwell | Director | February 8, 2023 | ||
Barry Caldwell | ||||
/s/ Coddy Johnson | Director | February 8, 2023 | ||
Coddy Johnson | ||||
/s/ Andres Chico | Director | February 8, 2023 | ||
Andres Chico | ||||
/s/ Paula Henderson | Director | February 8, 2023 | ||
Paula Henderson |
II-11 |
Exhibit 5.1
February 8, 2023
Rubicon
Technologies, Inc.
100 West Main Street Suite #610
Lexington, KY 40507
Re: | Rubicon
Technologies, Inc. Registration Statement on Form S-1 |
Ladies and Gentlemen:
We have acted as special counsel to Rubicon Technologies, Inc., a Delaware corporation (the “Company”), in connection with the Company’s registration statement on Form S-1 initially filed with the Securities and Exchange Commission (the “Commission”) on February 8, 2023 (the “Registration Statement”), under the Securities Act of 1933, as amended (the “Securities Act”). The Registration Statement relates to registration of an aggregate of 44,884,579 shares of Class A Common Stock of the Company (the “Shares”) including (i) up to 31,810,075 Shares that the Company may, at its discretion, elect to issue and sell to YA II PN, Ltd. (the “Yorkville Investor”), from time to time after the date of the prospectus that forms a part of the Registration Statement, pursuant to the Standby Equity Purchase Agreement, dated as of August 31, 2022, entered into by and between the Company and the Yorkville Investor (the “SEPA”), (ii) 200,000 Shares issued to the Yorkville Investor as consideration for its irrevocable commitment to purchase Shares at the Company’s direction, from time to time after the date of the prospectus that forms a part of the Registration Statement, upon the terms and subject to the conditions set forth in the SEPA, (iii) up to 5,629,245 Shares issuable by the Company to various investors (the “First Closing Insider Investors”) if they fully convert their convertible debentures issued pursuant to the Securities Purchase Agreement, dated as of December 16, 2022 (the “First Closing Insider SPA”), by and between the Company and the First Closing Insider Investors, (iv) up to 3,367,509 Shares issuable by the Company to various investors (the “Second Closing Insider Investors”) if they fully convert their convertible debentures pursuant to the Securities Purchase Agreement, dated as of February 1, 2023, by and between the Company and the Second Closing Insider Investors, and (v) 3,877,750 Shares issued to Jefferies LLC (“Jefferies”), as consideration for the post-closing deferred cash obligation, pursuant to the Underwriting Agreement, dated as of October 14, 2021 (as further amended on August 15, 2022) by and between the Company and Jefferies.
This opinion letter is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K promulgated under the Securities Act.
In rendering the opinion set forth below, we examined and relied upon such certificates, corporate records, agreements, instruments and other documents, and examined such matters of law, that we considered necessary or appropriate as a basis for the opinion, including the Certificate of Incorporation of the Company, filed as Exhibit 3.2 to the Registration Statement. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies and the authenticity of the originals of such latter documents. As to any facts material to the opinions expressed herein that we did not independently establish or verify, we have relied upon oral or written statements and representations of officers and other representatives of the Company and others.
![]() |
February 8, 2023 Page 2 |
Based upon the foregoing and subject to the assumptions, qualifications and limitations set forth herein, we are of the opinion that the Shares have been duly authorized and are validly issued, fully paid and nonassessable.
The opinions expressed herein are based upon and limited to the General Corporation Law of the State of Delaware, including the statutory provisions, the applicable provisions of the Delaware Constitution and reported judicial decisions interpreting the foregoing. We express no opinion herein as to any other laws, statutes, regulations or ordinances.
We hereby consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement and to the reference to our firm under the caption “Legal Matters” in the prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we are experts within the meaning of the Securities Act or the rules and regulations of the Commission or that this consent is required by Section 7 of the Securities Act.
Very truly yours, | |
Winston & Strawn LLP |
Exhibit 10.51
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of February 7, 2023 (this “Seventh Amendment”), is entered into among (a) RUBICON GLOBAL, LLC, a Delaware limited liability company (“Rubicon”) and RIVERROAD WASTE SOLUTIONS, INC., a New Jersey corporation (“RiverRoad”; together with Rubicon, each a “Borrower” and collectively the “Borrowers”), (b) RUBICON TECHNOLOGIES HOLDINGS, LLC, a Delaware limited liability company (“Holdings”), (c) CLEANCO LLC, a New Jersey limited liability company (“Cleanco”), (d) CHARTER WASTE MANAGEMENT, INC., a Delaware corporation (“Charter”), (e) RUBICON TECHNOLOGIES INTERNATIONAL, INC., a Delaware corporation (“International”), (f) the Lenders (as hereinafter defined) party hereto and (g) PATHLIGHT CAPITAL LP, as Agent (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Reference is hereby made to that certain Loan and Security Agreement, dated as of March 29, 2019 (as amended by that certain First Amendment to Loan and Security Agreement, dated as of February 27, 2020, by that certain Second Amendment to Loan and Security Agreement, dated as of March 24, 2021, by that certain Third Amendment to Loan and Security Agreement, dated as of October 15, 2021, by that certain Fourth Amendment to Loan and Security Agreement, dated as of April 26, 2022, by that certain Fifth Amendment dated as of November 18, 2022, and by that certain Sixth Amendment dated as of November 30, 2022, and as may be further amended, amended and restated, extended, supplemented or otherwise modified in writing from time to time and in effect immediately prior to the effectiveness of this Seventh Amendment, the “Existing Loan Agreement”, and the Existing Loan Agreement, as amended by this Seventh Amendment, the “Amended Loan Agreement”), among the Borrowers, the other Loan Party Obligors from time to time party thereto, the lenders from time to time party thereto (collectively, the “Lenders”), and Pathlight Capital LP, as agent for the Lenders (in such capacity, the “Agent”).
B. The Borrowers have requested that the Agent and the Lenders agree to amend certain of the terms and provisions of the Existing Loan Agreement as specifically set forth in this Seventh Amendment.
C. The Agent and the undersigned Lenders are prepared to amend the Existing Loan Agreement, subject to the conditions and in reliance on the representations set forth in this Seventh Amendment.
Accordingly, in consideration of the premises and the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, all capitalized terms used herein, including in preamble and the preliminary statements hereto, shall have the meanings assigned to such terms in the Amended Loan Agreement.
SECTION 2. Amendments to Existing Loan Agreement. Subject to the satisfaction of the conditions precedent specified in Section 3 and in reliance upon the representations and warranties set forth in Section 4, the Existing Loan Agreement (other than the exhibits, schedules and annexes
thereto, except to the extent otherwise separately specified and expressly amended hereby) is hereby
amended as set forth in Exhibit A attached hereto such that all of the newly inserted double underlined text (indicated
textually in the same manner as the following example: double-underlined
text) and any formatting changes attached hereto shall be deemed to be inserted and all stricken text (indicated
textually in the same manner as the following example: stricken text) shall
be deemed to be deleted therefrom.
SECTION 3. Conditions Precedent to Effectiveness of Seventh Amendment. This Seventh Amendment shall become effective as of the date first written above (the “Seventh Amendment Effective Date”) upon satisfaction of each of the following conditions precedent:
(a) Seventh Amendment. This Seventh Amendment shall have been duly executed and (together with all annexes, exhibits and schedules hereto) delivered to the Agent by each of the Loan Party Obligors, the Lenders and the Agent.
(b) Amendment to ABL Loan Agreement. The Agent shall have received a fully-executed amendment to the ABL Loan Agreement (the “ABL Amendment”), in form and substance satisfactory to the Agent, duly executed by the Loan Party Obligors, the ABL Lenders and the ABL Agent.
(c) Consent and Amendment to Intercreditor Agreement. The Agent shall have received a fully-executed copy of a Consent and Second Amendment to Intercreditor Agreement, in form and substance satisfactory to the Agent, duly executed by the ABL Agent and the Agent, and acknowledged by the Loan Party Obligors, relating to the transactions contemplated by the ABL Amendment and this Seventh Amendment.
(d) Officer’s Certificate. The Agent shall have received a certificate of the chief financial officer or president of the Borrower Representative certifying as to the satisfaction of the conditions precedent in Section 3(f) and (g) below.
(e) Prepayment of Term Loans. Substantially concurrently with the effectiveness of this Seventh Amendment, the Agent shall have received a prepayment of principal of the Term Loans in an amount equal to $10,000,000, together with (x) an amount equal to $300,000, which amount shall be deemed to satisfy the Prepayment Premium otherwise payable in respect of such prepayment and (y) accrued and unpaid interest on the amount of such prepayment. It is hereby acknowledged and agreed by the parties hereto that the failure of the Borrowers to make the prepayment and to pay such fee and interest as set forth above in this clause (e), in each case, on the Seventh Amendment Effective Date shall constitute an immediate Event of Default under the Amended Loan Agreement.
(f) Follow-on Contribution. The Agent shall have received evidence satisfactory to the Agent that the Borrowers shall have received the full amount of the Follow-on Contribution contemplated by Section 7.35 of the Existing Loan Agreement.
(g) Representations and Warranties. The representations and warranties set forth in Section 4 of this Seventh Amendment shall be true and correct on the date hereof.
2
(h) Fees and Expenses. The Agent shall have received all accrued and unpaid fees and other amounts due and payable on or prior to the Seventh Amendment Effective Date and reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers under the Existing Loan Agreement.
For purposes of determining compliance with the conditions specified in this Section 3, each Lender that has signed this Seventh Amendment shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Agent shall have received notice from such Lender prior to the proposed Seventh Amendment Effective Date specifying its objection thereto.
SECTION 4. Representations and Warranties. Each Borrower and each other Loan Party Obligor represents and warrants to the Lenders and the Agent that:
(a) Authorization; No Contravention. The execution, delivery and performance by each Loan Party Obligor of this Seventh Amendment and all other instruments and agreements required to be executed and delivered by such Loan Party Obligor in connection with the transactions contemplated hereby or referred to herein (collectively, the “Amendment Documents”) (i) have been duly and validly authorized by all corporate, stockholder, partnership or limited liability company action required to be taken by the Loan Party Obligors, (ii) do not violate or contravene such Loan Party Obligor’s Governing Documents or any applicable law or any material agreement or instrument or any court order which is binding upon any Loan Party Obligor or its property, (iii) do not constitute grounds for acceleration of any Indebtedness or obligation under any material agreement or instrument which is binding upon any Loan Party Obligor or its property, and (iv) do not require the consent of any Person.
(b) Government Approvals. No Loan Party Obligor is required to obtain any government approval, consent, or authorization from, or to file any declaration or statement with, any Governmental Authority in connection with or as a condition to the execution, delivery or performance of this Seventh Amendment or any other Amendment Document.
(c) Enforceability. Each of this Seventh Amendment, the other Amendment Documents, and the Amended Loan Agreement is a legal, valid and binding obligation of each Loan Party Obligor party thereto, enforceable against each Loan Party Obligor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.
(d) Representations and Warranties; No Default. The following statements shall be true on the Seventh Amendment Effective Date, both immediately before and immediately after giving effect to this Seventh Amendment and the consummation of the transactions contemplated by this Seventh Amendment taking place on or about the Seventh Amendment Effective Date:
(i) the representations and warranties contained herein and in the Amended Loan Agreement and the other Loan Documents shall be true and correct in all respects as of the Seventh Amendment Effective Date as though made on and as of the Seventh Amendment Effective Date (or, to the extent such representations or warranties are expressly made
3
solely as of an earlier date, such representations and warranties shall be true and correct as of such earlier date), and
(ii) no Default or Event of Default shall have occurred and be continuing.
SECTION 5. Interest Rate Transition Arrangements. Notwithstanding anything to the contrary in the Amended Loan Agreement, to the extent the Seventh Amendment Effective Date occurs on a date that is not the first day of a month, the rate of interest applicable to the Loans shall be re-determined on the Seventh Amendment Effective Date to be a rate equal to the Applicable Reference Rate plus the Applicable Margin, and thereafter interest on the Loans shall accrue as set forth in the Amended Loan Agreement. Interest accrued on the Loans outstanding under the Existing Loan Agreement through the Amendment Effective Date and interest accruing on the Loans outstanding under the Amended Loan Agreement after the Seventh Amendment Effective Date shall, in each case, be due and payable on the next interest payment date pursuant to Section 3.1 of the Amended Loan Agreement.
SECTION 6. Survival of Representations and Warranties. All representations and warranties made in this Seventh Amendment or in any other Amendment Document shall survive the execution and delivery of this Seventh Amendment. Such representations and warranties have been or will be relied upon by the Agent and each Lender, regardless of any investigation made by the Agent or any Lender or on their behalf and notwithstanding that the Agent or any Lender may have had notice or knowledge of any Default at the time of any extension of credit by the Agent or such lender, and shall continue in full force and effect as long as any Loan or any other Obligation under the Amended Loan Agreement or any other Loan Document shall remain unpaid or unsatisfied.
SECTION 7. Effect of Seventh Amendment, Release, Etc.
(a) Effect of Seventh Amendment. After giving effect to this Seventh Amendment on the Seventh Amendment Effective Date, the Amended Loan Agreement and the other Loan Documents shall be and remain in full force and effect in accordance with their terms and are hereby ratified and confirmed by the Borrowers and each other Loan Party Obligor in all respects. The execution, delivery, and performance of this Seventh Amendment shall not operate as a waiver of any right, power, or remedy of the Agent or the Lenders under the Existing Loan Agreement or the other Loan Documents. The Borrowers and each other Loan Party Obligor hereby acknowledges and agrees that, after giving effect to this Seventh Amendment, all of its obligations and liabilities under the Existing Loan Agreement and the other Loan Documents to which it is a party, as such obligations and liabilities have been amended by this Seventh Amendment, are reaffirmed and remain in full force and effect. All references to the Existing Loan Agreement in any Loan Document or other document or instrument delivered in connection therewith shall be deemed to refer to the Amended Loan Agreement. Nothing contained herein shall be construed as a novation of the Obligations outstanding under and as defined in the Existing Loan Agreement, which shall remain in full force and effect, except as modified hereby.
(b) Reaffirmation of Grant of Security Interests. Each Borrower and each other Loan Party Obligor hereby reaffirms its grant to the Agent, for the benefit of the Lenders, of a continuing security interest in and Lien upon the Collateral of such Person, whether now owned or hereafter
4
acquired or arising, and wherever located, all as provided in the Loan Documents, and each Borrower and other Loan Party Obligor hereby reaffirms that the Obligations are and shall continue to be secured by the continuing security interest and Lien granted by such Person to the Agent, for the benefit of the Lenders, pursuant to the Loan Documents.
(c) Limited Effect. This Seventh Amendment relates only to the specific matters expressly covered herein, shall not be considered to be an amendment or waiver of any rights or remedies that the Agent or any Lender may have under the Existing Loan Agreement or any other Loan Document (except as expressly set forth herein) or under applicable law, and shall not be considered to create a course of dealing or to otherwise obligate in any respect the Agent or any Lender to execute similar or other amendments or waivers or grant any amendments or waivers under the same or similar or other circumstances in the future.
(d) RELEASE. EACH BORROWER AND LOAN PARTY OBLIGOR HEREBY ACKNOWLEDGES THAT, AS OF THE DATE HEREOF, SUCH PERSON 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 SUCH PERSON’S LIABILITY TO REPAY THE OBLIGATIONS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDERS, AGENT, OR THEIR RESPECTIVE AFFILIATES, PARTICIPANTS OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, AGENTS, MANAGERS, MEMBERS, EMPLOYEES OR ATTORNEYS. EACH BORROWER AND LOAN PARTY OBLIGOR HEREBY VOLUNTARILY AND KNOWINGLY RELEASE AND FOREVER DISCHARGE LENDERS, AGENT, THEIR RESPECTIVE AFFILIATES AND PARTICIPANTS, AND THEIR PREDECESSORS, AGENTS, MANAGERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS SEVENTH AMENDMENT IS EXECUTED, WHICH ANY BORROWER OR LOAN PARTY OBLIGOR MAY NOW OR HEREAFTER HAVE AGAINST LENDERS, AGENT, OR THEIR RESPECTIVE PREDECESSORS, AGENTS, MANAGERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM THE LIABILITIES, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. EACH BORROWER AND LOAN PARTY OBLIGOR HEREBY COVENANTS AND AGREES NEVER TO INSTITUTE ANY ACTION OR SUIT AT LAW OR IN EQUITY, NOR INSTITUTE, PROSECUTE, OR IN ANY WAY AID IN THE INSTITUTION OR PROSECUTION OF ANY CLAIM, ACTION OR CAUSE OF ACTION, RIGHTS TO RECOVER DEBTS OR DEMANDS OF ANY NATURE AGAINST LENDERS, AGENT, THEIR RESPECTIVE AFFILIATES AND PARTICIPANTS, OR THEIR RESPECTIVE SUCCESSORS, AGENTS, MANAGERS, MEMBERS, ATTORNEYS, OFFICERS, DIRECTORS, EMPLOYEES, AND PERSONAL
5
AND LEGAL REPRESENTATIVES ARISING ON OR BEFORE THE DATE HEREOF OUT OF OR RELATED TO LENDERS’ OR AGENT’S ACTIONS, OMISSIONS, STATEMENTS, REQUESTS OR DEMANDS IN ADMINISTERING, ENFORCING, MONITORING, COLLECTING OR ATTEMPTING TO COLLECT THE OBLIGATIONS OF ANY BORROWER OR ANY LOAN PARTY OBLIGOR TO LENDERS AND AGENT, WHICH OBLIGATIONS ARE EVIDENCED BY THE LOAN DOCUMENTS, EXCEPT FOR THOSE CLAIMS ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF AGENT OR ANY LENDER.
SECTION 8. Miscellaneous.
(a) Seventh Amendment as Loan Document. This Seventh Amendment constitutes a Loan Document under the Amended Loan Agreement.
(b) Headings. Section headings in this Seventh Amendment are included herein for convenience and do not affect the meanings of the provisions that they precede.
(c) Severability. If any provision of this Seventh Amendment or any other Amendment Document is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given circumstances, or excised from this Seventh Amendment or such other Amendment Document, as the situation may require, and this Seventh Amendment and the other Amendment Documents shall be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein or therein, as the case may be.
(d) GOVERNING LAW. THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUCTED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. FURTHER, THE LAW OF THE STATE OF NEW YORK SHALL APPLY TO ALL DISPUTES OR CONTROVERSIES ARISING OUT OF OR CONNECTED TO OR WITH THIS SEVENTH AMENDMENT OR THE OTHER AMENDMENT DOCUMENTS WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
(e) Costs and Expenses. Each Borrower and Loan Party Obligor hereby affirms its obligation under the Amended Loan Agreement to reimburse the Agent for all fees and expenses paid or incurred by the Agent in connection with the preparation, negotiation, execution and delivery of this Seventh Amendment, including but not limited to the internal and external attorneys’ fees and expenses of attorneys for the Agent with respect thereto.
(f) Execution in Counterparts. This Seventh Amendment may be executed in counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. This Seventh Amendment may be executed by signatures delivered by facsimile or electronic mail, each of which shall be fully binding on the signing party.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]
6
IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to be executed and delivered as of the date first above written.
PATHLIGHT CAPITAL LP, | ||
as Agent | ||
By: | Pathlight GP LLC, its General Partner | |
By: | /s/ Shawn A. Pennels | |
Name: | Shawn A. Pennels | |
Title: | Director | |
PATHLIGHT CAPITAL FUND I LP, | ||
as a Lender | ||
By: | Pathlight GP LLC, its General Partner | |
By: | /s/ Shawn A. Pennels | |
Name: | Shawn A. Pennels | |
Title: | Director | |
PATHLIGHT CAPITAL OFFSHORE FUND I LP, | ||
as a Lender | ||
By: | Pathlight GP LLC, its General Partner | |
By: | /s/ Shawn A. Pennels | |
Name: | Shawn A. Pennels | |
Title: | Director |
[Signature Page to Seventh Amendment to Loan and Security Agreement]
RUBICON GLOBAL, LLC, | ||
as a Borrower and a Loan Party Obligor | ||
By: | /s/ Phil Rodoni | |
Name: | Phil Rodoni | |
Title: | Chief Executive Office of its Sole Member | |
RIVERROAD WASTE SOLUTIONS, INC., | ||
as a Borrower and a Loan Party Obligor | ||
By: | /s/ Marc Spiegel | |
Name: | Marc Spiegel | |
Title: | President | |
RUBICON TECHNOLOGIES HOLDINGS, LLC, | ||
as a Loan Party Obligor | ||
By: | /s/ Phil Rodoni | |
Name: | Phil Rodoni | |
Title: | Chief Executive Officer | |
CLEANCO LLC, | ||
as a Loan Party Obligor | ||
By: | /s/ Phil Rodoni | |
Name: | Phil Rodoni | |
Title: | Chief Executive Officer of its Sole Member | |
CHARTER WASTE MANAGEMENT, INC., | ||
as a Loan Party Obligor | ||
By: | /s/ Marc Spiegel | |
Name: | Marc Spiegel | |
Title: | President | |
RUBICON TECHNOLOGIES INTERNATIONAL, INC., as a Loan Party Obligor | ||
By: | /s/ Marc Spiegel | |
Name: | Marc Spiegel | |
Title: | President |
[Signature Page to Seventh Amendment to Loan and Security Agreement]
Exhibit A
Amended Credit Agreement
[Attached]
EXHIBIT A
INCORPORATING FIRST
THROUGH SIXTH SEVENTH AMENDMENT
LOAN AND SECURITY AGREEMENT
dated as of March 29, 2019
as amended February 27, 2020
as amended March 24, 2021
as amended October 15, 2021
as amended April 26, 2022
as amended November 18, 2022
as amended November 30, 2022
as amended February 7, 2023
by and among
RUBICON GLOBAL, LLC
and
RIVERROAD WASTE SOLUTIONS, INC.,
as Borrowers and Loan Party Obligors,
RUBICON TECHNOLOGIES HOLDINGS, LLC, CLEANCO LLC
CHARTER WASTE MANAGEMENT, INC. and
RUBICON TECHNOLOGIES INTERNATIONAL, INC.,
as Loan Party Obligors
the Lenders from time to time party hereto,
and
PATHLIGHT CAPITAL LP,
as Agent
TABLE OF CONTENTS
Page
1. | DEFINITIONS | 1 |
1.1. | Certain Defined Terms | 1 |
1.2. | Accounting Terms and Determinations |
1.3. | Other Definitional Provisions and References |
2. | LOANS |
2.1. | Term Loans; Reserves |
2.2. | Protective Advances |
2.3. | [Reserved] |
2.4. | [Reserved] |
2.5. | Repayments |
2.6. | Prepayments; Application of Prepayments |
2.7. | Obligations Unconditional |
2.8. | Reversal of Payments |
2.9. | Notes |
2.10. | Defaulting Lenders |
2.11. | Appointment of Borrower Representative |
2.12. | Joint and Several Liability |
3. | INTEREST AND FEES |
3.1. | Interest |
3.2. | Fees |
3.3. | Computation of Interest and Fees |
3.4. | Loan Account; Monthly Accountings |
3.5. | Further Obligations; Maximum Lawful Rate |
3.6. | Certain Provisions Regarding |
4. | CONDITIONS PRECEDENT |
4.1. | Conditions to Funding Term Loans |
5. | COLLATERAL |
5.1. | Grant of Security Interest |
5.2. | Possessory Collateral |
5.3. | Further Assurances |
5.4. | UCC Financing Statements |
5.5. | ABL Intercreditor Agreement |
6. | CERTAIN PROVISIONS REGARDING ACCOUNTS, COLLECTIONS AND APPLICATIONS OF PAYMENTS |
6.1. | Lock Boxes and Blocked Accounts |
6.2. | Application of Payments |
6.3. | Notification; Verification |
6.4. | Power of Attorney |
6.5. | Disputes |
6.6. | Invoices |
-i-
7. | REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS |
7.1. | Existence and Authority |
7.2. | Names; Trade Names and Styles |
7.3. | Title to Collateral; Third Party Locations; Permitted Liens |
7.4. | Accounts and Chattel Paper |
7.5. | Electronic Chattel Paper |
7.6. | Capitalization; Investment Property |
7.7. | Commercial Tort Claims |
7.8. | Jurisdiction of Organization; Location of Collateral |
7.9. | Financial Statements and Reports; Solvency |
7.10. | Tax Returns and Payments; Pension Contributions |
7.11. | Compliance with Laws; Intellectual Property; Licenses |
7.12. | Litigation |
7.13. | Use of Proceeds |
7.14. | Insurance |
7.15. | Financial, Collateral and Other Reporting / Notices |
7.16. | Litigation Cooperation |
7.17. | Maintenance of Collateral, Etc |
7.18. | Material Contracts |
7.19. | No Default |
7.20. | No Material Adverse Change |
7.21. | Full Disclosure |
7.22. | Sensitive Payments |
7.23. | Holdings |
7.24. | Subordinated Debt |
7.25. | Access to Collateral, Books and Records |
7.26. | Appraisals |
7.27. | Lender Meetings |
7.28. | Interrelated Businesses |
7.29. | Post-Closing Matters |
7.30. | Term Loan Push-Down Reserve |
7.31. | ABL Obligations |
7.32. | Third Lien Obligations |
7.33. | Initial Issuance Transaction |
7.35. | Follow-on Issuance Transactions |
7.36. | SEPA |
7.37. | Advisor Engagement |
8. | NEGATIVE COVENANTS |
9. | FINANCIAL COVENANTS |
9.1. | Capital Expenditure Limitation |
9.2. | Minimum Excess Availability |
10. | RELEASE, LIMITATION OF LIABILITY AND INDEMNITY |
10.1. | Release |
10.2. | Limitation of Liability |
10.3. | Indemnity |
11. | EVENTS OF DEFAULT AND REMEDIES |
11.1. | Events of Default |
11.2. | Remedies with Respect to Lending Commitments/Acceleration, Etc |
-ii-
11.3. | Remedies with Respect to Collateral |
12. | LOAN GUARANTY |
12.1. | Guaranty |
12.2. | Guaranty of Payment |
12.3. | No Discharge or Diminishment of Loan Guaranty |
12.4. | Defenses Waived |
12.5. | Rights of Subrogation |
12.6. | Reinstatement; Stay of Acceleration |
12.7. | Information |
12.8. | Termination |
12.9. | Maximum Liability |
12.10. | Contribution |
12.11. | Liability Cumulative |
13. | PAYMENTS FREE OF TAXES; OBLIGATION TO WITHHOLD; PAYMENTS ON ACCOUNT OF TAXES |
14. | AGENT |
14.1. | Appointment |
14.2. | Rights as a Lender |
14.3. | Duties and Obligations |
14.4. | Reliance |
14.5. | Actions through Sub-Agents |
14.6. | Resignation |
14.7. | Non-Reliance |
14.8. | Not Partners or Co-Venturers; Agent as Representative of the Secured Parties |
14.9. | Credit Bidding |
14.10. | Certain Collateral Matters |
14.11. | Restriction on Actions by Lenders |
14.12. | Expenses |
14.13. | Notice of Default or Event of Default |
14.14. | Liability of Agent |
15. | GENERAL PROVISIONS |
15.1. | Notices |
15.2. | Severability |
15.3. | Integration |
15.4. | Waivers |
15.5. | Amendments |
15.6. | Time of Essence |
15.7. | Expenses, Fee and Costs Reimbursement |
15.8. | Benefit of Agreement; Assignability |
15.9. | Assignments |
15.10. | Participations |
15.11. | Headings; Construction |
15.12. | USA PATRIOT Act Notification |
15.13. | Counterparts; Fax/Email Signatures |
15.14. | GOVERNING LAW |
15.15. | CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL; CONSENT TO SERVICE OF PROCESS |
15.16. | Publication |
-iii-
15.17. | Confidentiality |
Attachments:
Perfection Certificate
Annex I | Reporting |
Annex II | Term Loan Commitment Schedule |
Annex III | Post-Closing Obligations |
Exhibit A | Closing Checklist |
Exhibit B | Form of Account Debtor Notification |
Exhibit C | Form of Compliance Certificate |
Exhibit D | Form of Assignment and Assumption Agreement |
-iv-
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (as it may be amended, restated or otherwise modified from time to time pursuant to the terms hereof, this “Agreement”) is entered into on March 29, 2019, by and among RUBICON GLOBAL, LLC, a Delaware limited liability company (“Rubicon”), and RIVERROAD WASTE SOLUTIONS, INC., a New Jersey corporation (“RiverRoad”; together with Rubicon, each a “Borrower” and collectively the “Borrowers”), RUBICON TECHNOLOGIES HOLDINGS, LLC, a Delaware limited liability company (“Holdings”), CLEANCO LLC, a New Jersey limited liability company (“Cleanco”), CHARTER WASTE MANAGEMENT, INC., a Delaware corporation (“Charter”), and RUBICON TECHNOLOGIES INTERNATIONAL, INC., a Delaware corporation (“International”), the Lenders party hereto from time to time, and PATHLIGHT CAPITAL LP, as agent for the Lenders (in such capacity, “Agent”). The Annexes and Exhibits to this Agreement, as well as the Perfection Certificate attached to this Agreement, are an integral part of this Agreement and are incorporated herein by reference.
1. DEFINITIONS.
1.1. Certain Defined Terms.
Unless otherwise defined herein, the following terms are used herein as defined in the UCC: Accounts, Account Debtor, Certificated Security, Chattel Paper, Commercial Tort Claims, Debtor, Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Farm Products, Financing Statement, Fixtures, General Intangibles, Goods, Health-Care-Insurance Receivables, Instruments, Inventory, Letter-of-Credit Rights, Money, Payment Intangible, Proceeds, Secured Party, Securities Accounts, Security Agreement, Supporting Obligations and Tangible Chattel Paper.
As used in this Agreement, the following terms have the following meanings:
“ABL Agent” means Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC), in its capacity as “Agent” under (and as defined in) the ABL Loan Agreement, and any of its successors in such capacity.
“ABL Borrowing Base” means the “Borrowing Base” under (and as defined in) the ABL Loan Agreement as in effect on the date hereof or as amended from time to time in accordance with the ABL Intercreditor Agreement.
“ABL Intercreditor Agreement” means that certain Amended and Restated Intercreditor Agreement, dated as of the First Amendment Effective Date, by and between Agent and ABL Agent and acknowledged by the Loan Party Obligors, as amended by that certain Consent and First Amendment to Intercreditor Agreement dated as March 24, 2021, that certain Consent and Secondt Amendment to Intercreditor Agreement dated as the Seventh Amendment Effective Date, and as further amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, and shall also include any replacement intercreditor agreement entered into in accordance with the terms thereof.
“ABL Lender” means each “Lender” under (and as defined in) the ABL Loan Agreement.
“ABL Loan Agreement” means that certain Loan and Security Agreement dated as of December 14, 2018, by and among the Loan Party Obligors, the ABL Lenders and ABL Agent.
“ABL Loan Documents” means the “Loan Documents” as defined in the ABL Loan Agreement as in effect on the date hereof or as amended from time to time in accordance with the ABL Intercreditor Agreement.
“ABL Obligations” means the “Obligations” as defined in the ABL Loan Agreement as in effect on the date hereof or as amended from time to time in accordance with the ABL Intercreditor Agreement.
“ABL Reserves” means, at any time of determination, all “Reserves” being maintained under (and as defined in) the ABL Loan Agreement (including any Term Loan Push-Down Reserve).
“Advance Rates” means, collectively, the Billed Accounts Advance Rate, the Billed Aged Accounts Advance Rate, the Billed Cross-Aged Accounts Advance Rate, the Unbilled Accounts Advance Rate, the Uninvoiced Accounts Advance Rate, and the Service Contracts Advance Rate.
“Affiliate” means, with respect to any Person, any other Person in control of, controlled by, or under common control with the first Person, and any other Person who has a substantial interest, direct or indirect, in the first Person or any of its Affiliates, including, any officer or director of the first Person or any of its Affiliates (and if that Person is an individual, any member of the immediate family (including parents, siblings, spouse, children, stepchildren, nephews, nieces and grandchildren) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust); provided, that neither Agent, any Lender nor any of their respective Affiliates shall be deemed an “Affiliate” of Borrower for any purposes of this Agreement. For the purpose of this definition, a “substantial interest” shall mean the direct or indirect legal or beneficial ownership of more than ten (10%) percent of any class of equity or similar interest.
“Agent” has the meaning set forth in the preamble to this Agreement, and includes any successor agent appointed in accordance with Section 14.6 herein.
“Agent Fee Letter” means that certain amended and restated fee letter agreement, dated as of the Third Amendment Effective Date, between Agent and Borrowers.
“Agent-Related Persons” means Agent, together with its Affiliates, officers, directors, employees, members, managers, attorneys, and agents.
“Agent Professionals” means attorneys, accountants, appraisers, auditors, business valuation experts, liquidation agents, collection agencies, auctioneers, environmental engineers or consultants, turnaround consultants, and other professionals and experts retained by Agent.
“Agreement” and “this Agreement” has the meaning set forth in the preamble to this Agreement.
“Allocable Amounts” has the meaning set forth in Section 2.12(f)(ii) of this Agreement.
“Applicable Margin”
means , at any time from and after the Seventh Amendment Effective Date, (a)
with respect to LIBOR Loans, 9.50%, Loans
bearing interest at the Term SOFR component of the Applicable Reference Rate, 9.50% per annum and (b) with respect to
Loans bearing interest at the Base Rate Loanscomponent
of the Applicable Reference Rate, 8.50% per annum.
“Applicable Payment Percentage” has the meaning set forth in Section 12.10 of this Agreement.
-2-
“Applicable Reference Rate” means, with respect to any Loan, an interest rate per annum equal to Term SOFR; provided, however, that in the event that Term SOFR is unavailable (including as a result of the occurrence of any event described in the definition of Term SOFR or Section 3.6), subject to the last sentence of the definition of “Term SOFR”, the Applicable Reference Rate shall mean a per annum interest rate equal to the Base Rate. The Applicable Reference Rate will be determined and adjusted monthly (as of the beginning of each month) as to all Loans then outstanding.
“Approved Electronic Communication” means each notice, demand, communication, information, document and other material transmitted, posted or otherwise made or communicated by e-mail, facsimile or any other equivalent electronic service, whether owned, operated or hosted by Agent, any of its Affiliates or any other Person, that any party is obligated to, or otherwise chooses to, provide to Agent pursuant to this Agreement or any other Loan Document, including any financial statement, financial and other report, notice, request, certificate and other information or material; provided, that Approved Electronic Communications shall not include any notice, demand, communication, information, document or other material that Agent specifically instructs a Person to deliver in physical form.
“Approved Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business, in each case that is administered, managed, advised or underwritten by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Assignee” has the meaning set forth in Section 15.9(a).
“Assignment and Assumption” means an assignment and assumption agreement substantially in the form of Exhibit D.
“Assignment of Claims Act”, means the Assignment of Claims Act of 1940, as amended, currently codified at 31 U.S.C. 3727 and 41 U.S.C. 6305, and includes the prior historically referenced Federal Anti-Claims Act (31 U.S.C. 3727) and the Federal Anti-Assignment Act (41 U.S.C. 6305).
“Bankruptcy Code” means the United States Bankruptcy Code (11 U.S.C. § 101 et seq.).
“Base Rate”
means, for any day, the greatest of (a) the Floor, (b) the Federal
Funds Rate plus ½%, (b) the LIBOR Rate (which rate shall be calculated based upon a one (1) month
period and shall be determined on a daily basis), 0.50%, and
(c) one percent (1.0%), and (d) the rate of interest announced, from time
to time, within Wells Fargo Bank, N.A. at its principal office in San Francisco as its “prime rate”, with the understanding
that the “prime rate” is one of Wells Fargo Bank, N.A.’s base rates (not necessarily the lowest of such rates) and serves
as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording
thereof after its announcement in such internal publications as Wells Fargo Bank, N.A. may designate (or, if such rate ceases to be so
published, as quoted from such other generally available and recognizable source as Agent may select).
“Base
Rate Loan” means any Loan which bears interest at or by reference to the Base Rate.
“Billed Accounts Advance Rate” means (a) one hundred five percent (105%) at all times prior to the date that is six (6) months after the Closing Date, (b) one hundred two and one-half percent (102.5%) at all times on and after the date that is six (6) months after the Closing Date and prior to the
-3-
first anniversary of the Closing Date, and (c) one hundred percent (100%) at all times on and after the first anniversary of the Closing Date, in each case, subject to any Repayment Advance Reductions; provided, in each case, that if Dilution exceeds five percent (5%), Agent may, at its option, (A) reduce such Advance Rate by the number of full or partial percentage points comprising such excess or (B) establish a Reserve on account of such excess (the “Dilution Reserve”).
“Billed Aged Accounts Advance Rate” means one hundred percent (100%), subject to any Repayment Advance Reductions; provided, that if Dilution exceeds five percent (5%), Agent may, at its option, (A) reduce such advance rate by the number of full or partial percentage points comprising such excess or (B) establish a Dilution Reserve on account of such excess.
“Billed Cross-Aged Accounts Advance Rate” means one hundred percent (100%), subject to any Repayment Advance Reductions; provided, that if Dilution exceeds five percent (5%), Agent may, at its option, (A) reduce such advance rate by the number of full or partial percentage points comprising such excess or (B) establish a Dilution Reserve on account of such excess.
“Blocked Account” has the meaning set forth in Section 6.1.
“Borrower” and “Borrowers” has the meaning set forth in the preamble to this Agreement.
“Borrower Representative” means Rubicon, in such capacity pursuant to the provisions of Section 2.9, or any permitted successor Borrower Representative selected by Borrowers and approved by Agent.
“Borrowing Base” means, as of any date of determination, the Dollar Equivalent Amount as of such date of determination of:
(a) the aggregate amount of Eligible Billed Accounts multiplied by the Billed Accounts Advance Rate, plus
(b) the aggregate amount of Eligible Billed Aged Accounts multiplied by the Billed Aged Accounts Advance Rate, plus
(c) the aggregate amount of Eligible Billed Cross-Aged Accounts multiplied by the Billed Cross-Aged Accounts Advance Rate, plus
(d) the aggregate amount of Eligible Unbilled Accounts multiplied by the Unbilled Accounts Advance Rate, plus
(e) the aggregate amount of Eligible Uninvoiced Accounts multiplied by the Uninvoiced Accounts Advance Rate, plus
(f) the lesser of (i) the Eligible Service Contracts Component multiplied by the Service Contracts Advance Rate, and (ii) the Service Contracts Sublimit, minus
(g) the amount of the ABL Borrowing Base (without giving effect to any Term Loan Push-Down Reserve or any other ABL Reserves), minus
(h) all Reserves which Agent has established pursuant to Section 2.1(b).
“Borrowing Base Certificate” means a certificate in the form provided by Agent to Borrower Representative for use in reporting the Borrowing Base.
-4-
“Business Day”
means a day other than a Saturday or Sunday or any other day on which Agent or banks in New York are authorized to close and,
in the case of a Business Day which relates to a LIBOR Loan, any day on which dealings are carried on in the London Interbank Eurodollar
market.
“Capital Expenditures” means all expenditures which, in accordance with GAAP, would be required to be capitalized and shown on the consolidated balance sheet of Borrowers, but excluding expenditures made in connection with the acquisition, replacement, substitution or restoration of assets to the extent financed (a) from insurance proceeds (or other similar recoveries) paid on account of the loss of or damage to the assets being replaced or restored or (b) with cash awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced.
“Capitalized Lease” means any lease which is or should be capitalized on the balance sheet of the lessee thereunder in accordance with GAAP.
“Closing Date” means March 29, 2019.
“CME” means CME Group Benchmark Administration Limited.
“Code” means the Internal Revenue Code of 1986, as amended.
“Collateral” means all property and interests in property in or upon which a security interest, mortgage, pledge or other Lien is granted pursuant to this Agreement or the other Loan Documents, including all of the property of each Loan Party Obligor described in Section 5.1.
“Collections” has the meaning set forth in Section 6.1.
“Compliance Certificate” means a compliance certificate substantially in the form of Exhibit C hereto to be signed by the Chief Financial Officer or President of Borrower Representative.
“Confidential Information” means confidential information that any Loan Party furnishes to the Agent pursuant to any Loan Document concerning any Loan Party’s business, but does not include any such information once such information has become, or if such information is, generally available to the public or available to the Agent (or other applicable Person) from a source other than the Loan Parties which is not, to the Agent’s knowledge, bound by any confidentiality obligation in respect thereof.
“Conforming Changes” means, with respect to the use, administration of or any conventions associated with SOFR or any proposed Successor Rate or Term SOFR, as applicable, any conforming changes to the definitions of “Base Rate”, “SOFR”, and “Term SOFR”, timing and frequency of determining rates and making payments of interest and other technical, administrative or operational matters (including, for the avoidance of doubt, the definitions of “Business Day” and “U.S. Government Securities Business Day”, timing of borrowing requests or prepayment, conversion or continuation notices and length of lookback periods) as may be appropriate, in the discretion of Agent, to reflect the adoption and implementation of such applicable rate(s) and to permit the administration thereof by Agent in a manner substantially consistent with market practice (or, if Agent determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such rate exists, in such other manner of administration as the Agent determines is reasonably necessary in connection with the administration of this Agreement and any other Loan Document).
“Control Agreement” means an agreement with respect to any deposit, securities or commodities account, in form and substance reasonably satisfactory to Agent, establishing control (as defined in the UCC to the extent applicable) of such account by Agent and is executed and delivered by the
-5-
bank (with respect to a deposit account), securities intermediary (with respect to a securities account), or commodities intermediary (with respect to a commodities account) maintaining such account, the applicable Loan Party Obligor, Agent and ABL Agent.
“Convertibles Registration Statement” means a registration statement filed by Rubicon Technologies, Inc. with the SEC with respect to the resale of Class A Common Stock, par value $0.0001, of Rubicon Technologies, Inc., issuable pursuant to the Convertibles SPA.
“Convertibles SPA” means that certain Securities Purchase Agreement, dated as of November 30, 2022, by and between YA II PN, Ltd. and Rubicon Technologies, Inc., as the same may be amended from time to time without resulting in an Event of Default hereunder.
“Credit Bid” has the meaning set forth in Section 14.9 of this Agreement.
“Default” means any event or circumstance which with notice or passage of time, or both, would constitute an Event of Default.
“Default Rate” has the meaning set forth in Section 3.1.
“Defaulting Lender” means any Lender that (a) has failed, within one (1) Business Day of the date required to be funded or paid, to (i) fund any portion of its Loans or (ii) pay over to Agent or any other Lender any other amount required to be paid by it hereunder, (b) has notified Borrower Representative or Agent in writing, or it or its parent has made a public statement, to the effect that it does not intend or expect to comply with any of its funding obligations under this Agreement or generally under other agreements in which it or its parent commits to extend credit, (c) has failed, within two (2) Business Days after request by Agent, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon Agent’s receipt of such certification in form and substance satisfactory to Agent, (d) had an involuntary proceeding commenced or an involuntary petition filed seeking (i) liquidation, reorganization or other relief in respect of such Lender or its parent or its or its parent’s debts, or of a substantial part of its or its parent’s assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Lender or its parent or for a substantial part of its or its parent’s assets, or (e) shall have or whose parent shall have (i) voluntarily commenced any proceeding or filed any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consented to the institution of, or failed to contest in a timely and appropriate manner, any proceeding or petition described in clause (d) of this definition, (iii) applied for or consented to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for it or a substantial part of its assets, (iv) filed an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) made a general assignment for the benefit of creditors or (vi) taken any action for the purpose of effecting any of the foregoing.
“Dilution” means, as of any date of determination, a percentage, based upon the experience of the immediately prior twelve (12) months, that is the result of dividing the Dollar Equivalent Amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to a Borrower’s Accounts during such period by (b) such Borrower’s billings with respect to Accounts during such period.
“Dilution Reserve” has the meaning set forth in the definition of Billed Accounts Advance Rate.
-6-
“Division” in reference to any Person which is an entity, means the division of such Person into two (2) or more separate 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.
“Dollar Equivalent Amount” means, at any time, (a) as to any amount denominated in Dollars, the amount thereof at such time, and (b) as to any amount denominated in a currency other than Dollars, the equivalent amount in Dollars as determined by Agent at such time that such amount could be converted into Dollars by Agent according to prevailing exchange rates selected by Agent.
“Dollars” or “$” means United States Dollars.
“EBITDA” means, for the applicable period, for the Loan Parties on a consolidated basis, the sum of: (a) Net Income; plus (b) Interest Expense deducted in the calculation of such Net Income; plus (c), all fees, costs and expenses (including all fees, costs and expenses paid to Agent, ABL Agent, and Third Lien Agent) incurred in connection with outstanding Indebtedness (including all fees, costs and expenses paid to Agent, ABL Agent, and Third Lien Agent incurred in connection with amendments or modifications to, or waivers or consents under this Agreement, the other Loan Documents, the ABL Loan Agreement, the other ABL Loan Documents, the Third Lien Loan Agreement, and the other Third Lien Loan Documents); plus (d) taxes on income, whether paid, payable or accrued, deducted in the calculation of such Net Income; plus (e) depreciation expense deducted in the calculation of such Net Income; plus (f) amortization expense deducted in the calculation of such Net Income; plus (g) any other non-cash charges that have been deducted in the calculation of such Net Income; plus (h) other nonrecurring costs and expenses approved by the ABL Agent pursuant to the ABL Loan Agreement for inclusion in the calculation of EBITDA for purposes of the ABL Agreement (it being agreed that this provision shall not be deemed to be a consent hereunder to the incurrence of any such cost or expense which is not otherwise permitted or is prohibited pursuant to the terms of this Agreement); minus; (i) any other non-cash gains that have been added in the calculation of such Net Income.
“E-Signature” means the process of attaching to or logically associating with an Approved Electronic Communication an electronic symbol, encryption, digital signature or process (including the name or an abbreviation of the name of the party transmitting the Approved Electronic Communication) with the intent to sign, authenticate or accept such Approved Electronic Communication.
“Electronic Signatures in Global and National Commerce Act” means 15 U.S.C. § 7001 et seq.
“Eligible Accounts” means, collectively, Eligible Billed Accounts, Eligible Billed Aged Accounts, Eligible Billed Cross-Aged Accounts, Eligible Unbilled Accounts, and Eligible Uninvoiced Accounts.
“Eligible Billed Account” means, at any time of determination and subject to the criteria below, an Account of a Borrower, which was generated and billed by a Borrower in the Ordinary Course of Business, and which Agent, in its Permitted Discretion, deems to be an Eligible Billed Account. The net amount of an Eligible Billed Account at any time shall be the face amount of such Eligible Billed Account as originally billed minus all customer deposits, unapplied cash collections and other Proceeds of such Account received from or on behalf of the Account Debtor thereunder as of such
-7-
date and any and all returns, rebates, discounts (which may, at Agent’s option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time. Without limiting the generality of the foregoing, the following Accounts shall not be Eligible Billed Accounts:
(i) the Account Debtor or any of its Affiliates is an Affiliate of any Loan Party;
(ii) it remains unpaid longer than the earlier to occur of (A) ninety (90) days after the original invoice date or (B) sixty (60) days after the original invoice due date;
(iii) the Account Debtor or its Affiliates are past any of the applicable dates referenced in clause (ii) above on other Accounts owing to a Borrower comprising more than twenty-five percent (25%) of all of the Accounts owing to a Borrower by such Account Debtor or its Affiliates;
(iv) all Accounts owing by the Account Debtor or its Affiliates (excluding the Account Debtors Walmart, Inc.(“Walmart”), Five Below (“Five Below”) and TJ Maxx (“TJ Maxx”)) represent more than fifteen percent (15%) of all otherwise Eligible Billed Accounts (for Walmart, such percentage shall be twenty-five percent (25%)) (for Five Below, such percentage shall be twenty percent (20%) solely for RiverRoad) (for TJ Maxx, such percentage shall be twenty percent (20%) solely for Rubicon); provided, that Accounts which are deemed to be ineligible solely by reason of this clause (iv) shall be considered Eligible Billed Accounts to the extent of the amount thereof which does not exceed the applicable percentages set forth above of all otherwise Eligible Billed Accounts;
(v) a covenant, representation or warranty contained in this Agreement or any other Loan Document with respect to such Account (including any of the representations set forth in Section 7.4) has been breached;
(vi) the Account is subject to any contra relationship, counterclaim, dispute or set-off; provided, that Accounts which are deemed to be ineligible by reason of this clause (vi) shall be considered ineligible only to the extent of such applicable contra relationship, counterclaim, dispute or set-off;
(vii) the Account Debtor’s chief executive office or principal place of business is located outside of the United States;
(viii) it is payable in a currency other than Dollars;
(ix) it is not absolutely owing to a Borrower or arises from a sale on a bill-and-hold, guarantied sale, sale-or-return, sale-on-approval, consignment, retainage or any other repurchase or return basis or consist of progress billings or other advance billings that are due prior to the completion of performance by a Borrower of the subject contract for goods or services;
(x) the Account Debtor is the United States of America or any state or political subdivision (or any department, agency or instrumentality thereof), unless such Borrower has complied with the Assignment of Claims Act or other applicable similar state or local law in a manner reasonably satisfactory to Agent;
-8-
(xi) it is not at all times subject to Agent’s duly perfected, Requisite Priority security interest or is subject to any other Lien that is not a Permitted Lien, or the goods giving rise to such Account were, at the time of sale, subject to any Lien that is not a Permitted Liens;
(xii) it is evidenced by Chattel Paper or an Instrument of any kind (unless such Chattel Paper or Instrument is delivered to Agent in accordance with Section 5.2) or has been reduced to judgment;
(xiii) the Account Debtor’s total indebtedness to Borrowers exceeds the amount of any credit limit established by Borrowers or Agent or the Account Debtor is otherwise deemed not to be creditworthy by Agent; provided, that Accounts which are deemed to be ineligible solely by reason of this clause (xiii) shall be considered Eligible Billed Accounts to the extent the amount of such Accounts does not exceed the lower of such credit limits;
(xiv) there are facts or circumstances existing, or which could reasonably be anticipated to occur, which might result in an adverse change in the Account Debtor’s financial condition or impair or delay the collectability of all or any portion of such Account;
(xv) Agent has not been furnished with all documents and other information pertaining to such Account which Agent has requested, or which any Borrower is obligated to deliver to Agent, pursuant to this Agreement;
(xvi) Any Borrower has made an agreement with the Account Debtor to extend the time of payment thereof beyond the time periods set forth in clause (ii) above;
(xvii) Any Borrower has posted a surety or other bond in respect of the contract or transaction under which such Account arose;
(xviii) the Account Debtor is subject to any proceeding seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar applicable law;
(xix) the sale giving rise to such Account is on cash in advance or cash on delivery terms;
(xx) the goods giving rise to such Account have been sold by a Borrower to the Account Debtor outside such Borrower’s Ordinary Course of Business or the services giving rise to such Account have been performed by Borrower outside such Borrower’s Ordinary Course of Business;
(xxi) Accounts with respect to which (i) the goods giving rise to such Account have not been shipped and billed to the Account Debtor, or (ii) the services giving rise to such Account have not been performed and billed to the Account Debtor;
(xxii) the Account Debtor on such Accounts is located in any jurisdiction which adopts a statute or other requirement that any Person that obtains business from within such jurisdiction or is otherwise subject to such jurisdiction’s tax law must file a “Business Activity Report” (or other applicable report) or make any required filings in a timely manner in order to enforce its claims in such jurisdiction’s courts or arising under such jurisdiction’s laws; provided, however, that such Accounts shall nonetheless be Eligible Billed Accounts if such Borrower has filed a “Business Activity Report” (or other applicable report or required filing);
-9-
(xxiii) any Eligible Unbilled Accounts;
(xxiv) any Accounts obtained in a Permitted Acquisition unless Agent has caused a field examination to be performed on such Accounts and the results of such examination are satisfactory to Agent and Agent has consented to such Accounts being Eligible Billed Accounts in writing; or
(xxv) Accounts with respect to which the services giving rise to such Account are or have been performed by a subcontractor, and for which services the Borrowers have not received an invoice from such subcontractor.
“Eligible Billed Aged Accounts” means at any time of determination and subject to the criteria set forth in the definition of Eligible Billed Account (other than the disqualification in subsection (ii) thereof as to the Account remaining unpaid longer than the earlier to occur of (A) ninety (90) days after the original invoice date or (B) sixty (60) days after the original invoice due date), an Account of a Borrower (excluding all Eligible Billed Accounts), which has not remained unpaid longer than the earlier to occur of (x) one hundred thirty-five (135) days after the original invoice date or (y) one hundred five (105) days after the original invoice due date, and which Agent, in its Permitted Discretion, deems to be an Eligible Billed Aged Account.
“Eligible Billed Cross-Aged Accounts” means at any time of determination and subject to the criteria set forth in the definition of Eligible Billed Account (other than the disqualification in subsection (iii) thereof as to the Account Debtor or its Affiliates being past any of the applicable dates referenced in clause (ii) of such definition on other Accounts owing to a Borrower comprising more than twenty-five percent (25%) of all of the Accounts owing to a Borrower by such Account Debtor or its Affiliates), an Account of a Borrower (excluding all Eligible Billed Accounts), with respect to which the Account Debtor and its Affiliates are not past any of the applicable dates referenced in clause (ii) of the definition of Eligible Billed Account on other Accounts owing to a Borrower comprising more than fifty percent (50%) of all of the Accounts owing to a Borrower by such Account Debtor or its Affiliates, and which Agent, in its Permitted Discretion, deems to be an Eligible Billed Cross-Aged Account.
“Eligible Service Contracts” means, at any time of determination and subject to the criteria below, a Service Contract of a Borrower, which was entered into by such Borrower in the Ordinary Course of Business, and which Agent, in its Permitted Discretion, deems to be an Eligible Service Contract. Without limiting the generality of the foregoing, the a Service Contracts shall not be an Eligible Service Contracts if:
(i) such Service Contract is not in full force and effect;
(ii) such Service Contract has a stated expiration date (after giving effect to any automatic extension provisions set forth in such Service Contract) that occurs within six (6) months of the date of determination;
(iii) any Loan Party has received notice from the applicable Service Contract Counterparty of any breach by the applicable Borrower of its obligations under such Service Contract or the applicable Service Contract Counterparty has delivered to the applicable Borrower any notice of termination with respect to such Service Contract;
(iv) the Service Contract Counterparty with respect to such Service Contract is an Affiliate of any Loan Party;
-10-
(v) a covenant, representation or warranty contained in this Agreement or any other Loan Document with respect to such Service Contract (including any of the representations set forth in Section 7.18) has been breached;
(vi) such Service Contract is not at all times subject to Agent’s duly perfected, Requisite Priority security interest or is subject to any other Lien that is not a Permitted Lien;
(vii) the Service Contract Counterparty with respect to such Service Contract is subject to any proceeding seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar applicable law;
(viii) Agent has not been furnished with all documents, notices and other information pertaining to such Service Contract which Agent has requested, or which any Borrower is obligated to deliver to Agent, pursuant to this Agreement;
(ix) more than twenty-five percent (25.0%) of the Accounts arising under such Service Contract do not constitute Eligible Accounts; or
(x) such Service Contract is not included in the most recent appraisal of Service Contracts based on Orderly Liquidation Value conducted and received by Agent from time to time in accordance with this Agreement.
“Eligible Service Contracts Component” means an amount equal to the sum of the Orderly Liquidation Value of each Eligible Service Contract.
“Eligible Unbilled Accounts” means at any time of determination and subject to the criteria set forth in the definition of Eligible Billed Account (other than the disqualification in subsection (xxi) thereof as to the Account not having been “billed”), an Account of a Borrower (excluding all Eligible Billed Accounts), which was generated by a Borrower in the Ordinary Course of Business but not yet billed, and which Agent, in its Permitted Discretion, deems to be an Eligible Unbilled Account, provided, no Account that arises from services provided more than 60 days prior to the date of determination shall qualify as an Eligible Unbilled Account unless (i) Agent has been provided with supporting documentation relating to such Account, (ii) such account will be billed in the next billing cycle for such Account Debtor and (iii) such Account does not arise from services provided more than 60 days prior to the end of the month during which such services were rendered.
“Eligible Uninvoiced Accounts” means at any time of determination and subject to the criteria set forth in the definition of Eligible Billed Account (other than (x) the disqualification in subsection (xxi) thereof as to the Account not having been “billed” and (y) the disqualification in subsection (xxv) thereof as to the Borrowers having not received an invoice from the applicable subcontractor), an Account of a Borrower (excluding all Eligible Billed Accounts and all Eligible Unbilled Accounts), which was generated by a Borrower in the Ordinary Course of Business (which may be billed or not yet billed) and for which the Borrowers have not yet received an invoice from the applicable subcontractor, and which Agent, in its Permitted Discretion, deems to be an Eligible Uninvoiced Account, provided, no Account that arises from services provided more than 30 days prior to the date of determination shall qualify as an Eligible Uninvoiced Account unless (i) Agent has been provided with supporting documentation relating to such Account, (ii) such account has been billed or will be billed in the next billing cycle for such Account Debtor and (iii) such Account does not arise from services provided more than 60 days prior to the end of the month during which such services were rendered.
-11-
“Enforcement Action” means any action to enforce any Obligations or Loan Documents or to exercise any rights or remedies relating to any Collateral, whether by judicial action, self-help, notification of Account Debtors, setoff or recoupment, credit bid, deed in lieu of foreclosure, action in any proceeding seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar applicable law or otherwise.
“ERISA” means the Employee Retirement Income Security Act of 1974 and all rules, regulations and orders promulgated thereunder.
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with a Loan Party within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code and Section 302 of ERISA).
“ERISA Event” means: (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by a Loan Party or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon a Loan Party or any ERISA Affiliate.
“Event of Default” has the meaning set forth in Section 11.1.
“Excess Availability” has the meaning set forth in the ABL Loan Agreement as in effect on the date hereof or as amended from time to time in accordance with the ABL Intercreditor Agreement.
“Exchange Act” means the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of Agent or any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof); (b) in the case of a Non-U.S. Recipient (as defined in Section 13(e)), U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Non-U.S. Recipient with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which such Non-U.S. Recipient becomes a party to this Agreement, acquires a participation or changes its Lending Office, except in each case to the extent that, pursuant to Section 13, amounts with respect to such Taxes were payable either to such Non-U.S. Recipient’s assignor (or Lender granting such participation) immediately before such assignment or grant of participation or to such Non-U.S. Recipient immediately before it changed its Lending Office; (c) United States federal withholding Taxes that would not have been imposed but for such Recipient's failure to comply with Section 13(e) (except where the failure to comply with Section 13(e) was the result of a change in law, ruling, regulation, treaty, directive, or interpretation thereof by a Governmental Authority after the date
-12-
the Recipient became a party to this Agreement or a Participant) and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.
“Existing Term Loans” has the meaning set forth in Section 2.1(a).
“Extraordinary Receipt” means any cash or cash equivalents received by or paid to or for the account of any Person not in the Ordinary Course of Business, (i) including tax refunds, pension plan reversions in respect of a funding surplus, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof) and indemnity payments, but (ii) excluding any purchase price adjustments.
“FATCA” means 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) and any current or future regulations or official interpretations thereof.
“Fifth Amendment Effective Date” means November 18, 2022.
“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended.
“First Amendment” means that certain First Amendment to Loan and Security Agreement, dated as of the First Amendment Effective Date, by and among the Borrowers, the other Loan Party Obligors, the Lenders party thereto and the Agent.
“First Amendment Effective Date” means February 27, 2020.
“First Amendment Term Loans” has the meaning set forth in Section 2.1(a).
“Fiscal Year” means the fiscal year of Borrowers which ends on December 31 of each year.
“Fixed Charge Coverage Ratio” means, as of the last day of any applicable period, the ratio of (i) EBITDA for the twelve-month period then ending, minus unfinanced Capital Expenditures of the Loan Parties on a consolidated basis for such period, to (ii) Fixed Charges for such period (it being agreed that for any period, the Fixed Charge Coverage Ratio as reported from time to time hereunder shall be the same ratio as that which is reported for such period pursuant to the ABL Loan Agreement).
“Fixed Charges” means, for the period in question, on a consolidated basis, the sum of (a) all principal payments scheduled or required to be made during or with respect to such period in respect of Indebtedness of the Loan Parties, plus (b) all Interest Expense of the Loan Parties for such period paid or required to be paid in cash attributable to such period, plus (c) all taxes of the Loan Parties paid or required to be paid for such period and plus (d) all cash distributions, dividends, redemptions, Permitted Tax Distributions and other cash payments made or required to be made during such period with respect to equity securities issued by any Loan Party. As used in clause (a) of this definition, “principal payments scheduled or required to be made during or with respect to such period in respect of Indebtedness,” shall not include such greater portion of principal amount that will become due upon the date of maturity of an Indebtedness in excess of the principal portion of a regularly scheduled amortization payment that would be due on or about such date of maturity under the applicable amortization schedule for such Indebtedness but for the maturity of the entire Indebtedness on such date of maturity.
“Floor” means, with respect to Term SOFR, a per annum rate equal to four percent (4.00%), and with respect to Base Rate, a per annum rate equal to five percent (5.00%).
-13-
“Fourth Amendment Effective Date” means April 26, 2022.
“FRB” means the Board of Governors of the Federal Reserve System or any successor thereto.
“GAAP” means generally accepted accounting principles set forth from time to time 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 agencies with similar functions of comparable stature and authority within the United States accounting profession) which are applicable to the circumstances as of the date of determination, in each case consistently applied.
“Governing Documents” means, with respect to any Person, the certificate of incorporation, articles of incorporation, certificate of formation, certificate of limited partnership, by-laws, operating agreement, limited liability company agreement, limited partnership agreement or other similar governance document of such Person.
“Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Guarantor Payment” has the meaning set forth in Section 2.12(f)(i).
“Guaranty” or “Guarantied”, as applied to any Indebtedness, liability or other obligation, means (a) a guaranty, directly or indirectly, in any manner, including by way of endorsement (other than endorsements of negotiable instruments for collection in the Ordinary Course of Business), of any part or all of such Indebtedness, liability or obligation and (b) an agreement, contingent or otherwise, and whether or not constituting a guaranty, assuring, or intended to assure, the payment or performance (or payment of damages in the event of non-performance) of any part or all of such Indebtedness, liability or obligation by any means (including the purchase of securities or obligations, the purchase or sale of property or services or the supplying of funds).
“Indebtedness” means (without duplication), with respect to any Person, (a) all obligations or liabilities of such Person, contingent or otherwise, for borrowed money, (b) all obligations of such Person represented by promissory notes, bonds, debentures or the like, or on which interest charges are customarily paid, (c) all liabilities secured by any Lien on such Person’s property owned or acquired, whether or not such liability shall have been assumed by such Person, (d) all obligations of such Person under conditional sale or other title-retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade payables which are less than ninety (90) days past the invoice date incurred in the Ordinary Course of Business, but including the maximum potential amount payable under any earn-out or similar obligations), (f) all Capitalized Leases of such Person, (g) all obligations (contingent or otherwise) of such Person as an account party or applicant in respect of letters of credit and bankers’ acceptances or in respect of financial or other hedging obligations, (h) all equity interests issued by such Person subject to repurchase or redemption at any time on or prior to the Scheduled Maturity Date (valued at, in the case of redeemable preferred equity interests, the greater of the voluntary liquidation preference and the involuntary liquidation preference of such equity interests plus accrued and unpaid dividends), other than voluntary repurchases or redemptions that are at the sole option of such Person, (i) all principal outstanding under any synthetic lease, off-balance sheet loan or
-14-
similar financing product of such Person and (j) all Guaranties, endorsements (other than for collection in the Ordinary Course of Business) and other contingent obligations of such Person in respect of the obligations of others.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
“Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks and trademark licenses and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.
“Interest Expense” means, for the applicable period, for the Loan Parties on a consolidated basis, total interest expense (including interest attributable to Capitalized Leases in accordance with GAAP) and fees with respect to outstanding Indebtedness.
“Investment Property” means the collective reference to (a) all “investment property” as such term is defined in Section 9-102 of the UCC, (b) all “financial assets” as such term is defined in Section 8-102(a)(9) of the UCC and (c) whether or not constituting “investment property” as so defined, all Pledged Equity.
“Issuers” means the collective reference to each issuer of Investment Property.
“Lender” means each Person listed on the Term Loan Commitment Schedule and any other Person that shall have become a Lender hereunder pursuant to an Assignment and Assumption, other than any such Person that ceases to be a Lender hereunder pursuant to an Assignment and Assumption.
“LIBOR
Loan” means any Loan which bears interest at a rate determined by reference to the LIBOR Rate.
“LIBOR
Rate” means, for any calendar month, the rate (expressed as a percentage per annum and rounded upward,
if necessary, to the next nearest 1/100 of 1%) for deposits in Dollars, for a one-month period, that appears on Bloomberg Screen US0001M
(or the successor thereto) as the London interbank offered rate for deposits in Dollars as of 11:00 a.m., London time, as of two (2) Business
Days prior to the first day of such calendar month (and, in no event shall the LIBOR Rate be less than 2.00%), which determination shall
be made by Agent and shall be conclusive in the absence of manifest error. For the sake of clarity, the LIBOR Rate shall be adjusted monthly
on the first day of each month.
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory or other), security interest or other security arrangement and any other preference, priority, or preferential arrangement in the nature of a security interest of any kind or nature whatsoever, including any conditional sale contract or other title-retention agreement, the interest of a lessor under a Capitalized Lease and any synthetic or other financing lease having substantially the same economic effect as any of the foregoing.
“Loan Account” has the meaning set forth in Section 3.4.
“Loan Documents” means, collectively, this Agreement, the Agent Fee Letter, the ABL Intercreditor Agreement, the Third Lien Subordination Agreement and all notes, guaranties, security
-15-
agreements, mortgages, certificates, landlord’s agreements, Lock Box and Blocked Account agreements, Borrowing Base Certificates, Compliance Certificates, each Subordinated Debt Subordination Agreement and all other agreements, documents and instruments now or hereafter executed or delivered by any Borrower, any Loan Party, or any Other Obligor in connection with, or to evidence the transactions contemplated by, this Agreement.
“Loan Guaranty” means the guaranty encompassed in Section 12.
“Loan Party” means, individually, Holdings, each Borrower, or any Subsidiary; and “Loan Parties” means, collectively, Holdings, each Borrower and all Subsidiaries.
“Loan Party Obligor” means, individually, each Borrower or any Obligor that is a Loan Party; and “Loan Party Obligors” means, collectively, each Borrower and each Obligor that is a Loan Party.
“Loans” means, collectively, the Term Loans and any Protective Advances.
“Lock Box” has the meaning set forth in Section 6.1.
“Material Adverse Effect” means any event, act, omission, condition or circumstance which, which individually or in the aggregate, has or could reasonably be expected to have a material adverse effect on (a) the business, operations, properties, assets or condition, financial or otherwise, of any Loan Party or any Other Obligor, as applicable, (b) the ability of any Loan Party or any Other Obligor, as applicable, to perform any of its obligations under any of the Loan Documents, (c) the validity or enforceability of, or Agent’s and Lenders’ rights and remedies under, any of the Loan Documents, (d) the ability of Agent and Lenders to realize upon Collateral in which Agent has previously perfected a Lien or (e) the existence, perfection or priority of any security interest granted in any Loan Document and covering Collateral in which Agent has previously perfected a Lien.
“Material Contract” means has the meaning set forth in Section 7.18.
“Maturity Date” means the Scheduled Maturity Date (or, if earlier, the Termination Date), or such earlier date as (i) the Obligations may be accelerated in accordance with the terms of this Agreement (including pursuant to Section 11.2) or (ii) the Maturity Date under (and as defined in) the ABL Loan Agreement shall occur for any reason other than as a result of items (ii) and (iii) of the definition of “Maturity Date” in the ABL Loan Agreement.
“Maximum Lawful Rate” has the meaning set forth in Section 3.5.
“Maximum Liability” has the meaning set forth in Section 12.9.
“Merger Agreement” has the meaning set forth in the Fourth Amendment.
“Merger Sub LLC” has the meaning set forth in the Fourth Amendment.
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which a Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
“Net Income” means, for the applicable period, for the Loan Parties on a consolidated basis, the net income (or loss) of the Loan Parties on a consolidated basis, as applicable, for such period,
-16-
excluding any gains or non-cash losses from dispositions, any extraordinary gains or extraordinary non-cash losses and any gains or non-cash losses from discontinued operations, in each case, for such period.
“Net Proceeds” means:
(a) with respect to any sale or other disposition, any Extraordinary Receipt, or any casualty or taking, the excess, if any, of (i) the sum of cash and cash equivalents received in connection with such transaction (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (v) the principal amount of any Indebtedness that is secured by the applicable asset by a Permitted Lien which is senior to the Agent’s Lien on such asset and that is required to be repaid (or to establish an escrow for the future repayment thereof) in connection with such transaction, (w) the reasonable and customary out-of-pocket expenses incurred by the Loan Parties in connection with such transaction (including, without limitation, appraisals, and brokerage, legal, title and recording or transfer tax expenses and commissions) paid by any Loan Party to third parties (other than Affiliates)), (x) taxes reasonably estimated to be actually payable by any Loan Party in connection therewith, (y) reasonable reserves as determined in good faith by a responsible officer of a Loan Party, in accordance with GAAP, for any liabilities or indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchasers and other retained liabilities in respect of such disposition undertaken by any Loan Party in connection with such disposition, provided, that to the extent that any such amount ceases to be so reserved, the amount thereof shall be deemed to be Net Proceeds of such disposition at such time, and (z) in the case of Extraordinary Receipts consisting of indemnity payments, any amount applied to compensate or reimburse the applicable Loan Party for replacing, repairing or restoring any assets or otherwise remedying the condition giving rise to the claim for indemnification or paying claims and settlements to third Persons giving rise to the claim for indemnification, provided, that to the extent that any such amount is not so applied within 180 days, the amount thereof shall be deemed to be Net Proceeds of such Extraordinary Receipt at such time; and
(b) with respect to the incurrence or issuance of any Indebtedness, the excess of (i) the sum of the cash and cash equivalents received in connection with such transaction over (ii) the sum of (x) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by the Loan Parties in connection therewith and (y) the amount of all taxes paid or reasonably estimated to be actually payable by the Loan Parties in connection therewith.
“Non-Consenting Lender” has the meaning set forth in Section 15.5(b).
“Non-Paying Guarantor” has the meaning set forth in Section 12.10.
“Non-U.S. Recipient” has the meaning set forth in Section 13(e)(ii).
“Obligations” means all present and future Loans, advances, debts, liabilities, fees, expenses, obligations, guaranties, covenants, duties and indebtedness at any time owing by any Borrower or any other Loan Party Obligor to Agent and Lenders, whether evidenced by this Agreement or any other Loan Document, whether arising from an extension of credit, guaranty, indemnification or otherwise, whether direct or indirect, whether absolute or contingent, whether due or to become due and whether arising before or after the commencement of a proceeding under the Bankruptcy Code or any similar statute.
“Obligor” means any guarantor, endorser, acceptor, surety or other Person liable on, or with respect to, any of the Obligations or who is the owner of any property which is security for any of the Obligations, other than a Borrower.
-17-
“Orderly Liquidation Value” means, at any time of determination with respect to any Service Contract, the amount that could be realized at a privately negotiated sale of such Service Contract, properly advertised and professionally managed, by a seller obligated to sell over a reasonable period of time, net of occupancy and liquidation costs, as determined from time to time by Agent based on the most recent appraisal of Service Contracts conducted pursuant to this Agreement by an appraiser engaged by Agent (it being recognized and agreed by Borrowers that individual Service Contracts may have different Orderly Liquidation Values).
“Ordinary Course of Business” means, in respect of any transaction involving any Person, the ordinary course of business of such Person, as conducted by such Person as of the Closing Date and, without obligation on the part of such Person to undertake such practices, any practices that are utilized to improve past practices or to conform with customary operating procedures for a similar business, as reasonably determined by such Person.
“Other Obligor” means any Obligor other than a Loan Party Obligor.
“Other Taxes” means all present or future stamp, court or documentary, property, excise, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document.
“Participant” has the meaning set forth in Section 15.10(b).
“Paying Guarantor” has the meaning set forth in Section 12.10.
“PBGC” means the Pension Benefit Guaranty Corporation.
“Pension Act” means the Pension Protection Act of 2006.
“Pension Funding Rules” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and Multiemployer Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA, and any sections of the Code or ERISA related thereto that are enacted after the date of this Agreement.
“Pension Plan” means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by a Loan Party and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.
“Perfection Certificate” means the Perfection Certificate attached to this Agreement as of the Closing Date, together with any updates thereto as contemplated by this Agreement or otherwise permitted by Agent from time to time, including the update delivered on the First Amendment Effective Date and the update delivered on the Second Amendment Effective Date.
“Permitted Acquisition” means any consensual acquisition by any Loan Party Obligor (other than asset acquisitions by Holdings), whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the equity interests of, or a business line or unit or a division of, any Person; in each case, provided:
-18-
(i) no Default or Event of Default shall have occurred and be continuing either immediately prior to or immediately after giving effect to such acquisition;
(ii) at or prior to the closing of such acquisition, Agent will be granted a Requisite Priority Lien (subject only to Permitted Liens) in substantially all the assets (wherever located) acquired pursuant thereto constituting Collateral (including, if applicable, any equity interests of any Person being acquired), and the Loan Party Obligors and such Person shall have executed such documents and taken such actions as may be reasonably required by Agent in connection therewith (including, without limitation, the delivery of (A) certified copies of the resolutions of the governing board of any applicable Loan Party Obligor and such Person authorizing such Permitted Acquisition and the granting of Liens described herein, (B) legal opinions, in form and substance reasonably acceptable to Agent, with respect to the transactions described herein (if required), (C) evidence of insurance of the business to be acquired consistent with the requirements of this Agreement and (D) any joinders or other agreements required pursuant to Section 5.3);
(iii) the Borrower Representative shall have furnished Agent with ten (10) Business Days’ (or such shorter period as may be agreed by Agent) prior written notice of such intended acquisition and shall have furnished Agent with a current draft of the applicable material acquisition documents (and final copies thereof as and when executed); and
(iv) before and after giving pro forma effect to such acquisition, both (x) the Fixed Charge Coverage Ratio for the trailing twelve-month period most recently ended is greater than 1.10 : 1.00, and (y) Excess Availability shall not be less than $15,000,000; and
the Borrower Representative
shall have furnished to Agent at least ten (10) Business Days (or such shorter period as may be agreed by Agent) prior to the date on
which any such acquisition is to be consummated or such shorter time as Agent may allow, a certificate of a responsible officer of Borrower,
in form and substance reasonably satisfactory to Agent (including all required
calculations in reasonable detail), certifying that all of the other requirements
for a Permitted Acquisition will be satisfied on or prior to the closing date of such acquisition; provided, further that
no hostile takeover or non-consensual transaction shall qualify as a Permitted Acquisition.
“Permitted Discretion” means a determination made by Agent in good faith and in the exercise of reasonable (from the perspective of an asset-based secured lender) business judgment.
“Permitted Equity Transfers” means transfers of beneficial ownership interests in Holdings in compliance with Holdings’ Governing Documents, provided that following such transfers, current equity owners as of the Closing Date continue (i) to, directly or indirectly, own and control at least fifty-one percent (51%) of the aggregate Voting Power represented by the issued and outstanding equity interests of Holdings on a fully diluted basis and (ii) to possess the right to elect (through contract, ownership of voting securities or otherwise) at all times a majority of the board of directors (or similar governing body) of Rubicon Technologies, Inc. or Holdings and in either case to direct the management policies and decisions of Holdings.
“Permitted Indebtedness” means (a) the Obligations; (b) the Indebtedness existing on the date hereof described in Section 7 of the Perfection Certificate; in each case along with extensions, refinancings, modifications, amendments and restatements thereof; provided, that (i) the principal amount thereof is not increased, (ii) if secured by a Permitted Lien, no additional collateral beyond that existing as of the Closing Date is granted to secure such Indebtedness; (iii) if such Indebtedness is subordinated to any or all of the Obligations, the applicable subordination terms shall not be modified without the prior written consent of Agent and (iv) the terms thereof are not modified to impose more
-19-
burdensome terms upon any Loan Party; (c) Capitalized
Leases and purchase-money Indebtedness secured by Permitted Liens in an aggregate amount not exceeding $15,000,000 at any time outstanding;
(d) Indebtedness incurred as a result of endorsing negotiable instruments received in the Ordinary Course of Business; (e) Subordinated
Debt owing by Borrower solely to the extent such Subordinated Debt is subject to, and permitted by, a Subordinated Debt Subordination
Agreement; (f) Indebtedness incurred under the ABL Loan Agreement in an aggregate principal amount not to exceed the Maximum First
Lien ABL Facility Amount (as defined in the ABL
Intercreditor Agreement) at any time outstanding; and (g) Indebtedness incurred under the Third Lien Loan Agreement in an aggregate principal
amount at any time outstanding not to exceed $20,000,000 (plus amounts capitalized to principal in accordance with the terms of the Third
Lien Loan Agreement as in effect on the Third Lien Debt Incurrence Date) so long as such Indebtedness is subject to the Third Lien Subordination
Agreement.
“Permitted Liens” means (a) purchase-money security interests in specific items of Equipment securing Permitted Indebtedness described under clause (c) of the definition of Permitted Indebtedness; (b) Liens for taxes, fees, assessments, or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings (which proceedings have the effect of preventing the enforcement of such Lien) for which adequate reserves in accordance with GAAP are being maintained provided the same have no priority over any of Agent’s security interests; (c) Liens of materialmen, mechanics, carriers, or other similar Liens arising in the Ordinary Course of Business and securing obligations which are not delinquent or are being contested in good faith by appropriate proceedings (which proceedings have the effect of preventing the enforcement of such Lien) for which adequate reserves in accordance with GAAP are being maintained; (d) Liens which constitute banker’s Liens, rights of set-off, or similar rights as to Deposit Accounts or other funds maintained with a bank or other financial institution (but only to the extent such banker’s Liens, rights of set-off or other rights are in respect of customary service charges relative to such Deposit Accounts and other funds, and not in respect of any loans or other extensions of credit by such bank or other financial institution to any Loan Party); (e) cash deposits or pledges of an aggregate amount not to exceed $100,000 to secure the payment of worker’s compensation, unemployment insurance, or other social security benefits or obligations, public or statutory obligations, surety or appeal bonds, bid or performance bonds, or other obligations of a like nature incurred in the Ordinary Course of Business; (f) judgment Liens in respect of judgments that do not constitute an Event of Default; (g) Liens securing the ABL Obligations, subject to the terms of the ABL Intercreditor Agreement, including the relative Lien priorities set forth therein; and (h) Liens securing the Third Lien Obligations, subject to the terms of the Third Lien Subordination Agreement, including the relative Lien priorities set forth therein.
“Permitted SPAC Merger” means the merger of Merger Sub LLC with and into Holdings, provided:
(i) the SPAC Merger shall be consummated pursuant to and in accordance with the terms and conditions of the Merger Agreement as in effect as of the Fourth Amendment Effective Date;
(ii) the SPAC Merger shall constitute a Permitted Equity Transfer; and
(iii) Agent shall maintain a Requisite Priority Lien (subject only to Permitted Liens) in the Collateral, and in connection therewith: (A) Loan Party Obligors and Merger Sub LLC shall deliver to the Agent certified copies of the resolutions of the governing board of any applicable Loan Party Obligor and such Person authorizing such Permitted SPAC Merger; (B) Holdings shall execute and deliver a Ratification Agreement, in form and substance reasonably acceptable to the Agent, ratifying and confirming the Loan Documents in its capacity as Borrower and Loan Party Obligor; and (C) Holdings and the Agent shall have agreed to the form
-20-
of a UCC 3 amendment giving effect to Holdings name change to Rubicon Technologies Holdings, LLC or such other name as agreed upon among the Loan Parties.
The Borrower Representative shall have furnished to Agent at least five (5) Business Days (or such shorter period as may be agreed by Agent) prior to the date on which the SPAC Merger is to be consummated or such shorter time as Agent may allow, a certificate of a responsible officer of Borrower, in form and substance reasonably satisfactory to Agent, certifying that all of the other requirements for a Permitted SPAC Merger will be satisfied on or prior to the closing date of the SPAC Merger.
“Permitted Tax Distributions” means, with respect to any Person, for any taxable period after the Closing Date during which time such Person is a pass-through entity for income tax purposes, any dividend or distribution to any holder of such Person’s stock or other equity interests to permit such holders to pay federal income taxes and all relevant state and local income taxes at a rate equal to the highest marginal applicable tax rate for the applicable tax year, however denominated imposed as a result of taxable income allocated to such holder as a partner of such Person under federal, state, and local income tax laws, taking into account applicable deductions, losses, and credits of such Person (including, without limitation, deductions pursuant to Section 199A of the Internal Revenue Code) and allocated to such holder in proportion and to the extent of such holder’s stock or other equity interests of such Person.
“Person” means any individual, sole proprietorship, partnership, joint venture, limited liability company, trust, unincorporated organization, association, corporation, government or any agency or political division thereof, or any other entity.
“Plan” means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan) maintained for employees of any Loan Party or any such plan to which any Loan Party (or with respect to any plan subject to Section 412 of the Code or Section 302 or Title IV of ERISA, any ERISA Affiliate) is required to contribute on behalf of any of its employees.
“Pledged Equity” means the equity interests listed on Sections 1(f) and 1(g) of the Perfection Certificate, together with any other equity interests, certificates, options, or rights or instruments of any nature whatsoever in respect of the equity interests of any Person that may be issued or granted to, or held by, any Loan Party Obligor while this Agreement is in effect, and including, to the extent attributable to, or otherwise related to, such pledged equity interests, all of such Loan Party Obligor’s (a) interests in the profits and losses of each Issuer, (b) rights and interests to receive distributions of each Issuer’s assets and properties and (c) rights and interests, if any, to participate in the management of each Issuer related to such pledged equity interests.
“Prepayment Event” means, without duplication:
(a) any sale or other disposition (including pursuant to a sale and leaseback transaction) of any Collateral, except for (i) sales and other dispositions permitted under clauses (i) and (ii) of Sections 8(e) and (ii) other sales and other dispositions permitted under Section 8(e) of Collateral with an aggregate value not to exceed $250,000 in any Fiscal Year;
(b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of (and payments in lieu thereof), any Collateral in an amount in excess of $250,000;
(c) the incurrence by a Loan Party of any Indebtedness (other than Permitted Indebtedness);
-21-
(d) the receipt by any Loan Party of any Extraordinary Receipts; or
(e) the issuance of equity interests of Rubicon Technologies, Inc. pursuant to the SEPA.
“Prepayment Premium” has the meaning set forth in the Agent Fee Letter.
“Pro Rata Share” means with respect to all matters relating to any Lender the percentage obtained by dividing (i) the outstanding principal amount of such Lender’s Term Loans by (ii) the aggregate outstanding principal amount of all Term Loans, in each case as any such percentages may be adjusted by assignments pursuant to an Assignment and Assumption.
“Protective Advances” has the meaning set forth in Section 2.2(a).
“Qualified Equity Contribution” means a cash equity contribution which is (a) in the form of common equity, preferred equity, other equity made to Holdings or redemption of warrants for common equity, preferred equity, or other equity of Holdings, in each case, which, by its terms (or by the terms of any security or other equity interests into which it is convertible or for which it is exchangeable), (i) does not mature or become mandatorily redeemable pursuant to a sinking fund obligation, (ii) is not redeemable at the option of the holder thereof, in whole or in part, (iii) does not provide for the scheduled payments of dividends in cash, or (iv) is not or will not become convertible into or exchangeable for debt securities or other equity interests that would constitute Indebtedness; and (b) not obtained for or used for the purpose of a distribution or dividend.
“Recipient” means any Agent, any Lender, any Participant, or any other recipient of any payment to be made by or on account of any Obligation of any Loan Party under this Agreement or any other Loan Document, as applicable.
“Register” has the meaning set forth in Section 15.9(c).
“Released Parties” has the meaning set forth in Section 10.1.
“Repayment Advance Reductions” means, for Eligible Service Contracts and/or one or more categories of Eligible Accounts, a reduction in the Advance Rates applicable to such Eligible Accounts or Eligible Service Contracts, as applicable, in connection with any repayment or prepayment of the principal of the Term Loans (whether voluntary or mandatory), which reductions may be implemented from time to time by Agent in its Permitted Discretion. Any such reduction in any Advance Rate shall be implemented by the Agent and shall become effective on the date of any applicable repayment or prepayment (regardless of amount).
“Replacement Lender” has the meaning set forth in Section 3.6(c).
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty-day notice period has been waived.
“Required Lenders” means at any time Lenders (other than Defaulting Lenders) then holding Term Loans representing at least fifty-one percent (51%) of the aggregate principal amount of all Term Loans of such Lenders outstanding at such time; provided, that if there are two or more Lenders, then Required Lenders shall include at least two (2) Lenders (Lenders that are Affiliates or Approved Funds of one (1) another being considered as one Lender for purposes of this proviso).
“Requisite Priority” means, with respect to any particular type of Collateral, the priority of Agent’s Lien therein (a) being either first-priority or second-priority as set forth in the ABL
-22-
Intercreditor Agreement and (b) being senior in priority to the Lien of the Third Lien Agent pursuant to the Third Lien Subordination Agreement.
“Reserves” has the meaning set forth in Section 2.1(b).
“Restricted Accounts” means Deposit Accounts (a) established and used (and at all times will be used) solely for the purpose of paying current payroll obligations of Loan Parties (and which do not (and will not at any time) contain any deposits other than those necessary to fund current payroll), in each case in the Ordinary Course of Business, or (b) maintained (and at all times will be maintained) solely in connection with an employee benefit plan, but solely to the extent that all funds on deposit therein are solely held for the benefit of, and owned by, employees (and will continue to be so held and owned) pursuant to such plan.
“Rodina Capital Financing Commitment Letter” means that certain Financing Commitment Letter dated November 14, 2022, by and between Rubicon Technologies, Inc. and Rodina Capital.
“S-1 Filing” means the registration statement on Form S-1 initially filed by Rubicon Technologies, Inc. on August 22, 2022 with the SEC, as the same may be amended or supplemented.
“S-1 Trigger Date” means the earlier of (a) five (5) Business Days after the date the Convertibles Registration Statement becomes effective and (b) February 3, 2023.
“Scheduled Maturity Date” means March 29, 2024.
“SEC” means the Securities and Exchange Commission.
“SEC Comment Letter” has the meaning set forth in Section 7.38.
“Second Amendment” means that certain Second Amendment to Loan and Security Agreement, dated as of the Second Amendment Effective Date, by and among the Borrowers, the other Loan Party Obligors, the Lenders party thereto and the Agent.
“Second Amendment Effective Date” means March 24, 2021.
“Second Amendment Term Loans” has the meaning set forth in Section 2.1(a).
“Securities Act” means the Securities of Act of 1933, as amended.
“SEPA” means that certain Standby Equity Purchase Agreement, dated as of August 31, 2022, by and between the SEPA Purchaser and Rubicon Technologies, Inc., a Delaware corporation, as amended by the SEPA Purchaser and Rubicon Technologies, Inc. as of the date hereof, and as the same may be amended from time to time without resulting in an Event of Default hereunder.
“SEPA Purchaser” has the meaning set forth in the definition of SEPA.
“SEPA Registration Statement” has the meaning set forth in Section 7.38.
“Service Contract” means any written contract governing the rendition of services by a Borrower to a Service Contract Counterparty.
-23-
“Service Contract Counterparty” means, with respect to any Service Contract, the Person that is the counterparty of the applicable Borrower under such Service Contract, together with such Person’s Affiliates or subsidiaries.
“Service Contracts Advance Rate” means forty percent (40%), subject to any Repayment Advance Reductions.
“Service Contracts Sublimit” means $18,500,000; provided that such amount shall be reduced (a) by an amount equal to $1,500,000 on January 1, 2023 and on the first day of each April, July, October and January occurring thereafter and (b) from and after the S-1 Trigger Date, to the extent any Loans remain outstanding, by an amount equal to $1,000,000 on each Saturday following the S-1 Trigger Date so long as, after giving pro forma effect to any such reduction pursuant to this clause (b), the sum of Excess Availability (as defined in the ABL Loan Agreement), plus the aggregate amount of unrestricted cash and Cash Equivalents which the Loan Parties then have on hand at such time, is at least $15,000,000.
“Seventh Amendment” means that certain Seventh Amendment to Loan and Security Agreement, dated as of the Seventh Amendment Effective Date, by and among the Borrowers, the other Loan Parties, the Lenders party thereto and the Agent.
“Seventh Amendment Effective Date” means February 7, 2023.
“SOFR” means the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (or a successor administrator).
“SOFR Adjustment” means 0.1148% per annum.
“SPAC Merger” shall have the meaning set forth in the Fourth Amendment.
“Stated Rate” has the meaning set forth in Section 3.5.
“Subordinated Debt” means unsecured debt of a Loan Party that is in an amount and on terms satisfactory to Agent and is subject to a Subordinated Debt Subordination Agreement.
“Subordinated Debt Documents” means the documents approved by Agent in writing to govern the Subordinated Debt.
“Subordinated Debt Subordination Agreement” means a subordination agreement with terms and conditions satisfactory to Agent that governs the respective priority and rights of the applicable Subordinated Debt and the Obligations and is entered into by the holders of such Subordinated Debt (or their agent), the Agent and Borrower Representative (and any other relevant Loan Parties).
“Subsidiary” means any corporation or other entity of which a Person owns, directly or indirectly, through one or more intermediaries, more than 50% of the capital stock or other equity interest at the time of determination. Unless the context indicates otherwise, references to a Subsidiary shall be deemed to refer to a Subsidiary of a Borrower.
“Successor Rate” shall mean the greater of (a) the Floor (with respect to Term SOFR) and (b) an alternative rate of interest established pursuant to the last sentence of the definition of Term SOFR.
-24-
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Loan Commitment” means (a) as to any Lender, the commitment of such Lender to make Second Amendment Term Loans as set forth in the Term Loan Commitment Schedule and (b) as to all Lenders, the aggregate commitment of all Lenders to make Second Amendment Term Loans, which aggregate commitment equals $20,000,000.
“Term Loan Commitment Schedule” means the Term Loan Commitment Schedule attached hereto as Annex II.
“Term Loan Push-Down Reserve” means, as of any date of determination, an ABL Reserve against the ABL Borrowing Base and the Maximum Revolving Facility Amount (as defined in the ABL Loan Agreement) in respect of, and in an amount equal to, the excess (if any) of the aggregate outstanding principal amount of the Loans over the amount of the Borrowing Base.
“Term Loans” has the meaning set forth in Section 2.1(a).
“Termination Date” means the date on which all of the Obligations have been paid in full in cash and all of Agent and Lenders’ lending commitments under this Agreement and under each of the other Loan Documents have been terminated.
“Term SOFR” means at any time of determination for any month, the greater of (x) the Floor and (y) the sum of (i) the rate per annum equal to the Term SOFR Screen Rate two U.S. Government Securities Business Days prior to the first day of such month for Dollar deposits with a term equivalent to one month; provided that if the rate is not published prior to 11:00 a.m. on such determination date then Term SOFR means the Term SOFR Screen Rate on the first U.S. Government Securities Business Day immediately prior thereto, in each case, plus (ii) the SOFR Adjustment. Term SOFR shall be determined on a monthly basis as of the first day of each month (or in the case of the month in which the Seventh Amendment Effective Date occurs, on the Seventh Amendment Effective Date). Notwithstanding the foregoing, if the circumstances described in Section 3.6(a) or (b) shall exist, the Agent, in consultation with the Borrower Representative, may establish a reasonably equivalent alternative interest rate for the Loans, in which case, such alternative rate of interest shall apply with respect to the Loans (which rate of interest shall be deemed to be the “Term SOFR” for all purposes of this Agreement).
“Term SOFR Screen Rate” means the forward-looking SOFR term rate administered by CME (or any successor administrator acceptable to the Agent) and published on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by the Agent from time to time).
“Third Amendment” means that certain Third Amendment to Loan and Security Agreement, dated as of the Third Amendment Effective Date, by and among the Borrowers, the other Loan Party Obligors, the Lenders party thereto and the Agent.
“Third Amendment Effective Date” means October 15, 2021.
“Third Lien Agent” means Mizzen Capital, LP, in its capacity as “Agent” under (and as defined in) the Third Loan Agreement, and any of its successors in such capacity.
“Third Lien Debt Incurrence Date” means the date on which all of the following conditions are satisfied: (a) the Third Lien Subordination Agreement shall have been executed by the parties thereto, (b) the Agent and the ABL Agent shall have confirmed in writing that each such Person
-25-
is satisfied with the form and substance (including all terms and conditions) of the Third Lien Loan Agreement and other Third Lien Loan Documents, and the Third Lien Loan Agreement and other Third Lien Loan Documents shall have been executed by the parties thereto, and (c) the Third Lien Lenders shall have funded the loans pursuant to the Third Lien Loan Agreement.
“Third Lien Lender” means each “Lender” under (and as defined in) the Third Lien Loan Agreement.
“Third Lien Loan Agreement” means the subordinated term loan agreement, dated as of the Third Lien Debt Incurrence Date, by and among the Loan Party Obligors, the Third Lien Lenders and the Third Lien Agent, in form and substance (including all terms and conditions) satisfactory to the Agent.
“Third Lien Loan Documents” means the “Loan Documents”, or other similar definition of the same effect, as defined in the Third Lien Loan Agreement, as in effect on the Third Lien Debt Incurrence Date or as amended from time to time in accordance with the Third Lien Subordination Agreement.
“Third Lien Obligations” means the “Obligations”, or other similar definition of the same effect, as defined in the Third Lien Loan Agreement, as in effect on the Third Lien Debt Incurrence Date or as amended from time to time in accordance with the Third Lien Subordination Agreement.
“Third Lien Subordination Agreement” means that certain Subordination and Intercreditor Agreement, dated as of the Third Lien Debt Incurrence Date, by and between, Agent, ABL Agent and the Third Lien Agent and acknowledged by the Loan Party Obligors, and shall also include any replacement subordination agreement entered into in accordance with the terms thereof, in each case in form and substance (including all terms and conditions) satisfactory to the Agent.
“UCC” means, at any given time, the Uniform Commercial Code as adopted and in effect at such time in the State of New York or other applicable jurisdiction.
“Unbilled Accounts Advance Rate” means one hundred percent (100%), subject to any Repayment Advance Reductions; provided, that if Dilution exceeds five percent (5%), Agent may, at its option, (A) reduce such advance rate by the number of full or partial percentage points comprising such excess or (B) establish a Dilution Reserve on account of such excess.
“Uniform Electronic Transactions Act” means that certain Uniform Electronic Transactions Act published by the Uniform Law Commission in 1999 giving electronic signatures the same effect as traditional handwritten signatures under the statute of frauds.
“Uninvoiced Accounts Advance Rate” means eighty percent (80%), subject to any Repayment Advance Reductions; provided, that if Dilution exceeds five percent (5%), Agent may, at its option, (A) reduce such advance rate by the number of full or partial percentage points comprising such excess or (B) establish a Dilution Reserve on account of such excess.
“U.S. Government Securities Business Day” means any Business Day, except any Business Day on which any of the Securities Industry and Financial Markets Association, the New York Stock Exchange or the Federal Reserve Bank of New York is not open for business because such day is a legal holiday under the federal laws of the United States or the laws of the State of New York, as applicable.
“Voting Power” means, with respect to any Person, the exclusive ability to control, through the ownership of shares of capital stock, partnership interests, membership interests or otherwise, the election of members of the board of directors or other similar governing body of such
-26-
Person. The holding of a designated percentage of Voting Power of a Person means the ownership of shares of capital stock, partnership interests, membership interests or other interests of such Person sufficient to control exclusively the election of that percentage of the members of the board of directors or similar governing body of such Person.
1.2. Accounting Terms and Determinations.
Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder (including determinations made pursuant to the exhibits hereto) shall be made, and all financial statements required to be delivered hereunder shall be prepared on a consolidated basis in accordance with GAAP consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or financial requirement set forth in any Loan Document, and either Borrower Representative or Agent shall so request, Required Lenders and Borrower Representative shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower Representative shall provide to Agent and Lenders financial statements and other documents required under this Agreement and the other Loan Documents which include a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Statement of Financial Accounting Standards 159 (Codification of Accounting Standards 825-10) to value any Indebtedness or other liabilities of any Loan Party at “fair value”, as defined therein.
Notwithstanding anything to the contrary contained in the paragraph above or the definitions of Capital Expenditures or Capitalized Leases, in the event of a change in GAAP after the Closing Date requiring all leases to be capitalized, only those leases (assuming for purposes of this paragraph that they were in existence on the Closing Date) that would constitute Capitalized Leases on the Closing Date shall be considered Capitalized Leases (and all other such leases shall constitute operating leases) and all calculations and deliverables under this Agreement or the other Loan Documents shall be made in accordance therewith (other than the financial statements delivered pursuant to this Agreement; provided that all such financial statements delivered to Agent and Lenders in accordance with the terms of this Agreement after the date of such change in GAAP shall contain a schedule showing the adjustments necessary to reconcile such financial statements with GAAP as in effect immediately prior to such change).
1.3. Other Definitional Provisions and References.
References in this Agreement to “Articles”, “Sections”, “Annexes”, “Exhibits” or “Schedules” shall be to Articles, Sections, Annexes, Exhibits or Schedules of or to this Agreement unless otherwise specifically provided. Any term defined herein may be used in the singular or plural. “Include”, “includes” and “including” shall be deemed to be followed by “without limitation”. “Or” shall be construed to mean “and/or”. Except as otherwise specified or limited herein, references to any Person include the successors and assigns of such Person. References “from” or “through” any date mean, unless otherwise specified, “from and including” or “through and including”, respectively. No provision of any Loan Documents shall be construed against any party by reason of such party having, or being deemed to have, drafted the provision. Unless otherwise specified herein, the settlement of all payments and fundings hereunder between or among the parties hereto shall be made in lawful money of the United States and in immediately available funds. Time is of the essence for each performance obligation of the Loan Parties under this Agreement and each Loan Document. All amounts used for purposes of financial calculations required to be made herein shall be without
-27-
duplication. References to any statute or act shall include all related current regulations and all amendments and any successor statutes, acts and regulations. References to any agreement, instrument or document (a) shall include all schedules, exhibits, annexes and other attachments thereto and (b) shall be construed as referring to such agreement, instrument or other document as from time to time amended, amended and restated, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein or in any other Loan Document). The words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Unless otherwise specified herein Dollar ($) baskets set forth in the representations and warranty, covenants and event of default provisions of this Agreement (and other similar baskets) are calculated as of each date of measurement by the Dollar Equivalent Amount thereof as of such date of measurement. Reference to a Loan Party’s “knowledge” or similar concept means actual knowledge of a senior officer, or knowledge that a senior officer would have obtained if he or she had engaged in good faith and diligent performance of his or her duties, including reasonably specific inquiries of employees or agents and a good faith attempt to ascertain the matter.
1.4. Conforming Changes; Interest Rates.
(a) In connection with the use, administration, adoption or implementation of any Successor Rate, Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document. Agent will promptly notify Borrower Representative and the Lenders of (i) the implementation of any Successor Rate and (2) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of any such Successor Rate.
(b) Agent does not warrant, nor accept responsibility, nor shall Agent have any liability with respect to the administration, submission or any other matter related to the rates in the definition of “Term SOFR”, “Base Rate” or with respect to any rate that is an alternative or replacement for or successor to any of such rate (including, without limitation, any Successor Rate) or the effect of any of the foregoing, or of any Conforming Changes.
2. LOANS.
2.1. Term Loans; Reserves.
(b) Term Loans. Subject to the terms and conditions of this Agreement, on the Closing Date, each Lender then party to this Agreement severally (and not jointly) made a term loan to Borrowers (collectively, the “Existing Term Loans”) in an amount equal to $20,000,000. Subject to the terms and conditions of this Agreement and the First Amendment, on the First Amendment Effective Date, each Lender severally (and not jointly) agrees to make an additional term loan to Borrowers (collectively, the “First Amendment Term Loans”) in an amount equal to such Lender’s Term Loan Commitment, such that after giving effect to the First Amendment on the First Amendment Effective Date, the aggregate principal amount of the Term Loans hereunder shall be $40,000,000. Subject to the terms and conditions of this Agreement and the Second Amendment, on the Second Amendment Effective Date, each Lender severally (and not jointly) agrees to make an additional term loan to Borrowers (collectively, the “Second Amendment Term Loans,” and together with the Existing Term Loan and the First Amendment Term Loans, collectively, the “Term Loans”), in an amount equal to such Lender’s Term Loan Commitment, such that after giving effect to the Second Amendment on the Second Amendment Effective Date, the aggregate principal amount of the Term Loans hereunder shall be $60,000,000. All Term Loans shall be made in and repayable in Dollars. Amounts repaid in respect of Term Loans may not be reborrowed, and
-28-
upon each Lender’s making of the Second Amendment Term Loans on the Second Amendment Effective Date, any then outstanding Term Loan Commitment of such Lender shall be terminated (it being understood and agreed that the initial Term Loan Commitments of $20,000,000, under and as defined in this Agreement as in effect on the Closing Date, were reduced to $0 upon the funding of the Existing Term Loans on the Closing Date and the Term Loan Commitments of $20,000,000, under and as defined in this Agreement as in effect on the First Amendment Effective Date, were reduced to $0 upon the funding of the First Amendment Term Loans on the First Amendment Effective Date).
(c) Reserves. Agent may, with or without notice to Borrower Representative, from time to time establish and revise reserves against the Borrowing Base in such amounts and of such types as Agent deems appropriate in its Permitted Discretion (“Reserves”) to reflect (i) events, conditions, contingencies or risks which affect or may affect (A) the Collateral or its value, or the enforceability, perfection or priority of the security interests and other rights of Agent in the Collateral or (B) the assets, business or prospects of any Borrower or any Loan Party Obligor (including the Dilution Reserve), (ii) Agent’s good faith concern that any Collateral report or financial information furnished by or on behalf of any Borrower or any Loan Party Obligor to Agent is or may have been incomplete, inaccurate or misleading in any material respect, (iii) any fact or circumstance which Agent determines in good faith constitutes, or could constitute, a Default or Event of Default, or (iv) any other events or circumstances which Agent determines in good faith make the establishment or revision of a Reserve prudent. In no event shall the establishment of a Reserve in respect of a particular actual or contingent liability obligate Agent to make advances to pay such liability or otherwise obligate Agent with respect thereto.
(d) [Reserved].
2.2. Protective Advances.
(a) Notwithstanding any contrary provision of this Agreement or any other Loan Document, at any time after the occurrence and during the continuance of a Default or Event of Default, Agent is authorized by each Borrower and each Lender, from time to time, in Agent’s sole discretion, to make such advances to, or for the benefit of, any Borrower, as Agent in its sole discretion deems necessary or desirable (1) to maintain, preserve or protect the Collateral, or any portion thereof, or (2) to enhance the likelihood of repayment of the Obligations (“Protective Advances”). Notwithstanding any contrary provision of this Agreement or any other Loan Document, Agent may disburse the proceeds of any Protective Advance to any Borrower or to such other Person(s) as Agent determines in its sole discretion. All Protective Advances shall be payable immediately upon demand.
(b) Upon the making of any Protective Advance (whether before or after the occurrence of a Default or Event of Default), each Lender shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from Agent, without recourse or warranty, an undivided interest and participation in such Protective Advance in an amount equal to its Pro Rata Share thereof. Agent may, at any time, require the applicable Lenders to fund their participations. From and after the date, if any, on which any Lender is required to fund its participation in any Protective Advance purchased hereunder, Agent shall promptly distribute to such Lender, such Lender’s Pro Rata Share of all payments of principal and interest and all proceeds of Collateral received by such Agent in respect of such Loan. Each Lender acknowledges and agrees that (i) Agent may elect to fund a Protective Advance through one or more of its Affiliates on behalf of Agent for administrative convenience and (ii) any such funding shall constitute a Protective Advance as if made by Agent subject to the terms and conditions of this Agreement.
2.3. [Reserved].
2.4. [Reserved].
-29-
2.5. Repayments.
(a) [Reserved].
(b) Term Loan Amortization Payments. Commencing on July 1, 2021, and on the first day of each July, October, January and April occurring thereafter, the Borrowers shall make quarterly principal payments on the Term Loans, each in an amount equal to $1,500,000.
(c) Maturity Date Payments. All remaining outstanding Term Loans and other monetary Obligations (including all accrued and unpaid fees described in Section 3.2) shall be payable in full on the Maturity Date.
2.6. Prepayments; Application of Prepayments.
(a) Voluntary Prepayments. The Borrowers may, upon irrevocable notice from the Borrower Representative to the Agent, from time to time voluntarily prepay Term Loans in whole or in part, subject to payment of any applicable Prepayment Premium in the amount specified in the Agent Fee Letter; provided that (i) such notice must be received by the Agent not later than 11:00 a.m. ET three (3) Business Days prior to the date of such prepayment and (ii) such prepayment shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof (or, if less, the remaining outstanding principal amount of the Term Loans). The Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Pro Rata Share of such prepayment. If such notice is given by the Borrower Representative, the Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Each such prepayment shall be applied to the Term Loans of the Lenders in accordance with their respective Pro Rata Shares.
(b) Mandatory Prepayments.
(i) (x) If any Prepayment Event under any of clauses (a) through (d) of the defined term “Prepayment Event” occurs, then, to the extent of any remaining Net Proceeds received by the Loan Parties on account thereof after application of such proceeds to outstanding ABL Obligations in accordance with the ABL Loan Agreement or (y) if any Prepayment Event under clause (e) of the defined term “Prepayment Event” occurs, then the Borrowers shall, within five (5) Business Days (or immediately in the case of any incurrence of any Indebtedness that is not Permitted Indebtedness) after receipt of the Net Proceeds of each such Prepayment Event, prepay the Term Loans in an amount equal to such Net Proceeds (or remaining Net Proceeds, as applicable), together with any applicable Prepayment Premium in the amount specified in the Agent Fee Letter; provided, however, that (x) notwithstanding anything to the contrary in the Agent Fee Letter, no Prepayment Premium shall become due and payable in connection with any Prepayment Event under clause (e) of the defined term “Prepayment Event”, (y) no prepayment shall be required in connection with any Prepayment Event under clause (e) of the defined term “Prepayment Event” if such prepayment would not then be permitted pursuant to Section 8(y) of the ABL Loan Agreement (as in effect on the Fifth Amendment Effective Date) and (z) the Borrowers shall be permitted to replace, repair, restore or rebuild Collateral that is subject to any casualty or other insured damage or any taking under power of eminent domain or by condemnation or similar proceeding of (and payments in lieu thereof), so long as (i) no Default or Event of Default has occurred and is continuing and (ii) any such Net Proceeds on account of such Prepayment Event not used to replace, repair, restore or rebuild such Collateral within 180 days after the receipt of such Net Proceeds shall be applied to the prepayment of the Term Loans in accordance with this Section 2.6(b)(i) and Section 2.6(c).
-30-
(ii) If all Commitments under (and as defined in) the ABL Loan Agreement are terminated prior to the Scheduled Maturity Date under (and as defined in) the ABL Loan Agreement, the Borrowers shall immediately prepay all of the Loans.
(c) Application of Prepayments. Prepayments made pursuant to Section 2.6(a) or 2.6(b) shall be applied to the outstanding Term Loans of the Lenders, ratably in accordance with their respective Pro Rata Shares (subject to Section 2.6(d)), and in the inverse order of principal payments due pursuant to Section 2.5(b).
(d) Option to Decline Proceeds. Upon the occurrence of any Prepayment Event, the Borrower Representative shall promptly provide the Agent with a written notice of such Prepayment Event and any associated prepayment required under Section 2.6(b), including the date and amount of such prepayment. The Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Pro Rata Share of such prepayment. Each Lender may reject all or part of its Pro Rata Share of such prepayment (other than a prepayment in respect of Indebtedness that is not Permitted Indebtedness) (such declined amounts, the “Initial Declined Proceeds”) by providing written notice (each, a “Rejection Notice”) to the Agent no later than 3:00 p.m. ET, two (2) Business Days prior to the date of such prepayment as set forth in the applicable notice of prepayment (any such Lender, a “Declining Lender”); provided, that, if a Lender fails to deliver a Rejection Notice to the Agent within the time frame specified above, such failure will be deemed an acceptance by such Lender of its Pro Rata Share of such mandatory prepayment. If there are any Initial Declined Proceeds, the Agent shall then provide written notice (the “Second Offer”) to Lenders other than the Declining Lenders (such Lenders, the “Accepting Lenders”) of the additional amount available (due to such Declining Lenders’ declining such prepayment) to prepay Term Loans owing to such Accepting Lenders, with such available amount to be allocated on a pro rata basis among the Accepting Lenders that accept the Second Offer. Any Lenders declining prepayment pursuant to such Second Offer shall give written notice thereof to the Agent by 4:00 p.m. ET time no later than one (1) Business Day prior to the date of such prepayment as set forth in the applicable notice of prepayment; provided, that, if a Lender fails to deliver a Rejection Notice to the Agent within the time frame specified above, such failure will be deemed an acceptance of such Lender’s pro rata share of the Second Offer. Amounts remaining after the allocation to Accepting Lenders as set forth above may be retained by the applicable Loan Parties.
2.7. Obligations Unconditional.
(a) The payment and performance of all Obligations shall constitute the absolute and unconditional obligations of each Loan Party Obligor, and shall be independent of any defense or right of set-off, recoupment or counterclaim that any Loan Party Obligor or any other Person might otherwise have against Agent, any Lender or any other Person. All payments required by this Agreement or the other Loan Documents shall be made in Dollars (unless payment in a different currency is expressly provided otherwise in the applicable Loan Document) and paid free of any deductions or withholdings for any taxes or other amounts and without abatement, diminution or set-off. If any Loan Party Obligor is required by applicable law to make such a deduction or withholding from a payment under this Agreement or under any other Loan Document, such Loan Party Obligor shall pay to Agent such additional amount as shall be necessary to ensure that, after the making of such deduction or withholding, Agent receives (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. Each Loan Party Obligor shall (a) pay the full amount of any deduction or withholding that it is required to make by law, to the relevant authority within the payment period set by applicable law and (b) promptly after any such payment, deliver to Agent an original (or certified copy) official receipt issued by the relevant authority in respect of the amount withheld or deducted or, if the relevant authority does not issue such official receipts, such other evidence of payment of the amount withheld or deducted as is reasonably acceptable to Agent.
-31-
(b) If, at any time and from
time to time after the Closing Date (or at any time before or after the Closing Date with respect to the Dodd-Frank Wall Street Reform
and Consumer Protection Act and all requests, rules, regulations, guidelines or directives thereunder or issued in connection therewith),
(a) any change in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (b) any new law,
regulation, treaty or directive enacted or application thereof or (c) compliance by Agent with any request or directive (whether or not
having the force of law) from any Governmental Authority, central bank or comparable agency (i) subjects Agent or any Lender to any tax,
levy, impost, deduction, assessment, charge or withholding of any kind whatsoever with respect to any Loan Document, or changes the basis
of taxation of payments to Agent or any Lender of any amount payable thereunder (except for net income taxes, or franchise taxes imposed
in lieu of net income taxes, imposed generally by federal, state, local or other taxing authorities with respect to interest or fees payable
hereunder or under any other Loan Document or changes in the rate of tax on the overall net income of Agent, any Lender or their respective
members) or (ii) imposes, modifies or deems applicable any reserve (including any reserve imposed by the FRB,
but excluding any reserve included in the determination of the LIBOR Rate), special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by Agent or any Lender or imposes on Agent or any Lender any other
condition affecting its LIBOR Loans or its obligation to make LIBOR
Loans, the result of which is to increase the cost to (or to impose a cost on) Agent or any Lender of making or maintaining
any LIBOR Loan or (iii) imposes on Agent or any Lender any other condition or increased
cost in connection with the transactions contemplated thereby or participations therein, and the result of any of the foregoing is to
increase the cost to Agent or any Lender of making or continuing any Loan or to reduce any amount receivable hereunder or under any other
Loan Documents, then, in each such case, Borrowers shall promptly pay to Agent or such Lender, when notified to do so by Agent or such
Lender, any additional amounts necessary to compensate Agent or such Lender, on an after-tax basis, for such additional cost or reduced
amount as determined by Agent or such Lender, but only to the extent such amounts relate to this Agreement or the Loan Documents. Each
such notice of additional amounts payable pursuant to this Section 2.7(b) submitted by Agent or any Lender, as applicable, to Borrower
Representative shall, absent manifest error, be final, conclusive and binding for all purposes.
(c) This Section 2.7 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
2.8. Reversal of Payments. To the extent that any payment or payments made to or received by Agent or any Lender pursuant to this Agreement or any other Loan Document are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to any trustee, receiver or other Person under any state, federal or other bankruptcy or other such applicable law, then, to the extent thereof, such amounts (and all Liens, rights and remedies relating thereto) shall be revived as Obligations (secured by all such Liens) and continue in full force and effect under this Agreement and under the other Loan Documents as if such payment or payments had not been received by Agent or such Lender. This Section 2.8 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
2.9. Notes. The Loans shall, at the request of any Lender, be evidenced by one or more promissory notes in form and substance reasonably satisfactory to such Lender. However, if such Loans are not so evidenced, such Loans may be evidenced solely by entries upon the books and records maintained by Agent.
2.10. Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) [Reserved].
-32-
(b) Any amount payable to a Defaulting Lender hereunder (whether on account of principal, interest, fees or otherwise) may, in Agent’s sole discretion, in lieu of being distributed to such Defaulting Lender, be retained by Agent in a segregated account and, subject to any applicable requirements of law, be applied at such time or times as may be determined by Agent (i) first, to the payment of any amounts owing by such Defaulting Lender to Agent hereunder, (ii) second, to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by Agent, (iii) third, if so determined by Agent and Borrowers, held in such account as cash collateral for future funding obligations of the Defaulting Lender under this Agreement, (iv) fourth, pro rata, to the payment of any amounts owing to Borrowers or the Lenders as a result of any judgment of a court of competent jurisdiction obtained by Borrowers or any Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement, and (v) fifth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction.
(c) No Defaulting Lender shall have any right to approve or disapprove any amendment, waiver, consent or any other action the Lenders or the Required Lenders have taken or may take hereunder, provided that any waiver, amendment or modification requiring the consent of all Lenders or each directly affected Lender which affects such Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender.
2.11. Appointment of Borrower Representative.
(a) Each Borrower hereby irrevocably appoints and constitutes Borrower Representative as its agent and attorney-in-fact to request and receive Loans in the name or on behalf of such Borrower and any other Borrowers, deliver Notices of Borrowing, and Borrowing Base Certificates, give instructions with respect to the disbursement of the proceeds of the Loans, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) in the name or on behalf of any Borrower or Borrowers pursuant to this Agreement and the other Loan Documents. Agent may disburse the Loans to such bank account of Borrower Representative or a Borrower or otherwise make such Loans to a Borrower, in each case as Borrower Representative may designate or direct, without notice to any other Borrower. Notwithstanding anything to the contrary contained herein, Agent may at any time and from time to time require that Loans to or for the account of any Borrower be disbursed directly to an operating account of such Borrower.
(b) Borrower Representative hereby accepts the appointment by Borrowers to act as the agent and attorney-in-fact of Borrowers pursuant to this Section 2.11. Borrower Representative shall ensure that the disbursement of any Loans that are at any time requested by or to be remitted to or for the account of a Borrower requested on behalf of a Borrower hereunder, shall be remitted or issued to or for the account of such Borrower.
(c) Each Borrower hereby irrevocably appoints and constitutes Borrower Representative as its agent to receive statements on account and all other notices from Agent and Lenders with respect to the Obligations or otherwise under or in connection with this Agreement and the other Loan Documents.
(d) Any notice, election, representation, warranty, agreement or undertaking made or delivered by or on behalf of any Borrower by Borrower Representative shall be deemed for all purposes to have been made or delivered by such Borrower, as the case may be, and shall be binding upon and enforceable against such Borrower to the same extent as if made or delivered directly by such Borrower.
(e) No resignation by or termination of the appointment of Borrower Representative as agent and attorney-in-fact as aforesaid shall be effective, except after ten (10) Business Days’ prior
-33-
written notice to Agent. If the Borrower Representative resigns under this Agreement, Borrowers shall be entitled to appoint a successor Borrower Representative (which shall be a Borrower and shall be reasonably acceptable to Agent as such successor). Upon the acceptance of its appointment as successor Borrower Representative hereunder, such successor Borrower Representative shall succeed to all the rights, powers and duties of the retiring Borrower Representative and the term “Borrower Representative” shall mean such successor Borrower Representative for all purposes of this Agreement and the other Loan Documents, and the resigning or terminated Borrower Representative’s appointment, powers and duties as Borrower Representative shall be thereupon terminated.
2.12. Joint and Several Liability.
(a) Joint and Several. Each Borrower hereby agrees that such Borrower is jointly and severally liable for the full and prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of, all Obligations owed or hereafter owing to Agent and Lenders by each other Borrower. Each Borrower agrees that its obligation hereunder shall not be discharged until payment and performance, in full, of the Obligations has occurred, and that its obligations under this Section 2.12 shall be absolute and unconditional, irrespective of, and unaffected by,
(i) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Loan Document or any other agreement, document or instrument to which any Borrower is or may become a party;
(ii) the absence of any action to enforce this Agreement (including this Section 2.12) or any other Loan Document or the waiver or consent by Agent or any Lender with respect to any of the provisions thereof;
(iii) the existence, value or condition of, or failure to perfect Agent’s Lien against, any security for the Obligations or any action, or the absence of any action, by Agent in respect thereof (including the release of any such security);
(iv) the insolvency of any Loan Party or Other Obligor; or
(v) any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor.
(b) Waivers by Borrowers. Each Borrower expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Agent to marshal assets or to proceed in respect of the Obligations against any other Loan Party or Other Obligor, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Borrower. It is agreed among each Borrower, Agent and Lenders that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Loan Documents and that, but for the provisions of this Section 2.12 and such waivers, Agent and Lenders would decline to enter into this Agreement.
(c) Benefit of Joint and Several Obligations. Each Borrower agrees that the provisions of this Section 2.12 are for the benefit of Agent and Lenders and their successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any other Borrower, Agent and any Lender, the obligations of such other Borrower under the Loan Documents.
(d) Subordination of Subrogation, Etc. Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, each Borrower hereby expressly and irrevocably subordinates to payment of the Obligations any and all rights at law or in equity to subrogation,
-34-
reimbursement, exoneration, contribution, indemnification or set off and any and all defenses available to a surety, guarantor or accommodation co-obligor with respect to any other Loan Party or any Other Obligor until the Obligations are indefeasibly paid in full in cash. Each Borrower acknowledges and agrees that this subordination is intended to benefit Agent and Lenders and shall not limit or otherwise affect such Borrower’s liability hereunder or the enforceability of this Section 2.12, and that Agent and Lenders and their successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 2.12(d).
(e) Election of Remedies. If Agent may, under applicable law, proceed to realize its benefits under any of the Loan Documents giving Agent a Lien upon any Collateral, whether owned by any Borrower or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Agent may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Section 2.12. If, in the exercise of any of its rights and remedies, Agent shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Borrower or any other Person, whether because of any applicable laws pertaining to “election of remedies” or the like, each Borrower hereby consents to such action by Agent and waives any claim based upon such action, even if such action by Agent shall result in a full or partial loss of any rights of subrogation that each Borrower might otherwise have had but for such action by Agent.
(f) Contribution with Respect to Guaranty Obligations.
(i) To the extent that any Borrower shall make a payment under this Section 2.12 of all or any of the Obligations (other than Loans made to that Borrower for which it is primarily liable) (a “Guarantor Payment”) that, taking into account all other Guarantor Payments then previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Borrower’s “Allocable Amount” (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Borrowers as determined immediately prior to the making of such Guarantor Payment, then, following indefeasible payment in full in cash of the Obligations, such Borrower shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment.
(ii) As of any date of determination, the “Allocable Amount” of any Borrower shall be equal to the maximum amount of the claim that could then be recovered from such Borrower under this Section 2.12 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law.
(iii) This Section 2.12(f) is intended only to define the relative rights of Borrowers and nothing set forth in this Section 2.12(f) is intended to or shall impair the obligations of Borrowers, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement, including Section 2.12(a). Nothing contained in this Section 2.12(f) shall limit the liability of any Borrower to pay the Loans made directly or indirectly to that Borrower and accrued interest, fees and expenses with respect thereto for which such Borrower shall be primarily liable.
(iv) The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of each Borrower to which such contribution and indemnification is owing.
-35-
(v) The rights of the indemnifying Borrowers against other Loan Parties under this Section 2.12(f) shall be exercisable upon the full and indefeasible payment of the Obligations.
(g) Liability Cumulative. The liability of Borrowers under this Section 2.12 is in addition to and shall be cumulative with all liabilities of each Borrower to Agent and Lenders under this Agreement and the other Loan Documents to which such Borrower is a party or in respect of any Obligations or obligation of the other Borrower, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.
3. INTEREST AND FEES.
3.1. Interest. All
Loans and other monetary Obligations shall bear interest at a rate per annum equal to the LIBOR Rate
plus the Applicable Margin (or, to the extent
required under Section 3.6, at a rate per annum equal to the Base Reference
Rate plus the Applicable Margin), and accrued interest shall be payable
(a) on the first day of each month in arrears, (b) upon a prepayment of Loan in accordance with Section 2.6 and (c) on the Maturity Date;
provided, that after the occurrence and during the continuation of an Event of Default, all Loans and other monetary Obligations
shall bear interest at a rate per annum equal to four (4) percentage points (4.00%) in excess of the rate otherwise applicable thereto
(the “Default Rate”), and all such interest shall be payable on demand.Changes
in the interest rate shall be effective as of the date of any change in the Base Rate or LIBOR Rate, as applicable. Subject to Section
3.6, all Loans shall constitute LIBOR Loans.
3.2. Fees. Borrowers shall pay Agent the fees described in the Agent Fee Letter, for the account of the Persons identified therein and on the dates set forth therein, which fees are in addition to all fees and other sums payable by Borrowers or any other Person to Agent under this Agreement or under any other Loan Document and, in each case, are not refundable once paid.
3.3. Computation of Interest and Fees. All interest and fees shall be calculated daily on the outstanding monetary Obligations based on the actual number of days elapsed in a year of 360 days.
3.4. Loan Account; Monthly Accountings. Agent shall maintain a loan account for Borrowers reflecting all outstanding Loans, along with interest accrued thereon and such other items reflected therein (the “Loan Account”), and shall provide Borrower Representative with a monthly accounting reflecting the activity in the Loan Account. Each accounting shall be deemed correct, accurate and binding on Borrowers and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Agent), unless Borrower Representative notifies Agent in writing to the contrary within thirty (30) days after such account is rendered, describing the nature of any alleged errors or omissions. However, Agent’s failure to maintain the Loan Account or to provide any such accounting shall not affect the legality or binding nature of any of the Obligations. Interest, fees and other monetary Obligations due and owing under this Agreement may, in Agent’s discretion, be charged to the Loan Account and capitalized by adding such Obligations to the principal balance of the Loans, and will thereafter be deemed to be Loans and will bear interest at the same rate as other Loans.
3.5. Further Obligations; Maximum Lawful Rate. With respect to all monetary Obligations for which the interest rate is not otherwise specified herein (whether such Obligations arise hereunder or under any other Loan Document, or otherwise), such Obligations shall bear interest at the rate(s) in effect from time to time with respect to the Loans and shall be payable upon demand by Agent. In no event shall the interest charged with respect to any Loan or any other Obligation exceed the maximum amount permitted under applicable law. Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of interest payable or other amounts hereunder or under any other Loan Document (the “Stated Rate”) would exceed the highest rate of interest or other amount permitted under any applicable law to be charged (the “Maximum Lawful Rate”), then for so long as the Maximum Lawful Rate would be so
-36-
exceeded, the rate of interest and other amounts payable shall be equal to the Maximum Lawful Rate; provided, that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrowers shall, to the extent permitted by applicable law, continue to pay interest and such other amounts at the Maximum Lawful Rate until such time as the total interest and other such amounts received is equal to the total interest and other such amounts which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable or such other amounts payable. Thereafter, the interest rate and such other amounts payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply. In no event shall the total interest or other such amounts received by Agent exceed the amount which it could lawfully have received had the interest and other such amounts been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, Agent has received interest or other such amounts hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of the Loans or to other Obligations (other than interest) payable hereunder, and if no such principal or other Obligations are then outstanding, such excess or part thereof remaining shall be paid to Borrowers. In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.
3.6. Certain Provisions Regarding LIBOR LoansApplicable Reference Rate; Replacement of Lenders.
(a) Inadequate or Unfair
Basis. If Agent or any Lender the
Required Lenders reasonably determines determine
(which determination shall be binding and conclusive on Borrowers) that, by reason of circumstances affecting the interbank
Eurodollar market or otherwise,
adequate and reasonable means do not exist for ascertaining the applicable LIBOR RateTerm
SOFR, then Agent or such the
Required Lender shall promptly notify Borrower Representative (and Agent, if applicable) thereof and, so long as such circumstances
shall continue, (i) Agent and/or such Lender shall be under no obligation to make any LIBOR Loans
and (ii) on the last day of the current calendar month, each LIBOR Loan shall, unless then repaid in full, automatically convert
to a Base Rate Loansubject to the last sentence of the definition
of “SOFR Rate”, the Applicable Reference Rate shall be determined solely by reference to the Base Rate component thereof,
until the Agent (or, in the case of a determination made by the Required Lenders, the Agent upon the instruction of the Required Lenders)
revokes such notice.
(b) Change in Law. If
any change in, or the adoption of any new, law, treaty or regulation, or any change in the interpretation of any applicable law or regulation
by any Governmental Authority charged with the administration thereof, would make it (or in the good faith judgment of Agent or the applicable
Lender cause a substantial question as to whether it is) unlawful for Agent or such Lender to make, maintain or fund LIBOR
Loans that bear interest at a rate determined by reference
Term SOFR, then Agent or such Lender shall promptly notify Borrower Representative and, so long as such circumstances shall
continue, (i) Agent or such Lender shall have no obligation to make any LIBOR Loan and (ii) on
the last day of the current calendar month for each LIBOR Loan (or, in any event, on such earlier date as may be required by the relevant
law, regulation or interpretation), such LIBOR Loan shall, unless then repaid in full, automatically convert to a Base Rate Loansubject
to the last sentence of the definition of “SOFR Rate”, the Applicable Reference Rate shall be determined solely by reference
to the Base Rate component thereof.
(c) If any Borrower becomes obligated to pay additional amounts to any Lender pursuant to Section 2.7(b), or any Lender gives notice of the occurrence of any circumstances described in Section 2.7(b), or if any Lender becomes a Defaulting Lender, Borrowers may designate another Person engaged in the making of commercial loans in the ordinary course of business which is acceptable to Agent in its sole discretion (such other Person being called a “Replacement Lender”) to purchase the Loans of such Lender and such Lender’s rights hereunder, without recourse to or warranty by, or expense to, such
-37-
Lender, for a purchase price equal to the outstanding principal amount of the Loans payable to such Lender plus any accrued but unpaid interest on such Loans and all accrued but unpaid fees owed to such Lender and any other amounts payable to such Lender under this Agreement, and to assume all the obligations of such Lender hereunder, and, upon such purchase and assumption (pursuant to an Assignment and Assumption), such Lender shall no longer be a party hereto or have any rights hereunder (other than rights with respect to indemnities and similar rights applicable to such Lender prior to the date of such purchase and assumption) and shall be relieved from all obligations to Borrowers hereunder, and the Replacement Lender shall succeed to the rights and obligations of such Lender hereunder.
(d)LIBOR
Discontinuation. Notwithstanding anything contained herein to the contrary, if Agent reasonably determines after the Closing Date
that the LIBOR Rate has been discontinued or is no longer available as a benchmark interest rate, Agent shall select a comparable successor
rate in its reasonable discretion (in consultation with the Borrowers), which successor rate shall be applied in a manner consistent with
market practice taking into account the benchmark interest rates applicable to funding sources for the Lenders, and will promptly so notify
each Lender.
4. CONDITIONS PRECEDENT.
4.1. Conditions to Funding Term Loans.
Each Lender’s obligation to fund the Term Loans under this Agreement on the Closing Date is subject to the following conditions precedent (as well as any other conditions set forth in this Agreement or any other Loan Document), all of which must be satisfied in a manner acceptable to Agent (and as applicable, pursuant to documentation which in each case is in form and substance acceptable to Agent):
(a) each Loan Party Obligor shall have duly executed and/or delivered, or, as applicable, shall have caused such other applicable Persons to have duly executed and or delivered, to Agent such agreements, instruments, documents, proxies and certificates as Agent may require, including such other agreements, instruments, documents and certificates listed on the closing checklist attached hereto as Exhibit A;
(b) Agent shall have completed its business and legal due diligence pertaining to the Loan Parties and their respective businesses and assets, including reviews of existing field examinations, with results thereof satisfactory to Agent in its sole discretion;
(c) each Lender’s obligations and commitments under this Agreement shall have been approved by such Lender’s investment committee;
(d) after giving effect to such Loans, as well as to the payment of all trade payables older than sixty days past due and the consummation of all transactions contemplated hereby to occur on the Closing Date, closing costs and any book overdraft, Excess Availability shall be no less than $35,000,000;
(e) since December 31, 2017, no event shall have occurred which has had, or could reasonably be expected to have, a Material Adverse Effect on any Loan Party;
(f) Borrowers shall have paid to Agent all fees due on the date hereof, and shall have paid or reimbursed Agent for all of Agent’s costs, charges and expenses incurred through the Closing Date;
(g) each of the representations and warranties set forth in this Agreement and in the other Loan Documents shall be true and correct in all respects as of the Closing Date (or, to the extent any
-38-
representations or warranties are expressly made solely as of an earlier date, such representations and warranties shall be true and correct as of such earlier date), both before and after giving effect to the borrowing of the Term Loans and any application of the proceeds thereof on or about the Closing Date; and
(h) as of the Closing Date, both before and after giving effect to the borrowing of the Term Loans and any application of the proceeds thereof on or about the Closing Date, no Default or Event of Default shall have occurred and be continuing.
5. COLLATERAL.
5.1. Grant of Security Interest. To secure the full payment and performance of all of the Obligations, each Loan Party Obligor hereby assigns to Agent and grants to Agent, for itself and on behalf of the Lenders, a continuing security interest in all property of each Loan Party Obligor, whether tangible or intangible, real or personal, now or hereafter owned, existing, acquired or arising and wherever now or hereafter located, and whether or not eligible for lending purposes, including: (a) all Accounts and all Goods whose sale, lease or other disposition by any Loan Party Obligor has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, any Loan Party Obligor; (b) all Chattel Paper (including Electronic Chattel Paper), Instruments, Documents, and General Intangibles (including all patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, copyright applications, registrations, licenses, software, franchises, customer lists, tax refund claims, claims against carriers and shippers, guaranty claims, contracts rights, payment intangibles, security interests, security deposits and rights to indemnification); (c) all Inventory (whether or not Eligible Inventory); (d) all Goods (other than Inventory), including Equipment, vehicles, and Fixtures; (e) all Investment Property, including all rights, privileges, authority, and powers of each Loan Party Obligor as an owner or as a holder of Pledged Equity, including all economic rights, all control rights, authority and powers, and all status rights of each Loan Party Obligor as a member, equity holder or shareholder, as applicable, of each Issuer and any rights related to any Loan Party Obligors’ capital account within the Issuer in respect of Investment Property; (f) all Deposit Accounts, bank accounts, deposits, money and cash; (g) all Letter-of-Credit Rights; (h) all Commercial Tort Claims, including those listed in Section 2 of the Perfection Certificate (if any); (i) all Supporting Obligations; (j) all life insurance policies; (k) all leases; (l) any other property of any Loan Party Obligor now or hereafter in the possession, custody or control of Agent or any agent or any parent, Affiliate or Subsidiary of Agent, any Lender or any Participant with Lender in the Loans, for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise); and (m) all additions and accessions to, substitutions for, and replacements, products and Proceeds of the foregoing property, including proceeds of all insurance policies insuring the foregoing property (including hazard, flood and credit insurance), and all of each Loan Party Obligor’s books and records relating to any of the foregoing and to any Loan Party’s business.
5.2. Possessory Collateral. Promptly, but in any event no later than five (5) Business Days after any Loan Party Obligor’s receipt of any portion of the Collateral evidenced by an agreement, Instrument or Document, including any Tangible Chattel Paper and any Investment Property consisting of certificated securities, such Loan Party Obligor shall deliver the original thereof to Agent together with an appropriate endorsement or other specific evidence of assignment thereof to Agent (in form and substance acceptable to Agent). If an endorsement or assignment of any such items shall not be made for any reason, Agent is hereby irrevocably authorized, as attorney and agent-in-fact (coupled with an interest) for each Loan Party Obligor, to endorse or assign the same on such Loan Party Obligor’s behalf. The requirements of this Section 5.2 are subject to Section 5.5.
5.3. Further Assurances. Each Loan Party Obligor shall, at its own cost and expense, promptly and duly take, execute, acknowledge and deliver (or cause each other applicable Person to take, execute, acknowledge and deliver) all such further acts, documents, agreements and instruments as may from time to time be necessary or desirable or as Agent may from time to time require in order to (a) carry
-39-
out the intent and purposes of the Loan Documents and the transactions contemplated thereby, (b) establish, create, preserve, protect and perfect a Requisite Priority Lien (subject only to Permitted Liens) in favor of Agent in all the Collateral (wherever located) from time to time owned by the Loan Party Obligors and in all capital stock and other equity from time to time issued by the Loan Parties (other than Holdings) (including appraisals of real property in compliance with FIRREA), (c) cause Holdings and each Subsidiary to guaranty all of the Obligations, all pursuant to documentation that is in form and substance reasonably satisfactory to Agent and (d) facilitate the collection of the Collateral. Without limiting the foregoing, each Loan Party Obligor shall, at its own cost and expense, promptly and duly take, execute, acknowledge and deliver (or cause each other applicable Person to take, execute, acknowledge and deliver) to Agent all promissory notes, security agreements, agreements with landlords, mortgagees and processors and other bailees, subordination and intercreditor agreements and other agreements, instruments and documents, in each case in form and substance reasonably acceptable to Agent, as Agent may request from time to time to perfect, protect and maintain Agent’s security interests in the Collateral, including the required priority thereof, and to fully carry out the transactions contemplated by the Loan Documents.
5.4. UCC Financing Statements. Each Loan Party Obligor authorizes Agent to file, transmit or communicate, as applicable, from time to time, UCC Financing Statements, along with amendments and modifications thereto, in all filing offices selected by Agent, listing such Loan Party Obligor as the Debtor and Agent as the Secured Party, and describing the collateral covered thereby in such manner as Agent may elect, including using descriptions such as “all personal property of debtor” or “all assets of debtor,” or words of similar effect, in each case without such Loan Party Obligor’s signature. Each Loan Party Obligor also hereby ratifies its authorization for Agent to have filed, in any filing office, any Financing Statements filed prior to the date hereof.
5.5. ABL Intercreditor Agreement. In accordance with the terms of the ABL Intercreditor Agreement, all Collateral delivered to ABL Agent shall be held by the ABL Agent as gratuitous bailee for Agent and the Lenders solely for the purpose of perfecting the security interest granted under this Agreement. Notwithstanding anything herein to the contrary, to the extent any Loan Party Obligor is required hereunder to deliver Collateral to Agent and is unable to do so as a result of having concurrently or previously delivered such Collateral to ABL Agent in accordance with the terms of the ABL Loan Documents, such Loan Party Obligor’s obligations hereunder with respect to such delivery shall be deemed satisfied by such delivery to ABL Agent, acting as gratuitous bailee of Agent and the Lenders.
6. CERTAIN PROVISIONS REGARDING ACCOUNTS, COLLECTIONS AND APPLICATIONS OF PAYMENTS.
6.1. Lock Boxes and Blocked Accounts. Each Loan Party Obligor hereby represents and warrants that all Deposit Accounts and all other depositary and other accounts maintained by each Loan Party Obligor as of the Closing Date are described in Section 3 of the Perfection Certificate, which description includes for each such account the name of the Loan Party Obligor maintaining the account, the name of the financial institution at which the account is maintained, the account number and the purpose of the account. After the Closing Date, no Loan Party Obligor shall open any new Deposit Account or any other depositary or other account without the prior written consent of Agent and without updating Section 3 of the Perfection Certificate to reflect such Deposit Account or other account. No Deposit Account or other account of any Loan Party Obligor shall at any time constitute a Restricted Account other than accounts expressly indicated on Section 3 of the Perfection Certificate as being Restricted Accounts (and each Loan Party Obligor hereby represents and warrants that each such account shall at all times meet the requirements set forth in the definition of Restricted Account to qualify as a Restricted Account). Each Loan Party Obligor will, at its expense, establish (and revise from time to time as Agent may require) procedures acceptable to Agent, in Agent’s sole discretion, for the collection of checks, wire transfers and all other proceeds of all of such Loan Party Obligor’s Accounts and other Collateral (“Collections”), which shall include (a) directing all Account Debtors to send all Account proceeds directly to a post office box
-40-
either in the name of such Loan Party Obligor (and subject to a Control Agreement) or, at Agent’s option, in the name of Agent (a “Lock Box”) and (b) depositing all Collections received by such Loan Party Obligor into one or more bank accounts maintained in the name of such Loan Party Obligor (and subject to a Control Agreement) or, at Agent’s option, in the name of Agent (each, a “Blocked Account”), and/or (c) a combination of the foregoing. Each Loan Party Obligor agrees to execute, and to cause its depository banks and other account holders to execute, Control Agreements with respect to such Lock Boxes and Blocked Accounts (and all other accounts that do not constitute Restricted Accounts) and other documentation as Agent shall require from time to time in connection with the foregoing, all in form and substance acceptable to Agent, and in any event such arrangements and documents must be in place prior to any such account being opened with respect to such account, in each case excluding Restricted Accounts.
6.2. Application of Payments. All amounts paid to or received by Agent in respect of monetary Obligations, from whatever source (whether from any Borrower or any other Loan Party Obligor pursuant to such other Loan Party Obligor’s guaranty of the Obligations, any realization upon any Collateral or otherwise) shall be applied by Agent to the Obligations as follows:
(i) FIRST, to reimburse Agent for all out-of-pocket costs and expenses, and all indemnified losses, incurred by Agent which are reimbursable to Agent in accordance with this Agreement or any of the other Loan Documents;
(ii) SECOND, to any accrued but unpaid interest on any Protective Advances;
(iii) THIRD, to the outstanding principal of any Protective Advances;
(iv) FOURTH, to any accrued but unpaid fees owing to Agent and Lenders under this Agreement and/or any other Loan Documents;
(v) FIFTH, to any unpaid accrued interest on the Obligations;
(vi) SIXTH, to the outstanding principal of the Term Loans; and
(vii) SEVENTH, to the payment of any other outstanding Obligations; and after payment in full in cash of all of the outstanding monetary Obligations, any further amounts paid to or received by Agent in respect of the Obligations (so long as no monetary Obligations are outstanding) shall be paid over to Borrowers or such other Person(s) as may be legally entitled thereto.
6.3. Notification; Verification. Agent or its designee may, from time to time: (a) whether or not a Default or Event of Default has occurred, verify directly with the Account Debtors of the Loan Party Obligors (or by any manner and through any medium Agent considers advisable) the validity, amount and other matters relating to the Accounts and Chattel Paper of the Loan Party Obligors, by means of mail, telephone or otherwise, either in the name of the applicable Loan Party Obligor or Agent or such other name as Agent may choose; (b) whether or not a Default or Event of Default has occurred, notify Account Debtors of the Loan Party Obligors that Agent has a security interest in the Accounts of the Loan Party Obligors and direct such Account Debtors to make payment thereof directly to Agent; each such notification to be sent on the letterhead of such Loan Party Obligor and substantially in the form of Exhibit B annexed hereto; and (c) following the occurrence and during the continuance of a Default or Event of Default, demand, collect or enforce payment of any Accounts and Chattel Paper (but without any duty to do so) and, in furtherance of the foregoing, each Loan Party Obligor hereby authorizes Account Debtors to make payments directly to Agent and to rely on notice from Agent without further inquiry. Agent may on behalf of each Loan Party Obligor endorse all items of payment received by Agent that are payable to such Loan Party Obligor for the purposes described above.
-41-
6.4. Power of Attorney.
Without limiting any of Agent’s and the other Lenders’ other rights under this Agreement or any other Loan Document, each Loan Party Obligor hereby grants to Agent an irrevocable power of attorney, coupled with an interest, authorizing and permitting Agent (acting through any of its officers, employees, attorneys or agents), at Agent’s option but without obligation, with or without notice to such Loan Party Obligor, and at each Loan Party Obligor’s expense, to do any or all of the following, in such Loan Party Obligor’s name or otherwise:
(a) at any time, whether or not an Event of Default has occurred or is continuing, (i) execute on behalf of such Loan Party Obligor any documents that Agent may, in its sole discretion, deem advisable in order to perfect, protect and maintain Agent’s security interests, and priority thereof, in the Collateral and to fully consummate all the transactions contemplated by this Agreement and the other Loan Documents (including such Financing Statements and continuation Financing Statements, and amendments or other modifications thereto, as Agent shall deem necessary or appropriate) and to notify Account Debtors of the Loan Party Obligors in the manner contemplated by Section 6.3, (ii) endorse such Loan Party Obligor’s name on all checks and other forms of remittances received by Agent, (iii) pay any sums required on account of such Loan Party Obligor’s taxes or to secure the release of any Liens therefor, (iv) pay any amounts necessary to obtain, or maintain in effect, any of the insurance described in Section 7.14, (v) receive and otherwise take control in any manner of any cash or non-cash items of payment or Proceeds of Collateral, (vi) receive, open and dispose of all mail addressed to such Loan Party Obligor at any post office box or lockbox maintained by Agent for such Loan Party Obligor or at any other business premises of Agent and (vii) endorse or assign to Agent on such Loan Party Obligor’s behalf any portion of Collateral evidenced by an agreement, Instrument or Document if an endorsement or assignment of any such items is not made by such Loan Party Obligor pursuant to Section 5.2; and
(b) at any time, after the occurrence and during the continuance of an Event of Default, (i) execute on behalf of such Loan Party Obligor any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or lease (as lessor or lessee) any real or personal property which is part of the Collateral or in which Agent has an interest, (ii) execute on behalf of such Loan Party Obligor any invoices relating to any Accounts, any draft against any Account Debtor, any proof of claim in bankruptcy, any notice of Lien or claim, and any assignment or satisfaction of mechanic’s, materialman’s or other Lien, (iii) execute on behalf of such Loan Party Obligor any notice to any Account Debtor, (iv) pay, contest or settle any Lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same, (v) grant extensions of time to pay, compromise claims relating to, and settle Accounts, Chattel Paper and General Intangibles for less than face value and execute all releases and other documents in connection therewith, (vi) settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor, (vii) instruct any third party having custody or control of any Collateral or books or records belonging to, or relating to, such Loan Party Obligor to give Agent the same rights of access and other rights with respect thereto as Agent has under this Agreement or any other Loan Document, (viii) change the address for delivery of such Loan Party Obligor’s mail, (ix) vote any right or interest with respect to any Investment Property, and (x) instruct any Account Debtor to make all payments due to any Loan Party Obligor directly to Agent.
Any and all sums paid, and any and all costs, expenses, liabilities, obligations and reasonable attorneys’ fees (internal and external counsel) of Agent with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Each Loan Party Obligor agrees that Agent’s rights under the foregoing power of attorney and any of Agent’s other rights under this Agreement or the other Loan Documents shall not be construed to indicate that Agent or any Lender is in control of the business, management or properties of any Loan Party Obligor.
-42-
6.5. Disputes. Each Loan Party Obligor shall promptly notify Agent of all disputes or claims relating to its Accounts and Chattel Paper. Each Loan Party Obligor agrees that it will not, without Agent’s prior written consent, compromise or settle any of its Accounts or Chattel Paper for less than the full amount thereof, grant any extension of time for payment of any of its Accounts or Chattel Paper, release (in whole or in part) any Account Debtor or other person liable for the payment of any of its Accounts or Chattel Paper or grant any credits, discounts, allowances, deductions, return authorizations or the like with respect to any of its Accounts or Chattel Paper; except (unless otherwise directed by Agent during the existence of a Default or an Event of Default) such Loan Party Obligor may take any of such actions in the Ordinary Course of Business consistent with past practices, provided that Borrower Representative promptly reports the same to Agent.
6.6. Invoices. At Agent’s request, each Loan Party Obligor will cause all invoices and statements that it sends to Account Debtors or other third parties to be marked and authenticated, in a manner reasonably satisfactory to Agent, to reflect Agent’s security interest therein and payment instructions (including, but not limited to, in a manner to meet the requirements of Section 9-404(a)(2) of the UCC).
7. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS.
To induce Agent and the Lenders to enter into this Agreement, each Loan Party Obligor represents, warrants and covenants as follows (it being understood and agreed that (a) each such representation and warranty (i) will be made as of the date hereof and be deemed remade as of each date on which any Loan is made (except to the extent any such representation or warranty expressly relates only to any earlier or specified date, in which case such representation or warranty will be made as of such earlier or specified date) and (ii) shall not be affected by any knowledge of, or any investigation by, Agent or any Lender and (b) each such covenant shall continuously apply with respect to all times commencing on the date hereof and continuing until the Termination Date):
7.1. Existence and Authority. Each Loan Party is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization (which jurisdiction is identified in Section 1(a) of the Perfection Certificate) and is qualified to do business in each jurisdiction in which the operation of its business requires that it be qualified (which each such jurisdiction is identified in Section 1(a) of the Perfection Certificate) or, if such Loan Party is not so qualified, such Loan Party may cure any such failure without losing any of its rights, incurring any liens or material penalties, or otherwise affecting Agent’s rights. Each Loan Party has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby. The execution, delivery and performance by each Loan Party Obligor of this Agreement and all of the other Loan Documents to which such Loan Party Obligor is a party have been duly and validly authorized, do not violate such Loan Party Obligor’s Governing Documents or any applicable law or any material agreement or instrument or any court order which is binding upon any Loan Party or its property, do not constitute grounds for acceleration of any Indebtedness or obligation under any material agreement or instrument which is binding upon any Loan Party or its property, and do not require the consent of any Person. No Loan Party is required to obtain any government approval, consent, or authorization from, or to file any declaration or statement with, any Governmental Authority in connection with or as a condition to the execution, delivery or performance of any of the Loan Documents. This Agreement and each of the other Loan Documents have been duly executed and delivered by, and are enforceable against, each of the Loan Party Obligors who have signed them, in accordance with their respective terms. Section 1(f) of the Perfection Certificate sets forth the ownership of each Borrower and its Subsidiaries and, as of the Second Amendment Effective Date, Holdings.
-43-
7.2. Names; Trade Names and Styles. The name of each Loan Party Obligor set forth on Section 1(b) of the Perfection Certificate is its correct and complete legal name as of the date hereof, and except as stated in Section 1(b) of the Perfection Certificate, and no Loan Party Obligor has used any other name at any time in the past five (5) years, or at any time will use any other name, in any tax filing made in any jurisdiction. Listed in Section 1(b) of the Perfection Certificate are all prior names used by each Loan Party Obligor at any time in the past five (5) years and all of the present and prior trade names used by any Loan Party Obligor at any time in the past five (5) years. Borrower Representative shall give Agent at least thirty (30) days’ prior written notice (and will deliver an updated Section 1(b) of the Perfection Certificate to reflect the same) before it or any other Loan Party Obligor changes its legal name or does business under any other name.
7.3. Title to Collateral; Third Party Locations; Permitted Liens. Each Loan Party Obligor has, and at all times will continue to have, good and marketable title to all of the Collateral. The Collateral now is, and at all times will remain, free and clear of any and all Liens, except for Permitted Liens. Agent now has, and will at all times continue to have, a Requisite Priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and each Loan Party Obligor will at all times defend Agent and the Collateral against all claims of others. None of the Collateral which is Equipment is, or will at any time, be affixed to any real property in such a manner, or with such intent, as to become a fixture. Except for leases or subleases as to which Borrowers have delivered to Agent a landlord’s waiver in form and substance reasonably satisfactory to Agent (unless waived by Agent in its sole discretion; provided, that such waiver may be conditioned upon Agent establishing a rent or other similar Reserve satisfactory to Agent in its sole discretion), no Loan Party Obligor is or will be a lessee or sublessee under any real property lease or sublease. Except for warehouses as to which Borrowers have delivered to Agent a warehouseman’s waiver in form and substance reasonably satisfactory to Agent (unless waived by Agent in its sole discretion; provided, that such waiver may be conditioned upon Agent establishing a rent or other similar Reserve satisfactory to Agent in its sole discretion), no Loan Party Obligor is or will at any time be a bailor of any Goods at any warehouse or otherwise. Prior to causing or permitting any Collateral to at any time be located upon premises in which any third party (including any landlord, warehouseman, or otherwise) has an interest, Borrower Representative shall notify Agent and the applicable Loan Party Obligor shall cause each such third party to execute and deliver to Agent, in form and substance reasonably acceptable to Agent, such waivers, collateral access agreements, and subordinations as Agent shall specify, so as to, among other things, ensure that Agent’s rights in the Collateral are, and will at all times continue to be, superior to the rights of any such third party and that Agent has access to such Collateral. Each applicable Loan Party Obligor will keep at all times in full force and effect, and will comply at all times with all the terms of, any lease of real property where any of the Collateral now or in the future may be located.
7.4. Accounts and Chattel Paper. As of each date reported by Borrowers, all Accounts which any Borrower has then reported to Agent as then being Eligible Accounts comply in all respects with the criteria for eligibility set forth in the respective definitions of Eligible Billed Accounts, Eligible Billed Aged Accounts, Eligible Billed Cross-Aged Accounts, Eligible Unbilled Accounts, and Eligible Uninvoiced Accounts, as applicable. All such Accounts, and all Chattel Paper owned by any Loan Party Obligor, are genuine and in all respects what they purport to be, arise out of a completed, bona fide and unconditional and non-contingent sale and delivery of goods or rendition of services by a Borrower in the Ordinary Course of Business and in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto, each Account Debtor thereunder had the capacity to contract at the time any contract or other document giving rise to such Accounts and Chattel Paper were executed, and the transactions giving rise to such Accounts and Chattel Paper comply with all applicable laws and governmental rules and regulations.
7.5. Electronic Chattel Paper. To the extent that any Loan Party Obligor obtains or maintains any Electronic Chattel Paper, such Loan Party Obligor shall at all times create, store and assign the record
-44-
or records comprising the Electronic Chattel Paper in such a manner that (a) a single authoritative copy of the record or records exists which is unique, identifiable and except as otherwise provided below, unalterable, (b) the authoritative copy identifies Agent as the assignee of the record or records, (c) the authoritative copy is communicated to and maintained by Agent or its designated custodian, (d) copies or revisions that add or change an identified assignee of the authoritative copy can only be made with the participation of Agent, (e) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy and (f) any revision of the authoritative copy is readily identifiable as an authorized or unauthorized revision.
7.6. Capitalization; Investment Property.
(a) No Loan Party, directly or indirectly, owns, or shall at any time own, any capital stock or other equity interests of any other Person except as set forth in Sections 1(f) and 1(g) of the Perfection Certificate, which Sections list all Investment Property owned by each Loan Party Obligor.
(b) None of the Pledged Equity has been issued or otherwise transferred in violation of the Securities Act, or other applicable laws of any jurisdiction to which such issuance or transfer may be subject. The Pledged Equity pledged by each Loan Party Obligor hereunder constitutes all of the issued and outstanding equity interests of each Issuer owned by such Loan Party Obligor.
(c) All of the Pledged Equity has been duly and validly issued and is fully paid and non-assessable, and the holders thereof are not entitled to any preemptive, first refusal or other similar rights. There are no outstanding options, warrants or similar agreements, documents, or instruments with respect to any of the Pledged Equity.
(d) Each Loan Party Obligor has caused each Issuer to amend or otherwise modify its Governing Documents, books, records, and related agreements, documents and instruments, as applicable, to reflect the rights and interests of Agent hereunder, and to the extent required to enable and empower Agent to exercise and enforce its rights and remedies hereunder in respect of the Pledged Equity and other Investment Property.
(e) Each Loan Party Obligor will take any and all actions required or requested by Agent, from time to time, to (i) cause Agent to obtain control of any Investment Property in a manner reasonably acceptable to Agent and (ii) obtain from any Issuers and such other Persons as Agent shall specify, for the benefit of Agent, written confirmation of Agent’s control over such Investment Property and take such other actions as Agent may request to perfect Agent’s security interest in any Investment Property. For purposes of this Section 7.6, Agent shall have control of Investment Property if (A) pursuant to Section 5.2, such Investment Property consists of certificated securities and the applicable Loan Party Obligor delivers such certificated securities to Agent (with all appropriate endorsements), (B) such Investment Property consists of uncertificated securities and either (x) the applicable Loan Party Obligor delivers such uncertificated securities to Agent or (y) the Issuer thereof agrees, pursuant to documentation in form and substance reasonably satisfactory to Agent, that it will comply with instructions originated by Agent without further consent by the applicable Loan Party Obligor and (C) such Investment Property consists of security entitlements and either (x) Agent becomes the entitlement holder thereof or (y) the appropriate securities intermediary agrees, pursuant to documentation in form and substance reasonably satisfactory to Agent, that it will comply with entitlement orders originated by Agent without further consent by the applicable Loan Party Obligor. Each Loan Party Obligor that is a limited liability company or a partnership hereby represents and warrants that it has not, and at no time will, elect pursuant to the provisions of Section 8-103 of the UCC to provide that its equity interests are securities governed by Article 8 of the UCC. The requirements of this Section 7.6(e) are subject to Section 5.5.
-45-
(f) No Loan Party owns, or has any present intention of acquiring, any “margin security” or any “margin stock” within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System (herein called “margin security” and “margin stock”). None of the proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry, any margin security or margin stock or for any other purpose which might constitute the transactions contemplated hereby a “purpose credit” within the meaning of said Regulations T, U or X, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Exchange Act, or any rules or regulations promulgated under such statutes.
(g) No Loan Party Obligor shall vote to enable, or take any other action to cause or to permit, any Issuer to issue any equity interests of any nature, or to issue any other securities or interests convertible into or granting the right to purchase or exchange for any equity interests of any nature of any Issuer.
(h) No Loan Party Obligor shall take, or fail to take, any action that would in any manner impair the value or the enforceability of Agent’s Lien on any of the Investment Property, or any of Agent’s rights or remedies under this Agreement or any other Loan Document with respect to any of the Investment Property.
(i) In the case of any Loan Party Obligor which is an Issuer, such Issuer agrees that the terms of Section 11.3(g)(iii) shall apply to such Loan Party Obligor with respect to all actions that may be required of it pursuant to such Section 11.3(g)(iii) regarding the Investment Property issued by it.
(j) Each Loan Party Obligor has made all capital contributions heretofore required to be made to the respective Issuer in respect of any Investment Property constituting limited liability company interests and no additional capital contributions are required to be made in respect of the respective limited liability company interests.
7.7. Commercial Tort Claims. No Loan Party Obligor has any Commercial Tort Claims pending other than those listed in Section 2 of the Perfection Certificate, and each Loan Party Obligor shall promptly (but in any case, no later than five (5) Business Days thereafter) notify Agent in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the date hereof against any third party. Such notice shall constitute such Loan Party Obligor’s authorization to amend such Section 2 to add such Commercial Tort Claim and shall automatically be deemed to amend such Section 2 to include such Commercial Tort Claim.
7.8. Jurisdiction of Organization; Location of Collateral. Sections 1(c) and 1(d) of the Perfection Certificate set forth (a) each place of business of each Loan Party Obligor (including its chief executive office), (b) all locations where all Inventory, Equipment, and other Collateral owned by each Loan Party Obligor is kept and (c) whether each such Collateral location and place of business (including each Loan Party Obligor’s chief executive office) is owned by a Loan Party or leased (and if leased, specifies the complete name and notice address of each lessor). No Collateral is located outside the United States or in the possession of any lessor, bailee, warehouseman or consignee, except as expressly indicated in Sections 1(c) and 1(d) of the Perfection Certificate. Each Loan Party Obligor will give Agent at least thirty (30) days’ prior written notice before changing its jurisdiction of organization, opening any additional place of business, changing its chief executive office or the location of its books and records, or moving any of the Collateral to a location other than one of the locations set forth in Sections 1(c) and 1(d) of the Perfection Certificate, and will execute and deliver all Financing Statements, landlord waivers, collateral access agreements, mortgages, and all other agreements, instruments and documents which Agent shall require in connection therewith prior to making such change, all in form and substance reasonably satisfactory to Agent. Without the prior written consent of Agent, no Loan Party Obligor will at any time
-46-
(i) change its jurisdiction of organization or (ii) allow any Collateral to be located outside of the continental United States of America.
7.9. Financial Statements and Reports; Solvency.
(a) All financial statements delivered to Agent and Lenders by or on behalf of any Loan Party have been, and at all times will be, prepared in conformity with GAAP in all material respects (except to the extent that equity expenses are not reflected in interim financial statements) and completely and fairly reflect the financial condition of each Loan Party covered thereby, at the times and for the periods therein stated, in all material respects.
(b) As of the date hereof (after giving effect to the Loans to be made on the date hereof, and the consummation of the transactions contemplated hereby), and as of each other day that any Loan is made (after giving effect thereof), (i) the fair saleable value of all of the assets and properties of each Loan Party, individually, exceeds the aggregate liabilities and Indebtedness of each such Loan Party (including contingent liabilities), (ii) each Loan Party, individually, is solvent and able to pay its debts as they come due, (iii) each Loan Party, individually, has sufficient capital to carry on its business as now conducted and as proposed to be conducted, (iv) no Loan Party is contemplating either the liquidation of all or any substantial portion of its assets or property, or the filing of any petition under any state, federal, or other bankruptcy or insolvency law and (v) no Loan Party has knowledge of any Person contemplating the filing of any such petition against any Loan Party.
7.10. Tax Returns and Payments; Pension Contributions. Each Loan Party has timely filed all tax returns and reports required by applicable law, has timely paid all applicable Taxes, assessments, deposits and contributions owing by such Loan Party and will timely pay all such items in the future as they became due and payable. Each Loan Party may, however, defer payment of any contested taxes; provided, that such Loan Party (a) in good faith contests its obligation to pay such Taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Agent in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to keep the contested taxes from becoming a Lien upon any of the Collateral and (d) maintains adequate reserves therefor in conformity with GAAP. No Loan Party is aware of any claims or adjustments proposed for any prior tax years that could result in additional taxes becoming due and payable by any Loan Party. Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable laws. Each Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter or opinion letter from the Internal Revenue Service to the effect that the form of such Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the Internal Revenue Service to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the Internal Revenue Service. To the best knowledge of each Loan Party, nothing has occurred that would prevent or cause the loss of such tax-qualified status. There are no pending or, to the best knowledge of any Loan Party, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to result in liabilities individually or in the aggregate in excess of $100,000 of any Loan Party. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in liabilities individually or in the aggregate of any Loan Party in excess of $100,000. No ERISA Event has occurred, and no Loan Party is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan, in each case that could reasonably be expected to result in liabilities individually or in the aggregate in excess of $100,000. Each Loan Party and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained, in each case except as could not reasonably be expected to result in liabilities individually or in the aggregate to the Loan Parties in excess of $100,000. As of the
-47-
most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is sixty percent (60%) or higher and no Loan Party knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below sixty percent (60%) as of the most recent valuation date. No Loan Party or any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid, except as could not reasonably be expected to result in liabilities individually or in the aggregate to the Loan Parties in excess of $100,000. No Loan Party or any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA except as could not reasonably be expected to result in liabilities individually or in the aggregate to the Loan Parties in excess of $100,000. No Pension Plan has been terminated by the plan administrator thereof or by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan, except as could not reasonably be expected to result in liabilities individually or in the aggregate to the Loan Parties in excess of $100,000.
7.11. Compliance with Laws; Intellectual Property; Licenses.
(a) Each Loan Party has complied, and will continue at all times to comply, in all material respects with all provisions of all applicable laws and regulations, including those relating to the ownership of real or personal property, the conduct and licensing of each Loan Party’s business, the payment and withholding of Taxes, ERISA and other employee matters, and safety and environmental matters.
(b) No Loan Party has received written notice of default or violation, or is in default or violation, with respect to any judgment, order, writ, injunction, decree, demand or assessment issued by any court or any federal, state, local, municipal or other Governmental Authority relating to any aspect of any Loan Party’s business, affairs, properties or assets. No Loan Party has received written notice of or been charged with, or is, to the knowledge of any Loan Party, under investigation with respect to, any violation in any material respect of any provision of any applicable law.
(c) No Loan Party Obligor owns any Intellectual Property, except as set forth in Section 4 of the Perfection Certificate. Except as set forth in Section 4 of the Perfection Certificate, none of the Intellectual Property owned by any Loan Party Obligor is the subject of any licensing or franchise agreement pursuant to which such Loan Party Obligor is the licensor or franchisor. Each Loan Party Obligor shall promptly (but in any event within thirty (30) days thereafter) notify Agent in writing of any additional Intellectual Property rights acquired or arising after the Closing Date and shall submit to Agent a supplement to Section 4 of the Perfection Certificate to reflect such additional rights; provided, that such Loan Party Obligor’s failure to do so shall not impair Agent’s security interest therein. Each Loan Party Obligor shall execute a separate security agreement granting Agent a security interest in such Intellectual Property (whether owned on the Closing Date or thereafter), in form and substance reasonably acceptable to Agent and suitable for registering such security interest in such Intellectual Property with the United States Patent and Trademark Office and/or United States Copyright Office, as applicable; provided, that such Loan Party Obligor’s failure to do so shall not impair Agent’s security interest therein. Each Loan Party owns or has, and will at all times continue to own or have, the valid right to use all material patents, trademarks, copyrights, software, computer programs, equipment designs, network designs, equipment configurations, technology and other Intellectual Property used, marketed and sold in such Loan Party’s business, and each Loan Party is in compliance, and will continue at all times to comply, in all material respects with all licenses, user agreements and other such agreements regarding the use of Intellectual Property. No Loan Party has any knowledge that, or has received any notice claiming that, any of such Intellectual Property infringes upon or violates the rights of any other Person.
-48-
(d) Each Loan Party has and will continue at all times to have, all federal, state, local and other licenses and permits required to be maintained in connection with such Loan Party’s business operations, and all such licenses and permits are valid and in full force and effect. Each Loan Party has, and will continue at all times to have, complied with the requirements of such licenses and permits in all material respects, and has received no written notice of any pending or threatened proceedings for the suspension, termination, revocation or limitation thereof. No Loan Party is aware of any facts or conditions that could reasonably be expected to cause or permit any of such licenses or permits to be voided, revoked or withdrawn.
7.12. Litigation. Section 1(e) of the Perfection Certificate discloses all claims, proceedings, litigation or investigations pending or (to the best of each Loan Party Obligor’s knowledge) threatened against any Loan Party as of the Second Amendment Effective Date. There is no claim, suit, litigation, proceeding or investigation pending or (to the best of each Loan Party Obligor’s knowledge) threatened by or against or affecting any Loan Party in any court or before any Governmental Authority (or any basis therefor known to any Loan Party Obligor) which may result, either separately or in the aggregate, in liability in excess of $100,000 for the Loan Parties, in any Material Adverse Effect, or in any material impairment in the ability of any Loan Party to carry on its business in substantially the same manner as it is now being conducted.
7.13. Use of Proceeds. All proceeds of all Loans shall be used by Borrowers solely (a) to pay the fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents and the transactions contemplated hereby and thereby, (b) for Borrowers’ working capital purposes and (c) for such other purposes as specifically permitted pursuant to the terms of this Agreement. All proceeds of all Loans will be used solely for lawful business purposes.
7.14. Insurance.
(a) Each Loan Party will at all times carry property, liability and other insurance, with insurers reasonably acceptable to Agent, in such form and amounts, and with such deductibles and other provisions, as Agent shall reasonably require, but in any event, in such amounts and against such risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which such Loan Party operates, and each Borrower will provide Agent with evidence reasonably satisfactory to Agent that such insurance is, at all times, in full force and effect. A true and complete listing of such insurance as of the Second Amendment Effective Date, including issuers, coverages and deductibles, is set forth in Section 5 of the Perfection Certificate. Each property insurance policy shall name Agent as lender loss payee and shall contain a lender’s loss payable endorsement, each liability insurance policy shall name Agent as an additional insured, and each business interruption insurance policy shall be collaterally assigned to Agent, all in form and substance reasonably satisfactory to Agent. All policies of insurance shall provide that they may not be cancelled or changed without at least thirty (30) days’ (or, with respect to nonpayment of premiums, ten (10) days’) prior written notice to Agent, and shall otherwise be in form and substance reasonably satisfactory to Agent. Borrower Representative shall advise Agent promptly of any policy cancellation, non-renewal, reduction, or material amendment with respect to any insurance policies maintained by any Loan Party or any receipt by any Loan Party of any notice from any insurance carrier regarding any intended or threatened cancellation, non-renewal, reduction or material amendment of any of such policies, and Borrower Representative shall promptly deliver to Agent copies of all notices and related documentation received by any Loan Party in connection with the same.
(b) Borrower Representative shall deliver to Agent no later than fifteen (15) days prior to the expiration of any then current insurance policies, insurance certificates evidencing renewal of all such insurance policies required by this Section 7.14. Borrower Representative shall deliver to Agent, upon Agent’s request, certificates evidencing such insurance coverage in such form as Agent shall specify.
-49-
(c) IF ANY LOAN PARTY AT ANY TIME OR TIMES HEREAFTER SHALL FAIL TO OBTAIN OR MAINTAIN ANY OF THE POLICIES OF INSURANCE REQUIRED ABOVE (AND PROVIDE EVIDENCE THEREOF TO AGENT) OR TO PAY ANY PREMIUM RELATING THERETO, THEN AGENT, WITHOUT WAIVING OR RELEASING ANY OBLIGATION OR DEFAULT BY ANY BORROWER HEREUNDER, MAY (BUT SHALL BE UNDER NO OBLIGATION TO) OBTAIN AND MAINTAIN SUCH POLICIES OF INSURANCE AND PAY SUCH PREMIUMS AND TAKE SUCH OTHER ACTIONS WITH RESPECT THERETO AS AGENT DEEMS ADVISABLE UPON NOTICE TO BORROWER REPRESENTATIVE. SUCH INSURANCE, IF OBTAINED BY AGENT, MAY, BUT NEED NOT, PROTECT ANY LOAN PARTY’S INTERESTS OR PAY ANY CLAIM MADE BY OR AGAINST ANY LOAN PARTY WITH RESPECT TO THE COLLATERAL. SUCH INSURANCE MAY BE MORE EXPENSIVE THAN THE COST OF INSURANCE ANY LOAN PARTY MAY BE ABLE TO OBTAIN ON ITS OWN AND MAY BE CANCELLED ONLY UPON THE APPLICABLE LOAN PARTY PROVIDING EVIDENCE THAT IT HAS OBTAINED THE INSURANCE AS REQUIRED ABOVE. ALL SUMS DISBURSED BY AGENT IN CONNECTION WITH ANY SUCH ACTIONS, INCLUDING COURT COSTS, EXPENSES, OTHER CHARGES RELATING THERETO AND REASONABLE INTERNAL AND EXTERNAL ATTORNEY COSTS, SHALL CONSTITUTE LOANS HEREUNDER, SHALL BE PAYABLE ON DEMAND BY BORROWERS TO AGENT AND, UNTIL PAID, SHALL BEAR INTEREST AT THE HIGHEST RATE THEN APPLICABLE TO LOANS HEREUNDER.
7.15. Financial, Collateral and Other Reporting / Notices. Each Loan Party has kept, and will at all times keep, adequate records and books of account with respect to its business activities and the Collateral in which proper entries are made in accordance with GAAP reflecting all its financial transactions (except for the amortization of liquidated damages which is presented in sales and marketing for internal purposes and to the extent that equity expenses are not reflected in interim financial statements). Each Loan Party Obligor will cause to be prepared and furnished to Agent, in each case in a form and in such detail as is acceptable to Agent the following items:
(a) Annual Financial Statements. Not later than one hundred and eighty (180) days after the close of Fiscal Year 2018 and one hundred twenty (120) days after the close of each subsequent Fiscal Year, unqualified, audited financial statements of each Loan Party as of the end of such Fiscal Year, including balance sheet, income statement, and statement of cash flow for such Fiscal Year, in each case on a consolidated and consolidating basis, certified by a firm of independent certified public accountants of recognized standing selected by Borrowers but acceptable to Agent, together with a copy of any management letter issued in connection therewith. Concurrently with the delivery of such financial statements, Borrower Representative shall deliver to Agent a Compliance Certificate, indicating whether (i) Borrowers are in compliance with each of the covenants specified in Section 9, and setting forth a detailed calculation of such covenants and (ii) any Default or Event of Default is then in existence;
(b) Interim Financial Statements. Not later than thirty (30) days after the end of each month hereafter, including the last month of each Fiscal Year, unaudited interim financial statements of each Loan Party as of the end of such month and of the portion of such Fiscal Year then elapsed, including balance sheet, income statement, statement of cash flow, and results of their respective operations during such month and the then-elapsed portion of the Fiscal Year, together with comparative figures for the same periods in the immediately preceding Fiscal Year and the corresponding figures from the budget for the Fiscal Year covered by such financial statements, in each case on a consolidated and consolidating basis, certified by the principal financial officer of Borrower Representative as prepared in accordance with GAAP and fairly presenting the consolidated financial position and results of operations (including management discussion and analysis of such results) of each Loan Party for such month and period subject only to changes from ordinary course year-end audit adjustments and except that such statements need not contain footnotes. Concurrently with the delivery of such financial statements, Borrower Representative
-50-
shall deliver to Agent a Compliance Certificate, indicating whether (i) Borrowers are in compliance with each of the covenants specified in Section 9, and setting forth a detailed calculation of such covenants, and (ii) any Default or Event of Default is then in existence;
(c) Borrowing Base / Collateral Reports / Insurance Certificates / Perfection Certificates / Other Items. The items described on Annex I hereto by the respective dates set forth therein.
(d) Projections, Etc. Not later than ten (10) days prior to the end of each Fiscal Year, monthly business projections for the following Fiscal Year for the Loan Parties on a consolidated and consolidating basis, which projections shall include for each such period Borrowing Base and ABL Borrowing Base projections, profit and loss projections, balance sheet projections, income statement projections and cash flow projections;
(e) Shareholder Reports, Etc. Promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which each Loan Party has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which any Loan Party files with the Securities and Exchange Commission or any Governmental Authority which may be substituted therefor, or any national securities exchange;
(f) ERISA Reports. Copies of any annual report to be filed pursuant to the requirements of ERISA in connection with each Plan subject thereto promptly upon request by Agent and in addition, each Loan Party shall promptly notify Agent upon having knowledge of any ERISA Event; and
(g) Tax Returns. Each federal and state income tax return filed by any Loan Party or Other Obligor promptly (but in no event later than ten (10) days following the filing of such return), together with such supporting documentation as is supplied to the applicable tax authority with such return and proof of payment of any amounts owing with respect to such return.
(h) Notification of Certain Changes. Promptly (and in no case later than the earlier of (i) three (3) Business Days after the occurrence of any of the following and (ii) such other date that such information is required to be delivered pursuant to this Agreement or any other Loan Document) notification to Agent in writing of (A) the occurrence of any Default or Event of Default, (B) the occurrence of any event that has had, or may have, a Material Adverse Effect, (C) any change in any Loan Party’s officers or directors, (D) any investigation, action, suit, proceeding or claim (or any material development with respect to any existing investigation, action, suit, proceeding or claim) relating to any Loan Party, any officer or director of a Loan Party (in his or her capacity as an officer or director of a Loan Party), the Collateral or which may result in a Material Adverse Effect, (E) any material loss or damage to the Collateral, (F) any event or the existence of any circumstance that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect, any Default, or any Event of Default, or which would make any representation or warranty previously made by any Loan Party to Agent untrue in any material respect or constitute a material breach if such representation or warranty was then being made, (G) any actual or alleged breaches of any Material Contract or termination or threat to terminate any Material Contract or any material amendment to or modification of a Material Contract, or the execution of any new Material Contract by any Loan Party and (H) any change in any Loan Party’s certified independent accountant. In the event of each such notice under this Section 7.15(h), Borrower Representative shall give notice to Agent of the action or actions that each Loan Party has taken, is taking, or proposes to take with respect to the event or events giving rise to such notice obligation.
(i) Amendments to ABL Loan Documents. Promptly following the occurrence of such event, any amendment, waiver, supplement, or other modification of any ABL Loan Document (accompanied by a true, correct and complete copy thereof).
-51-
(j) Other Information. Promptly upon request, such other data and information (financial and otherwise) as Agent, from time to time, may reasonably request, bearing upon or related to the Collateral or each Loan Party’s and each Other Obligor’s business or financial condition or results of operations;
(k) Notices Under Material Contracts. Promptly upon any delivery to Loan Party or any of their Subsidiaries of any material notices under any Material Contract (including any notice of default or termination or intent to terminate), a written statement describing such event, with copies of such amendments, notices or new contracts (if applicable), delivered to Agent, and a description of any actions being taken pursuant thereto;
(l) Amendments to Third Lien Loan Documents. Promptly following the occurrence of such event, any amendment, waiver, supplement, or modification of any Third Lien Loan Document (accompanied by a true, correct and complete copy thereof);
(m) Notice Under Merger Agreement. Promptly upon any delivery to Loan Party or any of their Subsidiaries of any material notices under the Merger Agreement, a written statement describing such event, with copies of such notices or documents (if applicable), delivered to Agent, and a description of any actions being taken pursuant thereto; and
(n) Amendments of SEPA and Convertibles SPA. Promptly following the occurrence of such event, any amendment, waiver, supplement, or other modification of the SEPA or the Convertibles SPA (or any of the Transaction Documents (as defined therein)), in each case, accompanied by a true, correct and complete copy thereof.
7.16. Litigation Cooperation. Should any third-party suit, regulatory action, or any other judicial, administrative, or similar proceeding be instituted by or against Agent or any Lender with respect to any Collateral or in any manner relating to any Loan Party, this Agreement, any other Loan Document or the transactions contemplated hereby, each Loan Party Obligor shall, without expense to Agent or any Lender, make available each Loan Party, such Loan Party’s officers, employees and agents, and any Loan Party’s books and records, without charge, but only to the extent that Agent or such Lender may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding, subject in all events to confidentiality obligations owed to third-parties and preservation of the lawyer-client privilege between a Loan Party and its attorneys.
7.17. Maintenance of Collateral, Etc. Each Loan Party Obligor will maintain all of the Collateral in good working condition, ordinary wear and tear excepted, and no Loan Party Obligor will use the Collateral for any unlawful purpose.
7.18. Material Contracts. Except as expressly disclosed in Section 1(h) of the Perfection Certificate as of the Second Amendment Effective Date, no Loan Party is (a) a party to any contract which has had or could reasonably be expected to have a Material Adverse Effect or (b) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (x) any contract to which it is a party or by which any of its assets or properties is bound, which default, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or result in liabilities in excess of $100,000 or (y) any Material Contract. Except for the contracts and other agreements listed in Section 1(h) of the Perfection Certificate, no Loan Party is party, as of the Second Amendment Effective Date, to any (i) employment agreements covering the management of any Loan Party, (ii) collective bargaining agreements or other labor agreements covering any employees of any Loan Party, (iii) agreements for managerial, consulting or similar services to which any Loan Party is a party or by which it is bound, (iv) agreements regarding any Loan Party, its assets or operations or any investment therein to which any of its equity holders is a party, (v) patent licenses, trademark licenses, copyright
-52-
licenses or other lease or license agreements to which any Loan Party is a party, either as lessor or lessee, or as licensor or licensee, (vi) distribution, marketing or supply agreements to which any Loan Party is a party, (vii) customer agreements to which any Loan Party is a party (in each case with respect to any contract of the type described in the preceding clauses (i), (iii), (iv), (v), (vi) and (vii) requiring payments by or to any Loan Party of more than $2,500,000 in the aggregate in any Fiscal Year), (viii) partnership agreements to which any Loan Party is a partner, limited liability company agreements to which any Loan Party is a member or manager, or joint venture agreements to which any Loan Party is a party, (ix) real estate leases, (x) any Service Contract that has been assigned an Orderly Liquidation Value pursuant to an appraisal of Service Contracts delivered pursuant to this Agreement or (xi) any other contract to which any Loan Party is a party, in each case with respect to this clause (xi) the breach, nonperformance or cancellation of which, could reasonably be expected to have a Material Adverse Effect (each such contract and agreement, described in the preceding clauses (i) to (xi), a “Material Contract”). The Material Contracts listed in the Perfection Certificate are in full force and effect and there are no events of defaults thereunder or any event which with notice or passage of time, or both, would constitute an event of default thereunder.
7.19. No Default. No Default or Event of Default has occurred and is continuing.
7.20. No Material Adverse Change. Since December 31, 2017 there has been no material adverse change in the condition (financial or otherwise), business, operations, or properties of any Loan Party or any Other Obligor.
7.21. Full Disclosure. Excluding projections and other forward-looking information, pro forma financial information and information of a general economic or industry nature, no report, notice, certificate, information or other statement delivered or made (including, in electronic form) by or on behalf of any Loan Party, any Other Obligor or any of their respective Affiliates to Agent or any Lender in connection with this Agreement or any other Loan Document contains or will at any time contain any untrue statement of a material fact, or omits or will at any time omit to state any material fact necessary to make any statements contained herein or therein not misleading. Except for matters of a general economic or political nature which do not affect any Loan Party or any Other Obligor uniquely, there is no fact presently known to any Loan Party Obligor which has not been disclosed to Agent, which has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Any projections and other forward-looking information and pro forma financial information contained in such materials were prepared in good faith based upon assumptions that were believed by such Loan Party to be reasonable at the time prepared and at the time furnished in light of conditions and facts then known (it being recognized that such projections and other forward-looking information and pro forma financial information are not to be viewed as facts and that actual results during the period or periods covered by any such projections or information may differ from the projected results, and such differences may be material).
7.22. Sensitive Payments. No Loan Party (a) has made or will at any time make any contributions, payments or gifts to or for the private use of any governmental official, employee or agent where either the payment or the purpose of such contribution, payment or gift is illegal under the applicable laws of the United States or the jurisdiction in which made or any other applicable jurisdiction, (b) has established or maintained or will at any time establish or maintain any unrecorded fund or asset for any purpose or made any false or artificial entries on its books, (c) has made or will at any time make any payments to any Person with the intention that any part of such payment was to be used for any purpose other than that described in the documents supporting the payment or (d) has engaged in or will at any time engage in any “trading with the enemy” or other transactions violating any rules or regulations of the Office of Foreign Assets Control or any similar applicable laws, rules or regulations.
7.23. Holdings. Holdings does not and shall not at any time (a) engage in any business activities other than serving as a passive holding company for each applicable Loan Party, (b) have any material assets other than the outstanding shares of equity interests issued by each applicable Loan Party, (c) have
-53-
any Subsidiaries other than the other Loan Party Obligors or (d) have any material liabilities other than the Obligations, the ABL Obligations and the Third Lien Obligations.
7.24. Subordinated Debt.
(a) Borrower Representative has furnished Agent a true, correct and complete copy of each of the Subordinated Debt Documents. No statement or representation made in any of the Subordinated Debt Documents by any Borrower or any other Loan Party or, to any Borrower Representative’s knowledge, any other Person, contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading in any material respect as of the time that such statement or representation is made. Each of the representations and warranties of the Loan Parties set forth in each of the Subordinated Debt Documents are true and correct in all material respects. No portion of the Subordinated Debt is, or at any time shall be, (i) secured by any assets of any of the Loan Parties or any other Person or any equity issued by any of the Loan Parties or any other Person or (ii) guarantied by any Person (except to the extent expressly permitted by the applicable Subordinated Debt Subordination Agreement).
(b) The provisions of each Subordinated Debt Subordination Agreement are enforceable against each holder of the applicable Subordinated Debt. Each Borrower and each other Loan Party Obligor acknowledges that Agent is entering into this Agreement and extending credit and making the Loans in reliance upon this Section 7.24. All Obligations constitute senior Indebtedness entitled to the benefits of the subordination provisions contained in the Subordinated Debt Documents.
7.25. Access to Collateral, Books and Records. At reasonable times, Agent and its representatives or agents shall have the right to inspect the Collateral and to examine and copy each Loan Party’s books and records. Each Loan Party Obligor agrees to give Agent access to any or all of such Loan Party Obligor’s, and each of its Subsidiaries’, premises to enable Agent to conduct such inspections and examinations. Such inspections and examinations shall be at Borrowers’ expense. Agent may, at Borrowers’ expense, use each Loan Party’s personnel, computer and other equipment, programs, printed output and computer readable media, supplies and premises for the collection, sale or other disposition of Collateral to the extent Agent, in its sole discretion, deems appropriate. Each Loan Party Obligor hereby irrevocably authorizes all accountants and third parties to disclose and deliver to Agent, at Borrowers’ expense, all financial information, books and records, work papers, management reports and other information in their possession regarding the Loan Parties; provided, however, that in no event shall this constitute or be construed as a waiver of attorney-client privilege.
7.26. Appraisals. Each Loan Party Obligor will permit Agent and each of its representatives or agents to conduct appraisals and valuations of the Collateral at such times and intervals as Agent may designate (including any appraisals that may be required to comply with FIRREA). Such appraisals and valuations shall be at Borrowers’ expense.
7.27. Lender Meetings. Upon the request of any Agent or the Required Lenders (which request, so long as no Event of Default shall have occurred and be continuing, shall not be made more than once during each fiscal quarter), participate in a telephonic meeting with the Agents and the Lenders at such time as may be agreed to by Borrower Representative and such Agent or the Required Lenders.
7.28. Interrelated Businesses. Loan Parties make up a related organization of various entities constituting a single economic and business enterprise so that Loan Parties share an identity of interests such that any benefit received by any one of them benefits the others. From time to time each of the Loan Parties may render services to or for the benefit of the other Loan Parties, purchase or sell and supply goods to or from or for the benefit of the others, make loans, advances and provide other financial accommodations
-54-
to or for the benefit of the other Loan Parties (including inter alia, the payment by such Loan Parties of creditors of the other Loan Parties and guarantees by such Loan Parties of indebtedness of the other Loan Parties and provides administrative, marketing, payroll and management services to or for the benefit of the other Loan Parties). Loan Parties have the same centralized accounting and legal services, certain common officers and directors and generally do not provide stand-alone consolidating financial statements to creditors.
7.29. Post-Closing Matters. Loan Party Obligors shall complete each of the post-closing obligations and/or provide to Agent each of the documents, instruments, agreements and information listed on Annex III attached hereto, on or before the date set forth for each such item thereon, each of which shall be completed or provided in form and substance reasonably satisfactory to Agent.
7.30. Term Loan Push-Down Reserve. If at any time, and for so long as, the aggregate outstanding principal amount of the Loans exceeds the amount of the Borrowing Base, the Loan Party Obligors shall cause the ABL Agent to implement and maintain the Term Loan Push-Down Reserve.
7.31. ABL Obligations.
(a) Borrowers have furnished Agent a true, correct and complete copy of each of the ABL Loan Documents. The Liens securing the ABL Obligations and the guarantees of the ABL Obligations shall, in each case, be subject to the terms of the ABL Intercreditor Agreement.
(b) Borrowers and each other Loan Party Obligor acknowledge that Agent and Lenders are entering into this Agreement and extending credit and making the Loans in reliance upon the ABL Intercreditor Agreement and this Section 7.31.
7.32. Third Lien Obligations.
(a) Borrowers have furnished Agent a true, correct and complete copy of each of the Third Lien Loan Documents. The Third Lien Obligations and the Liens securing the Third Lien Obligations and the guarantees of the Third Lien Obligations shall, in each case, be subject to the terms of the Third Lien Subordination Agreement.
(b) Borrowers and each other Loan Party Obligor acknowledge that Agent and Lenders are entering into the Third Amendment in reliance upon the Third Lien Subordination Agreement and this Section 7.32.
7.33. Initial Issuance Transaction. On or before November 30, 2022, the Borrowers shall receive a contribution from Holdings (or any parent company of Holdings) of at least $4,960,000 from the net proceeds of the issuance of additional equity in the form of membership interests (or warrants therefor) in Holdings (or any parent company of Holdings).
7.34. S-1 Filing; Convertibles Registration Statement. The Borrower shall provide the Agent notice promptly upon each of the S-1 Filing and the Convertibles Registration Statement having become effective under the Securities Act and the rules and regulations promulgated thereunder.
7.35. Follow-on Issuance Transactions. On or before the S-1 Trigger Date, the Borrowers shall receive a contribution (the “Follow-on Contribution”) from Holdings (or any parent company of Holdings) of at least $25,000,000 from the net proceeds of the issuance of additional equity in the form of membership interests (or warrants therefor) in Holdings (or any parent company of Holdings) pursuant to a transaction or series of transactions of the type described in the Rodina Capital Financing Commitment Letter or similar commitment letter which has been entered into on or before the Fifth Amendment Effective Date, on such
-55-
additional terms and documentation as approved by the Agent; provided, however, that Holdings shall deliver to the Agent, on or before December 19, 2022 (or such later date as the Agent may agree in writing in its sole discretion), a binding agreement, in form and substance reasonably satisfactory to the Agent, setting forth the detailed terms for a portion of the Follow-on Contribution in an amount of at least $15,000,000 pursuant to a transaction or series of transactions of the type described in the Rodina Capital Financing Commitment Letter or similar commitment letter, with the net proceeds of such portion of the Follow-on Contribution to be contributed to the Borrowers from Holdings (or any parent company of Holdings) on or before the S-1 Trigger Date and in partial satisfaction of the Follow-on Contribution.
7.36. SEPA. During each week from and after the effectiveness of the SEPA Registration Statement until the Loans are paid in full, Holdings and the Borrowers shall (a) cause Rubicon Technologies, Inc. to (i) deliver notice to the SEPA Purchaser pursuant to and in accordance with the terms prescribed in Section 2.01 of the SEPA and (ii) to otherwise use reasonable best efforts to ensure that Rubicon Technologies, Inc. satisfies all conditions precedent set forth in Section 7.01 of the SEPA, in each case, in order to cause the SEPA Purchaser to purchase the maximum amount of equity interests of Rubicon Technologies, Inc. that may then be issued in accordance with the SEPA, and (b) cause Rubicon Technologies, Inc. to contribute to the Borrowers the Net Proceeds of such purchase and issuance of equity interests. After the effectiveness of the SEPA Registration Statement, on the first Business Day of each week, the Borrower Representative shall deliver to the Agent a certificate, duly executed by an authorized officer of the Borrower Representative, setting forth a reasonably detailed calculation of the maximum amount of equity interests that may be purchased by the SEPA Purchaser during such week pursuant to the SEPA.
7.37. Advisor Engagement. The Borrowers shall continue to engage the Berkeley Research Group, LLC as a consultant at all times as required by the Agent and with a scope of engagement satisfactory to the Agent.
7.38. SEPA Registration Statement. Holdings covenants and agrees to use its reasonable best efforts to (a) promptly (but in any event on or before the later of (i) twenty-five (25) Business Days after the Sixth Amendment Effective Date and (ii) five (5) Business Days after the Convertibles Registration Statement having become effective under the Securities Act and the rules and regulations promulgated thereunder, (or in any case such later date as may be approved in writing by the Agent)) cause Rubicon Technologies, Inc. to file a registration statement (the “SEPA Registration Statement”) with the SEC with respect to the resale of Class A Common Stock, par value $0.0001, of Rubicon Technologies, Inc., issuable pursuant to the SEPA and (b) to have such SEPA Registration Statement declared effective as soon as practicable after the filing thereof, and thereafter, to remain in effect. Without limiting the foregoing, upon the receipt of any comments by the SEC with respect to the SEPA Registration Statement (such comments an “SEC Comment Letter”), Holdings covenants and agrees to cause Rubicon Technologies, Inc. to (a) provide a copy of such SEC Comment Letter, on a confidential basis, to the Agent within one (1) business day following receipt of an SEC Comment Letter, and (b) respond to such SEC Comment Letter and file an amendment to the SEPA Registration Statement promptly (and in any event within ten (10) business days following Rubicon Technologies, Inc.’s receipt of an SEC Comment Letter); provided, however, that, with respect to Rubicon Technologies, Inc.’s obligations pursuant to clause (b), Holdings shall have a one-time right to extend any ten (10) business day response deadline by up to an additional five (5) business days with prior written notice to the Agent. In the event that Rubicon Technologies, Inc. is notified by the SEC that the SEPA Registration Statement will not be reviewed or is no longer subject to further review and comments, Holdings shall cause Rubicon Technologies, Inc. to as soon as practicable after receipt of notice thereof to request acceleration and effectiveness within three (3) business days thereafter.
8. NEGATIVE COVENANTS. No Loan Party Obligor shall, and no Loan Party Obligor shall permit any other Loan Party to:
-56-
(a) merge with or into another Person, Divide, or consolidate with another Person, form any new Subsidiary including by any Division thereof, or acquire any interest in any Person other than (i) a Permitted Acquisition; or (ii) the Permitted SPAC Merger;
(b) acquire all or a material portion of the assets or the business of any Person other than a Permitted Acquisition;
(c) acquire any assets except in the Ordinary Course of Business and as otherwise expressly permitted by this Agreement other than a Permitted Acquisition;
(d) substantially change the nature of the business in which it is presently engaged or enter into any transaction outside the Ordinary Course of Business that is not expressly permitted by this Agreement;
(e) sell, lease, assign, transfer, return, liquidate, or dispose of any Collateral or other assets with an aggregate value in excess of $100,000 in any calendar month, except that each Loan Party may (i) sell finished goods Inventory in the Ordinary Course of Business and (ii) dispose of worn-out or surplus Equipment to the extent that such Equipment is exchanged for credit against the purchase price of similar replacement Equipment or the proceeds of such disposition are promptly applied to the purchase price of such replacement Equipment;
(f) make any loans to, or investments in, any Affiliate or other Person in the form of money or other assets; provided, that (i) Borrowers may make loans to and investments in its wholly-owned domestic Subsidiaries that are Loan Party Obligors and (ii) Holdings may make investments in Borrowers;
(g) incur any Indebtedness other than the Obligations and Permitted Indebtedness;
(h) create, incur, assume or suffer to exist any Lien or other encumbrance of any nature whatsoever or authorize under the UCC of any jurisdiction a Financing Statement naming the Loan Party as debtor, or execute any security agreement authorizing any secured party thereunder to file such Financing Statement, other than in favor of Agent to secure the Obligations, on any of its assets whether now or hereafter owned, other than Permitted Liens;
(i) authorize, enter into, or execute any agreement giving a Secured Party control of a Deposit Account as contemplated by Section 9-104 of the UCC other than in favor of Agent to secure the Obligations and ABL Agent to secure the ABL Obligations, subject to the terms of the ABL Intercreditor Agreement;
(j) enter into any covenant or other agreement that restricts or is intended to restrict it from pledging or granting a security interest in, mortgaging, assigning, encumbering or otherwise creating a Lien on any of its property, whether, real or personal, tangible or intangible, existing or hereafter acquired, in favor of Agent;
(k) guaranty or otherwise become liable with respect to the obligations (other than (i) the Obligations, (ii) the ABL Obligations, subject to the terms of the ABL Intercreditor Agreement and (iii) the Third Lien Obligations, subject to the terms of the Third Lien Subordination Agreement) of another Person;
(l) pay or distribute any dividends or other distributions on any Loan Party’s stock or other equity interest (except for dividends payable solely in capital stock or other equity interests of such Loan Party and dividends and distributions to Borrowers from a Loan Party Obligor); provided, that notwithstanding the foregoing, Borrowers may declare and accrue any distribution or dividend for
-57-
members or shareholders; provided further that so long as no Default or Event of Default exists or would result therefrom, to the extent Holdings is treated as a flow-through entity for federal income tax purposes, the Loan Parties may make Permitted Tax Distributions;
(m) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Loan Party’s capital stock or other equity interests, except for redemptions of (i) “Incentive Units” (as defined in Holdings’ Governing Documents) in an aggregate amount, for all such redemptions after the Closing Date, not to exceed $250,000, or (ii) any other “Units” (as defined in Holdings’ Governing Documents) so long as no Default or Event of Default exists or would result therefrom and solely to the extent such redemptions are financed with the proceeds of equity interests of Holdings or Subordinated Debt permitted under clause (e) of the definition of Permitted Indebtedness;
(n) (i) agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of any ABL Loan Documents, except to the extent permitted under the ABL Intercreditor Agreement, or (ii) refinance or replace any ABL Obligations, except on terms permitted under the ABL Intercreditor Agreement, which refinancing or replacement of the ABL Obligations shall be subject to the ABL Intercreditor Agreement or another intercreditor agreement in form and substance acceptable to Agent;
(o) dissolve or elect to dissolve;
(p) engage, directly or indirectly, in a business other than the business which is being conducted on the date hereof, wind up its business operations or cease substantially all, or any material portion, of its normal business operations, or suffer any material disruption, interruption or discontinuance of a material portion of its normal business operations;
(q) pay any principal or other amount on any Indebtedness, the payment of which is contractually subordinated to the Obligations in violation of the applicable subordination or intercreditor agreement;
(r) enter into any transaction with an Affiliate other than on arms-length terms disclosed to Agent in writing;
(s) change its jurisdiction of organization or enter into any transaction which has the effect of changing its jurisdiction of organization except as provided for in Section 7.8;
(t) agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of any Loan Party’s Governing Documents, except for such amendments or other modifications required by applicable law or that are not materially adverse to Agent and Lenders, and then, only to the extent such amendments or other modifications are fully disclosed in writing to Agent no less than five (5) Business Days prior to being effectuated;
(u) enter into or assume any agreement prohibiting the creation or assumption of any Lien to secure the Obligations upon its properties or assets, whether now owned or hereafter acquired, except in connection with any document or instrument governing Liens permitted pursuant to clause (a) of the definition of Permitted Liens provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien;
(v) create or otherwise cause or suffer to exist or become effective any encumbrance or restriction of any kind on the ability of any such Person (i) to pay or make any dividends or distributions to any Borrower (other than pursuant to any Loan Document, ABL Loan Document or Third Lien Loan Document), (ii) to pay any of the Obligations, or (iii) to make loans or advances or to transfer any of its
-58-
property or assets to any Borrower (other than pursuant to any Loan Document, ABL Loan Document or Third Lien Loan Document);
(w) agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of (i) any Subordinated Debt Document in violation of the applicable Subordinated Debt Subordination Agreement or (ii) any ABL Loan Document in violation of the ABL Intercreditor Agreement; or
(x) (i) agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of any Third Lien Loan Document, except to the extent permitted under the Third Lien Subordination Agreement, or (ii) refinance or replace any Third Lien Obligations, except as permitted under the Third Lien Subordination Agreement, which refinancing or replacement of the Third Lien Obligations shall be subject to the Third Lien Subordination Agreement or another subordination agreement in form and substance acceptable to Agent.
9. FINANCIAL COVENANTS. Each Loan Party Obligor shall at all times comply with the following Financial Covenants:
9.1. Capital Expenditure Limitation. The Loan Parties shall not make any Capital Expenditures if, after giving effect to such Capital Expenditures, the aggregate cost of all Capital Expenditures of the Loan Parties would exceed $15,000,000 during any Fiscal Year.
9.2. Minimum Excess Availability. The Loan Parties shall not permit Excess Availability at any time to be less than the greater of (i) $4,000,000 and (ii) the lesser of $6,000,000 and eight percent (8%) of the ABL Borrowing Base then in effect (without giving effect to any Term Loan Push-Down Reserve).
10. RELEASE, LIMITATION OF LIABILITY AND INDEMNITY.
10.1. Release. Each Borrower and each other Loan Party Obligor on behalf of itself and its successors, assigns, heirs and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender and any and all Participants and Affiliates, and their respective successors and assigns, and their respective directors, members, managers, officers, employees, attorneys and agents, including without limitation each Agent-Related Person, and any other Person affiliated with or representing Agent or any Lender (collectively, the “Released Parties”) of and from any and all liability, including all actual or potential claims, demands or causes of action of any kind, nature or description whatsoever, whether arising in law or equity or under contract or tort or under any state or federal law or otherwise, which any Borrower or any Loan Party or any of their successors, assigns or other legal representatives has had, now has or has made claim to have against any of the Released Parties for or by reason of any act, omission, matter, cause or thing whatsoever, including any liability arising from acts or omissions pertaining to the transactions contemplated by this Agreement and the other Loan Documents, whether based on errors of judgment or mistake of law or fact, from the beginning of time to and including the Closing Date, whether such claims, demands and causes of action are matured or known or unknown. Notwithstanding any provision in this Agreement to the contrary, this Section 10.1 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans. Such release is made on the date hereof and remade upon each request for a Loan by any Borrower.
10.2. Limitation of Liability. In no circumstance will any of the Released Parties be liable for lost profits or other special, punitive, or consequential damages. Notwithstanding any provision in this Agreement to the contrary, this Section 10.2 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
-59-
10.3. Indemnity.
(a) Each Loan Party Obligor hereby agrees to indemnify the Released Parties and hold them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, costs and expenses (including internal and external attorneys’ fees), of every nature, character and description, which the Released Parties may sustain or incur based upon or arising out of any of the transactions contemplated by this Agreement or any other Loan Documents or any of the Obligations, any Collateral relating thereto, any drafts thereunder and any errors or omissions relating thereto, or any other matter, cause or thing whatsoever occurred, done, omitted or suffered to be done by Agent or any Lender relating to any Loan Party or the Obligations (except any such amounts sustained or incurred solely as the result of the gross negligence or willful misconduct of such Released Parties, as finally determined by a court of competent jurisdiction). Notwithstanding any provision in this Agreement to the contrary, this Section 10.3 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
(b) To the extent that any Loan Party Obligor fails to pay any amount required to be paid by it to Agent (or any Released Party of Agent) under paragraph (a) above, each Lender severally agrees to pay to Agent (or such Released Party), such Lender’s Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (it being understood that any such payment by the Lenders shall not relieve any Loan Party of any default in the payment thereof); provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against Agent in its capacity as such.
11. EVENTS OF DEFAULT AND REMEDIES.
11.1. Events of Default. The occurrence of any of the following events shall constitute an “Event of Default”:
(a) Payment. If any Loan Party Obligor or any Other Obligor fails to pay to Agent, when due, any principal or interest payment or any other monetary Obligation required under this Agreement or any other Loan Document;
(b) Breaches of Representations and Warranties. If any warranty, representation, statement, report or certificate made or delivered to Agent or any Lender by or on behalf of any Loan Party or any Other Obligor is untrue or misleading in any material respect (except where such warranty or representation is already qualified by Material Adverse Effect, materiality, dollar thresholds or similar qualifications, in which case such warranty or representation shall be accurate in all respects);
(c) Breaches of Covenants.
(i) If any Loan Party or any Other Obligor defaults in the due observance or performance of any covenant, condition or agreement contained in Section 5.2, 6.1, 6.6, 6.7, 7.2 (limited to the last sentence of Section 7.2), 7.3, 7.7, 7.8, 7.11(c), 7.13, 7.14, 7.15, 7.24, 7.25, 7.29, 7.30, 7.33, 7.34, 7.35, 7.36, 7.37, 7.38, 8 or 9; or
(ii) If any Loan Party or any Other Obligor defaults in the due observance or performance of any covenant, condition or agreement contained in any provision of this Agreement or any other Loan Document and not addressed in clauses Sections 11.1(a), (b) or (c)(i), and the continuance of such default unremedied for a period of ten (10) Business Days; provided, that such ten (10) Business Day grace period shall not be available for any default that is not reasonably capable of being cured within such period or for any intentional default;
-60-
(d) Judgment. If one or more judgments aggregating in excess of $100,000 is obtained against any Loan Party or any Other Obligor which remains unstayed for more than thirty (30) days or is enforced;
(e) Cross-Default. If any default occurs with respect to the ABL Obligations, Third Lien Obligations or any other Indebtedness (other than the Obligations or any Subordinated Debt) of any Loan Party or any Other Obligor if (i) such default shall consist of the failure to pay such Indebtedness when due, whether by acceleration or otherwise or (ii) the effect of such default is to permit the holder, with or without notice or lapse of time or both, to accelerate the maturity of any such Indebtedness or to cause such Indebtedness to become due prior to the stated maturity thereof (without regard to the existence of any subordination or intercreditor agreements);
(f) Death or Dissolution. The dissolution, death, termination of existence, insolvency or business failure or suspension or cessation of business as usual of any Loan Party or any Other Obligor (or of any general partner of any Loan Party or any Other Obligor if it is a partnership);
(g) Voluntary Bankruptcy or Similar Proceedings. If any Loan Party or any Other Obligor shall apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, admit in writing its inability to pay its debts as they mature, make a general assignment for the benefit of creditors, be adjudicated a bankrupt or insolvent or be the subject of an order for relief under the Bankruptcy Code or under any bankruptcy or insolvency law of a foreign jurisdiction, or file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing;
(h) Involuntary Bankruptcy or Similar Proceedings. The commencement of an involuntary case or other proceeding against any Loan Party or any Other Obligor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar applicable law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or if an order for relief is entered against any Loan Party or any Other Obligor under any bankruptcy, insolvency or other similar applicable law as now or hereafter in effect; provided, that if such commencement of proceedings is involuntary, such action shall not constitute an Event of Default unless such proceedings are not dismissed within forty-five (45) days after the commencement of such proceedings, though Agent and Lenders shall have no obligation to make Loans during such forty-five (45) day period or, if earlier, until such proceedings are dismissed;
(i) Revocation or Termination of Guaranty or Security Documents. The actual or attempted revocation or termination of, or limitation or denial of liability under, any guaranty of any of the Obligations, or any security document securing any of the Obligations, by any Loan Party or Other Obligor;
(j) Subordinated Debt; Third Lien Obligations.
(i) A default or event of default (as such terms are defined in the applicable Subordinated Debt Documents or the Third Lien Loan Agreement, as applicable) with respect to any Subordinated Debt or the Third Lien Obligations, as applicable, or the occurrence of any condition or event that results in the Subordinated Debt or the Third Lien Obligations, as applicable, becoming due prior to its scheduled maturity as of the Closing Date (or, in the case of the Third Lien Obligations, the Third Lien Debt Incurrence Date) or permits any holder or holders of the Subordinated Debt or the Third Lien Obligations, as applicable, or any trustee or agent on its or
-61-
their behalf to cause the Subordinated Debt or the Third Lien Obligations, as applicable, to become due, or require the prepayment, repurchase, redemption of defeasance thereof, prior to its scheduled maturity as of the Closing Date (or, in the case of the Third Lien Obligations, the Third Lien Debt Incurrence Date); or
(ii) If any Loan Party or Other Obligor makes any payment on account of any Indebtedness or obligation (including the Third Lien Obligations), the payment of which has been contractually subordinated to the Obligations other than payments which are not prohibited by the applicable subordination provisions pertaining thereto (or, in the case of the Third Lien Obligations, the Third Lien Subordination Agreement), or if any Person who has subordinated such Indebtedness or obligations attempts to limit or terminate any applicable subordination provisions pertaining thereto (or, in the case of the Third Lien Obligations, the Third Lien Subordination Agreement);
(k) Criminal Indictment or Proceedings. If there is any indictment of any Loan Party, any Loan Party’s officers, any Other Obligor or any Other Obligor’s officers under any criminal statute or commencement of criminal proceedings against any such Person;
(l) Change of Control. If (i) current equity owners as of the Closing Date collectively cease to, directly or indirectly, own and control at least 51% of the aggregate Voting Power represented by the issued and outstanding equity interests of Holdings on a fully diluted basis, (ii) such current equity owners as of the Closing Date collectively cease to possess the right to elect (through contract, ownership of voting securities or otherwise) at all times a majority of the board of directors (or similar governing body) of Holdings and to direct the management policies and decisions of Holdings, (iii) Holdings ceases to directly own and control one hundred percent (100%) of each class of the outstanding equity interests of Rubicon, CleanCo, Charter or International or (iv) Charter ceases to directly own and control one hundred percent (100%) of each class of the outstanding equity interests of RiverRoad;
(m) Change of Management. If (i) Phil Rodoni ceases to be employed as, and actively perform the duties of, the chief executive officer of Holdings, or (ii) Christopher Spooner ceases to be employed as, and actively perform the duties of, the vice president of finance of Holdings, in each case unless a successor is appointed within ninety (90) days after the termination of such individual’s employment and such successor is reasonably satisfactory to Agent;
(n) Invalid Liens. If any Lien purported to be created by any Loan Document shall cease to be a valid perfected Requisite Priority Lien (subject only to any priority accorded by law to Permitted Liens) on any material portion of the Collateral, or any Loan Party or any Other Obligor shall assert in writing that any Lien purported to be created by any Loan Document is not a valid perfected Requisite Priority Lien (subject only to any priority accorded by law to Permitted Liens) on the assets or properties purported to be covered thereby; except to the extent arising from or related to a failure to file continuation statements in connection with any UCC Financing Statement;
(o) Termination of Loan Documents. If any of the Loan Documents shall cease to be in full force and effect (other than as a result of the discharge thereof in accordance with the terms thereof or by written agreement of all parties thereto);
(p) Liquidation Sales. The determination by any Loan Party to employ an agent or other third party or otherwise engage any Person or solicit proposals for the engagement of any Person (i) in connection with the proposed liquidation all or a material portion of its assets, or (ii) to conduct any so-called liquidation or “Going-Out-Of-Business” sales;
-62-
(q) Loss of Collateral. The (i) uninsured loss, theft, damage or destruction of any of the Collateral, (ii) the insured loss, theft, damage or destruction of any of the Collateral in an amount in excess of $100,000 in the aggregate for all such events during any Fiscal Year, or (iii) except as permitted hereby, the sale, lease or furnishing under a contract of service of, any of the Collateral;
(r) Plans. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party or any Subsidiary under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $100,000, (ii) the existence of any Lien under Section 430(k) or Section 6321 of the Code or Section 303(k) or Section 4068 of ERISA on any assets of a Loan Party, or (iii) a Loan Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $100,000;
(s) ABL Intercreditor Agreement.
The lien subordination provisions of the ABL Intercreditor Agreement shall for any reason (other than as a result of any act or omission
of Agent or any Lender) be revoked or invalidated, or otherwise cease to be in full force and effect, or any Person, other than Agent
or any Lender, shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation
thereunder, or the Obligations or Liens of Agent, for any reason shall not have the priority contemplated by this Agreement or the ABL
Intercreditor Agreement;or
(t) Third Lien Subordination Agreement. The lien or payment subordination provisions of the Third Lien Subordination Agreement shall for any reason (other than as a result of any act or omission of Agent or any Lender) be revoked or invalidated, or otherwise cease to be in full force and effect, or any Person, other than Agent or any Lender, shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations or Liens of Agent, for any reason shall not have the priority contemplated by this Agreement or the Third Lien Subordination Agreement; or
(u) SEPA and Convertibles SPA. (i) Rubicon Technologies, Inc. shall exercise its right to terminate the SEPA pursuant to Section 10.01 of the SEPA, without the Agent’s prior written consent or (ii) Rubicon Technologies, Inc. agrees to any amendment, consent, waiver or other modification to the Convertibles SPA (or any of the Transaction Documents (as defined therein)) or the SEPA from and after the date hereof that reduces (or that has the effect of reducing) the maximum amount or permitted frequency of Advances under and as defined in SEPA.
11.2. Remedies with Respect to Lending Commitments/Acceleration, Etc. Upon the occurrence and during the continuation of an Event of Default, Agent may (in its sole discretion), or at the direction of Required Lenders, shall, (a) terminate all or any portion of its commitment to lend to or extend credit to Borrowers under this Agreement and/or any other Loan Document, without prior notice to any Loan Party and/or (b) demand payment in full of all or any portion of the Obligations (whether or not payable on demand prior to such Event of Default), together with the Prepayment Premium in the amount specified in the Agent Fee Letter and/or (c) take any and all other and further actions and avail itself of any and all rights and remedies available to Agent under this Agreement, any other Loan Document, under law or in equity. Notwithstanding the foregoing sentence, upon the occurrence of any Event of Default described in Section 11.1(g) or Section 11.1(h), without notice, demand or other action by Agent all of the Obligations (including the Prepayment Premium in the amount specified in the Agent Fee Letter) shall immediately become due and payable whether or not payable on demand prior to such Event of Default.
11.3. Remedies with Respect to Collateral. Without limiting any rights or remedies Agent or any Lender may have pursuant to this Agreement, the other Loan Documents, under applicable law or otherwise, upon the occurrence and during the continuation of an Event of Default:
-63-
(a) Any and All Remedies. Agent may take any and all actions and avail itself of any and all rights and remedies available to Agent under this Agreement, any other Loan Document, under law or in equity, and the rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by applicable law or otherwise.
(b) Collections; Modifications of Terms. Agent may, but shall be under no obligation to: (i) notify all appropriate parties that the Collateral, or any part thereof, has been assigned to, or is subject to a security interest in favor of, Agent; (ii) demand, sue for, collect and give receipts for and take all necessary or desirable steps to collect any Collateral or Proceeds in its or any Loan Party Obligor’s name, and apply any such collections against the Obligations as Agent may elect; (iii) take control of any Collateral and any cash and non-cash Proceeds of any Collateral; (iv) enforce, compromise, extend, renew settle or discharge any rights or benefits of each Loan Party Obligor with respect to or in and to any Collateral, or deal with the Collateral as Agent may deem advisable; and (v) make any compromises, exchanges, substitutions or surrenders of Collateral Agent deems necessary or proper in its reasonable discretion, including extending the time of payment, permitting payment in installments, or otherwise modifying the terms or rights relating to any of the Collateral, all of which may be effected without notice to, consent of, or any other action of any Loan Party and without otherwise discharging or affecting the Obligations, the Collateral or the security interests granted to Agent under this Agreement or any other Loan Document.
(c) Insurance. Agent may file proofs of loss and claim with respect to any of the Collateral with the appropriate insurer, and may endorse in its own and each Loan Party Obligor’s name any checks or drafts constituting Proceeds of insurance. Any Proceeds of insurance received by Agent may be applied by Agent against payment of all or any portion of the Obligations as Agent may elect in its reasonable discretion.
(d) Possession and Assembly of Collateral. Agent may take possession of the Collateral and/or, without removal, render each Loan Party Obligor’s Equipment unusable. Upon Agent’s request, each Loan Party Obligor shall assemble the Collateral and make it available to Agent at one or more places designated by Agent.
(e) Set-off. Agent may and, without any notice to, consent of or any other action by any Loan Party (such notice, consent or other action being expressly waived), set-off or apply (i) any and all deposits (general or special, time or demand, provisional or final) at any time held by or for the account of Agent or any Affiliate of Agent and (ii) any Indebtedness at any time owing by Agent or any Affiliate of Agent or any Participant in the Loans to or for the credit or the account of any Loan Party Obligor to the repayment of the Obligations, irrespective of whether any demand for payment of the Obligations has been made.
(f) Disposition of Collateral.
(i) Sale, Lease, etc. of Collateral. Agent may, without demand, advertising or notice, all of which each Loan Party Obligor hereby waives (except as the same may be required by the UCC or other applicable law and is not waivable under the UCC or such other applicable law), at any time or times in one or more public or private sales or other dispositions, for cash, on credit or otherwise, at such prices and upon such terms as determined by Agent (provided such price and terms are commercially reasonable within the meaning of the UCC to the extent such sale or other disposition is subject to the UCC requirements that such sale or other disposition must be commercially reasonable), (A) sell, lease, license or otherwise dispose of any and all Collateral and/or (B) deliver and grant options to a third party to purchase, lease, license or otherwise dispose of any and all Collateral. Agent may sell, lease, license or otherwise dispose of any Collateral in its then-present condition or following any preparation or processing deemed necessary by Agent
-64-
in its reasonable discretion. Agent may be the purchaser at any such public or private sale or other disposition of Collateral, and in such case Agent may make payment of all or any portion of the purchase price therefor by the application of all or any portion of the Obligations due to Agent to the purchase price payable in connection with such sale or disposition. Agent may, if it deems it reasonable, postpone or adjourn any sale or other disposition of any Collateral from time to time by an announcement at the time and place of the sale or disposition to be so postponed or adjourned without being required to give a new notice of sale or disposition; provided, that Agent shall provide the applicable Loan Party Obligor with written notice of the time and place of such postponed or adjourned sale or disposition. Each Loan Party Obligor hereby acknowledges and agrees that Agent’s compliance with any requirements of applicable law in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any sale, lease, license or other disposition of such Collateral.
(ii) Deficiency. Each Loan Party Obligor shall remain liable for all amounts of the Obligations remaining unpaid as a result of any deficiency of the Proceeds of the sale, lease, license or other disposition of Collateral after such Proceeds are applied to the Obligations as provided in this Agreement.
(iii) Warranties; Sales on Credit. Agent may sell, lease, license or otherwise dispose of the Collateral without giving any warranties and may specifically disclaim any and all warranties, including but not limited to warranties of title, possession, merchantability and fitness. Each Loan Party Obligor hereby acknowledges and agrees that Agent’s disclaimer of any and all warranties in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any such disposition of the Collateral. If Agent sells, leases, licenses or otherwise disposes of any of the Collateral on credit, Borrowers will be credited only with payments actually made in cash by the recipient of such Collateral and received by Agent and applied to the Obligations. If any Person fails to pay for Collateral acquired pursuant this Section 11.3(f) on credit, Agent may re-offer the Collateral for sale, lease, license or other disposition.
(g) Investment Property; Voting and Other Rights; Irrevocable Proxy.
(i) All rights of each Loan Party Obligor to exercise any of the voting and other consensual rights which it would otherwise be entitled to exercise in accordance with the terms hereof with respect to any Investment Property, and to receive any dividends, payments, and other distributions which it would otherwise be authorized to receive and retain in accordance with the terms hereof with respect to any Investment Property, shall immediately, at the election of Agent (without requiring any notice) cease, and all such rights shall thereupon become vested solely in Agent, and Agent (personally or through an agent) shall thereupon be solely authorized and empowered, without notice, to (A) transfer and register in its name, or in the name of its nominee, the whole or any part of the Investment Property, it being acknowledged by each Loan Party Obligor that any such transfer and registration may be effected by Agent through its irrevocable appointment as attorney-in-fact pursuant to Section 11.3(g)(ii) and Section 6.4, (B) exchange certificates or instruments representing or evidencing Investment Property for certificates or instruments of smaller or larger denominations, (C) exercise the voting and all other rights as a holder with respect to all or any portion of the Investment Property (including all economic rights, all control rights, authority and powers, and all status rights of each Loan Party Obligor as a member or as a shareholder (as applicable) of the Issuer), (D) collect and receive all dividends and other payments and distributions made thereon, (E) notify the parties obligated on any Investment Property to make payment to Agent of any amounts due or to become due thereunder, (F) endorse instruments in the name of each Loan Party Obligor to allow collection of any Investment Property, (G) enforce collection of any of the Investment Property by suit or otherwise, and surrender,
-65-
release, or exchange all or any part thereof, or compromise or renew for any period (whether or not longer than the original period) any liabilities of any nature of any Person with respect thereto, (H) consummate any sales of Investment Property or exercise any other rights as set forth in Section 11.3(f), (I) otherwise act with respect to the Investment Property as though Agent was the outright owner thereof and (J) exercise any other rights or remedies Agent may have under the UCC, other applicable law or otherwise.
(ii) EACH LOAN PARTY OBLIGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS AGENT AS ITS PROXY AND ATTORNEY-IN-FACT FOR SUCH LOAN PARTY OBLIGOR WITH RESPECT TO ALL OF EACH SUCH LOAN PARTY OBLIGOR’S INVESTMENT PROPERTY WITH THE RIGHT, DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, WITHOUT NOTICE, TO TAKE ANY OF THE FOLLOWING ACTIONS: (A) TRANSFER AND REGISTER IN AGENT’S NAME, OR IN THE NAME OF ITS NOMINEE, THE WHOLE OR ANY PART OF THE INVESTMENT PROPERTY, (B) VOTE THE PLEDGED EQUITY, WITH FULL POWER OF SUBSTITUTION TO DO SO, (C) RECEIVE AND COLLECT ANY DIVIDEND OR ANY OTHER PAYMENT OR DISTRIBUTION IN RESPECT OF, OR IN EXCHANGE FOR, THE INVESTMENT PROPERTY OR ANY PORTION THEREOF, TO GIVE FULL DISCHARGE FOR THE SAME AND TO INDORSE ANY INSTRUMENT MADE PAYABLE TO ANY LOAN PARTY OBLIGOR FOR THE SAME, (D) EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES, AND REMEDIES (INCLUDING ALL ECONOMIC RIGHTS, ALL CONTROL RIGHTS, AUTHORITY AND POWERS, AND ALL STATUS RIGHTS OF EACH LOAN PARTY OBLIGOR AS A MEMBER OR AS A SHAREHOLDER (AS APPLICABLE) OF THE ISSUER) TO WHICH A HOLDER OF THE PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING, WITH RESPECT TO THE PLEDGED EQUITY, GIVING OR WITHHOLDING WRITTEN CONSENTS OF MEMBERS OR SHAREHOLDERS, CALLING SPECIAL MEETINGS OF MEMBERS OR SHAREHOLDERS, AND VOTING AT SUCH MEETINGS), AND (E) TAKE ANY ACTION AND TO EXECUTE ANY INSTRUMENT WHICH AGENT MAY DEEM NECESSARY OR ADVISABLE TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT. THE APPOINTMENT OF AGENT AS PROXY AND ATTORNEY-IN-FACT IS COUPLED WITH AN INTEREST AND SHALL BE VALID AND IRREVOCABLE UNTIL (x) ALL OF THE OBLIGATIONS HAVE BEEN INDEFEASIBLY PAID IN FULL IN CASH IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND (y) AGENT AND LENDERS HAVE NO FURTHER OBLIGATIONS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (IT BEING UNDERSTOOD AND AGREED THAT SUCH OBLIGATIONS WILL BE AUTOMATICALLY REINSTATED IF AT ANY TIME PAYMENT, IN WHOLE OR IN PART, OF ANY OF THE OBLIGATIONS IS RESCINDED OR MUST OTHERWISE BE RESTORED OR RETURNED BY AGENT OR ANY LENDER FOR ANY REASON WHATSOEVER, INCLUDING AS A PREFERENCE, FRAUDULENT CONVEYANCE, OR OTHERWISE UNDER ANY BANKRUPTCY, INSOLVENCY, OR SIMILAR LAW, ALL AS THOUGH SUCH PAYMENT HAD NOT BEEN MADE; IT BEING FURTHER UNDERSTOOD THAT IN THE EVENT PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS IS RESCINDED OR MUST BE RESTORED OR RETURNED, ALL REASONABLE OUT-OF-POCKET COSTS AND EXPENSES (INCLUDING ALL REASONABLE INTERNAL AND EXTERNAL ATTORNEYS’ FEES AND DISBURSEMENTS) INCURRED BY AGENT AND LENDERS IN DEFENDING AND ENFORCING SUCH REINSTATEMENT SHALL HEREBY BE DEEMED TO BE INCLUDED AS A PART OF THE OBLIGATIONS). SUCH APPOINTMENT OF AGENT AS PROXY AND AS ATTORNEY-IN-FACT SHALL BE VALID AND IRREVOCABLE AS PROVIDED HEREIN NOTWITHSTANDING ANY LIMITATIONS TO THE CONTRARY SET FORTH IN ANY GOVERNING DOCUMENTS OF ANY LOAN PARTY OBLIGOR, ANY ISSUER, OR OTHERWISE.
-66-
(iii) In order to further effect the foregoing transfer of rights in favor of Agent, during the continuance of an Event of Default, each Loan Party Obligor hereby authorizes and instructs each Issuer of Investment Property pledged by such Loan Party Obligor to comply with any instruction received by such Issuer from Agent without any other or further instruction from such Loan Party Obligor, and each Loan Party Obligor acknowledges and agrees that each Issuer shall be fully protected in so complying, and to pay any dividends, distributions, or other payments with respect to any of the Investment Property directly to Agent.
(iv) Upon exercise of the proxy set forth herein, all prior proxies given by any Loan Party Obligor with respect to any of the Pledged Equity or other Investment Property, other than to Agent, are hereby revoked, and no subsequent proxies, other than to Agent will be given with respect to any of the Pledged Equity or any of the other Investment Property unless Agent otherwise subsequently agrees in writing. Agent, as proxy, will be empowered and may exercise the irrevocable proxy to vote the Pledged Equity and the other Investment Property at any and all times during the existence of an Event of Default, including, at any meeting of shareholders or members, as the case may be, however called, and at any adjournment thereof, or in any action by written consent, and may waive any notice otherwise required in connection therewith. To the fullest extent permitted by applicable law, Agent shall have no agency, fiduciary or other implied duties to any Loan Party Obligor, any Issuer, any Loan Party or any other Person when acting in its capacity as such proxy or attorney-in-fact. Each Loan Party Obligor hereby waives and releases any claims that it may otherwise have against Agent with respect to any breach, or alleged breach, of any such agency, fiduciary or other duty.
(v) Any transfer to Agent or its nominee, or registration in the name of Agent or its nominee, of the whole or any part of the Investment Property shall be made solely for purposes of effectuating voting or other consensual rights with respect to the Investment Property in accordance with the terms of this Agreement and is not intended to effectuate any transfer of ownership of any of the Investment Property. Notwithstanding the delivery by Agent of any instruction to any Issuer or any exercise by Agent of an irrevocable proxy or otherwise, Agent shall not be deemed the owner of, or assume any obligations or any liabilities whatsoever of the owner or holder of, any Investment Property unless and until Agent expressly accepts such obligations in a duly authorized and executed writing and agrees in writing to become bound by the applicable Governing Documents or otherwise becomes the owner thereof under applicable law (including through a sale as described in Section 11.3(f)). The execution and delivery of this Agreement shall not subject Agent to, or transfer or pass to Agent, or in any way affect or modify, the liability of any Loan Party Obligor under the Governing Documents of any Issuer or any related agreements, documents, or instruments or otherwise. In no event shall the execution and delivery of this Agreement by Agent, or the exercise by Agent of any rights hereunder or assigned hereby, constitute an assumption of any liability or obligation whatsoever of any Loan Party Obligor to, under, or in connection with any of the Governing Documents of any Issuer or any related agreements, documents, or instruments or otherwise.
(vi) Compliance with the Securities Act as now in effect or as hereafter amended, or any similar statute hereafter adopted with similar purpose or effect, as well as any applicable “Blue Sky” or other state securities laws, if applicable to the Collateral or the portion thereof being sold, may require strict limitations as to the manner in which the Agent or any subsequent transferee may dispose of the Collateral. With respect to any disposition as to which the Securities Act or analogous state securities laws is applicable, each Loan Party Obligor hereby waives any objection to sale in a compliant manner, and agrees that the Agent has no obligation to obtain the maximum possible price for the Collateral so long as the Agent proceeds in a commercially reasonable manner. Without limiting the generality of the foregoing, each Loan Party Obligor agrees that in conducting a disposition of the Collateral as to which the Securities
-67-
Act or analogous state securities laws applies, Agent may seek to sell the Collateral by private placement, and may restrict bidders and prospective purchasers to those who are willing to represent that they are purchasing for investment only and not for distribution and who otherwise satisfy qualifications designed to ensure compliance with the Securities Act and analogous state securities laws and those that may be established in the Issuer’s Governing Documents. Each Loan Party Obligor acknowledges that in order to protect Agent’s interest, it may be necessary to sell the Collateral at a price less than the maximum price attainable if a sale were delayed or were made in another manner, including, without limitation, a public offering under the Securities Act. In order to address these potential compliance requirements, Agent may solicit offers to purchase the Collateral from a limited number of bidders reasonably believed by Agent to be institutional investors or accredited investors. If Agent solicits offers in a commercially reasonable manner, then acceptance by Agent of one or more of the offers shall be deemed to be a commercially reasonable method of disposition of the Collateral and Agent will not be responsible or liable for selling all or any portion of the Collateral at a price that Agent deems in good faith to be reasonable. Agent is under no obligation to delay a disposition of any portion of the Collateral that are securities under the Securities Act or applicable “Blue Sky” or other state securities law for the period of time necessary to permit any Loan Party Obligor or the Issuer to register the securities for public sale under the Securities Act or under applicable “Blue Sky” or other state securities laws, even if a Loan Party Obligor or the Issuer agrees to do so. In addition, to the extent not prohibited by applicable law, each Loan Party Obligor waives any right to prior notice (except to the extent expressly provided in this Agreement) or judicial hearing in connection with the taking possession or the disposition of any of the Collateral, including any right which Loan Party Obligor otherwise would have.
(vii) To the extent permitted under applicable law, Agent is not required to conduct any foreclosure sale of the Investment Property or any portion thereof.
(viii) Agent, at its option, may obtain the appointment of a receiver to take possession of the Investment Property and, at the option of Agent, a receiver may be empowered (i) to collect, receive and enforce all distributions, (ii) to exercise the rights of Agent as provided in this Agreement, (iii) to collect all other amounts owed to any Loan Party Obligor in respect of the Investment Property as and when due to any Loan Party Obligor, (iv) to otherwise collect, sell or dispose of the Investment Property, (v) to exercise all rights in and under the Investment Property; and (vi) to turn over all net proceeds to Agent. Each Loan Party Obligor irrevocably and unconditionally agrees that a receiver may be appointed by a court to take the actions listed above without regard to the adequacy of the security for the Obligations, and the actions of the receiver may be taken in the name of the receiver, any Loan Party Obligor or Agent.
(ix) Agent may elect to conduct a sale of an economic interest in any Investment Property constituting limited liability company interests that does not result in the purchaser being admitted as a substitute limited liability company member in the Issuer, and that any sale or dispositions made in good faith will be considered commercially reasonable, notwithstanding the possibility that a substantially higher price might be realized if the purchaser were able to be admitted as a substitute limited liability company member rather than the holder of only an economic interest in the Issuer.
(x) Agent may disclose to prospective purchasers all of the information relating to the Investment Property (and the applicable Issuer) that is in the Agent’s possession or otherwise available to the Agent.
(xi) Each Loan Party Obligor hereby authorizes and instructs their respective Issuer to comply with any instruction received by it from Agent in writing that (i) states that an
-68-
Event of Default has occurred and is continuing and (ii) is otherwise in accordance with the terms of the provisions of this Agreement as to Investment Property, without any other or further instructions from the respective Loan Party Obligor, and such Loan Party Obligor agrees that Issuer be fully protected in so complying.
(h) Election of Remedies. Agent shall have the right in Agent’s sole discretion to determine which rights, security, Liens or remedies Agent may at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way impairing, modifying or affecting any of Agent’s other rights, security, Liens or remedies with respect to any Collateral or any of Agent’s rights or remedies under this Agreement or any other Loan Document.
(i) Agent’s Obligations. Each Loan Party Obligor agrees that Agent shall not have any obligation to preserve rights to any Collateral against prior parties or to marshal any Collateral of any kind for the benefit of any other creditor of any Loan Party Obligor or any other Person. Agent shall not be responsible to any Loan Party Obligor or any other Person for loss or damage resulting from Agent’s failure to enforce its Liens or collect any Collateral or Proceeds or any monies due or to become due under the Obligations or any other liability or obligation of any Loan Party Obligor to Agent.
(j) Waiver of Rights by Loan Party Obligors. Except as otherwise expressly provided for in this Agreement or by non-waivable applicable law, each Loan Party waives (i) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent on which any Loan Party Obligor may in any way be liable, and hereby ratifies and confirms whatever Agent may do in this regard, (ii) all rights to notice and a hearing prior to Agent’s taking possession or control of, or to Agent’s replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Agent to exercise any of its remedies and (iii) the benefit of all valuation, appraisal, marshaling and exemption laws. If any notice of a proposed sale or other disposition of any part of the Collateral is required under applicable law, each Loan Party Obligor agrees that ten (10) calendar days prior notice of the time and place of any public sale and of the time after which any private sale or other disposition is to be made is commercially reasonable.
12. LOAN GUARANTY.
12.1. Guaranty. Each Loan Party Obligor hereby agrees that it is jointly and severally liable for, and absolutely and unconditionally guaranties to Agent, for the ratable benefit of the Lenders, the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, all of the Obligations and all reasonable costs and expenses, including all court costs and reasonable attorneys’ and paralegals’ fees (including internal and external counsel and paralegals) and expenses of Agent or any Lender in endeavoring to collect all or any part of the Obligations from, or in prosecuting any action against, any Borrower, any Loan Party Obligor or any Other Obligor of all or any part of the Obligations (and such costs and expenses paid or incurred shall be deemed to be included in the Obligations). Each Loan Party Obligor further agrees that the Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guaranty notwithstanding any such extension or renewal. All terms of this Loan Guaranty apply to and may be enforced by or on behalf of any branch or Affiliate of Agent that extended any portion of the Obligations.
12.2. Guaranty of Payment. This Loan Guaranty is a guaranty of payment and not of collection. Each Loan Party Obligor waives any right to require Agent to sue or otherwise take action against any Borrower, any other Loan Party Obligor, any Other Obligor, or any other Person obligated for
-69-
all or any part of the Obligations, or otherwise to enforce its payment against any Collateral securing all or any part of the Obligations.
12.3. No Discharge or Diminishment of Loan Guaranty.
(a) Except as otherwise expressly provided for herein, the obligations of each Loan Party Obligor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of all of the Obligations), including: (i) any claim of waiver, release, extension, renewal, settlement, surrender, alteration, or compromise of any of the Obligations, by operation of law or otherwise; (ii) any change in the corporate existence, structure or ownership of any Borrower or any Obligor; (iii) any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Borrower or any Obligor or their respective assets or any resulting release or discharge of any obligation of any Borrower or any Obligor; or (iv) the existence of any claim, setoff or other rights which any Loan Party Obligor may have at any time against any Borrower, any Obligor, Agent, or any other Person, whether in connection herewith or in any unrelated transactions.
(b) The obligations of each Loan Party Obligor hereunder are not subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Obligations or otherwise, or any provision of applicable law or regulation purporting to prohibit payment by any Borrower or any Obligor of the Obligations or any part thereof.
(c) Further, the obligations of any Loan Party Obligor hereunder shall not be discharged or impaired or otherwise affected by: (i) the failure of Agent to assert any claim or demand or to enforce any remedy with respect to all or any part of the Obligations; (ii) any waiver or modification of or supplement to any provision of any agreement relating to the Obligations; (iii) any release, non-perfection or invalidity of any indirect or direct security for all or any part of the Obligations or all or any part of any obligations of any Obligor; (iv) any action or failure to act by Agent with respect to any Collateral; or (v) any default, failure or delay, willful or otherwise, in the payment or performance of any of the Obligations, or any other circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Loan Party Obligor or that would otherwise operate as a discharge of any Loan Party Obligor as a matter of law or equity (other than the indefeasible payment in full in cash of all of the Obligations).
12.4. Defenses Waived. To the fullest extent permitted by applicable law, each Loan Party Obligor hereby waives any defense based on or arising out of any defense of any Loan Party Obligor or the unenforceability of all or any part of the Obligations from any cause, or the cessation from any cause of the liability of any Loan Party Obligor, other than the indefeasible payment in full in cash of all of the Obligations. Without limiting the generality of the foregoing, each Loan Party Obligor irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Borrower, any Obligor, or any other Person. Each Loan Party Obligor confirms that it is not a surety under any state law and shall not raise any such law as a defense to its obligations hereunder. Agent may, at its election, foreclose on any Collateral held by it by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any Collateral, compromise or adjust any part of the Obligations, make any other accommodation with any Borrower or any Obligor or exercise any other right or remedy available to it against any Borrower or any Obligor, without affecting or impairing in any way the liability of any Loan Party Obligor under this Loan Guaranty except to the extent the Obligations have been fully and indefeasibly paid in cash. To the fullest extent permitted by applicable law, each Loan Party Obligor waives any defense arising out of any such election even though that election may operate, pursuant to applicable law, to impair or extinguish any right
-70-
of reimbursement or subrogation or other right or remedy of any Loan Party Obligor against any Borrower or any Obligor or any security.
12.5. Rights of Subrogation. No Loan Party Obligor will assert any right, claim or cause of action, including a claim of subrogation, contribution or indemnification that it has against any Borrower or any Obligor, or any Collateral, until the Termination Date.
12.6. Reinstatement; Stay of Acceleration. If at any time any payment of any portion of the Obligations is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or any other Person, or otherwise, each Loan Party Obligor’s obligations under this Loan Guaranty with respect to that payment shall be reinstated at such time as though the payment had not been made and whether or not Agent is in possession of this Loan Guaranty. If acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of any Borrower, all such amounts otherwise subject to acceleration under the terms of any agreement relating to the Obligations shall nonetheless be payable by the Loan Party Obligors forthwith on demand by Agent. This Section 12.6 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
12.7. Information. Each Loan Party Obligor assumes all responsibility for being and keeping itself informed of each Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that each Loan Party Obligor assumes and incurs under this Loan Guaranty, and agrees that Agent shall not have any duty to advise any Loan Party Obligor of information known to it regarding those circumstances or risks.
12.8. Termination. To the maximum extent permitted by law, each Loan Party Obligor hereby waives any right to revoke this Loan Guaranty as to future Obligations. If such a revocation is effective notwithstanding the foregoing waiver, each Loan Party Obligor acknowledges and agrees that (a) no such revocation shall be effective until written notice thereof has been received by Agent, (b) no such revocation shall apply to any Obligations in existence on the date of receipt by Agent of such written notice (including any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms or other terms and conditions thereof), (c) no such revocation shall apply to any Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Agent, (d) no payment by any Borrower, any other Loan Party Obligor, or from any other source, prior to the date of Agent’s receipt of written notice of such revocation shall reduce the maximum obligation of any Loan Party Obligor hereunder and (e) any payment, by any Borrower or from any source other than a Loan Party Obligor which has made such a revocation, made subsequent to the date of such revocation, shall first be applied to that portion of the Obligations as to which the revocation is effective and which are not, therefore, guarantied hereunder, and to the extent so applied shall not reduce the maximum obligation of any Loan Party Obligor hereunder.
12.9. Maximum Liability. The provisions of this Loan Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Loan Party Obligor under this Loan Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Loan Party Obligor’s liability under this Loan Guaranty, then, notwithstanding any other provision of this Loan Guaranty to the contrary, the amount of such liability shall, without any further action by the Loan Party Obligors, Agent or any Lender, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Loan Party Obligor’s “Maximum Liability”). This Section 12.9 with respect to the Maximum Liability of each Loan Party Obligor is intended solely to preserve the rights of Agent and the Lenders to the maximum extent not subject to avoidance under applicable law, and no Loan Party Obligor or any other Person shall have any right or
-71-
claim under this Section with respect to such Maximum Liability, except to the extent necessary so that the obligations of any Loan Party Obligor hereunder shall not be rendered voidable under applicable law. Each Loan Party Obligor agrees that the Obligations may at any time and from time to time exceed the Maximum Liability of each Loan Party Obligor without impairing this Loan Guaranty or affecting the rights and remedies of Agent hereunder; provided, that nothing in this sentence shall be construed to increase any Loan Party Obligor’s obligations hereunder beyond its Maximum Liability.
12.10. Contribution. In the event any Loan Party Obligor shall make any payment or payments under this Loan Guaranty or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty (such Loan Party Obligor a “Paying Guarantor”), each other Loan Party Obligor (each a “Non-Paying Guarantor”) shall contribute to such Paying Guarantor an amount equal to such Non-Paying Guarantor’s “Applicable Payment Percentage” of such payment or payments made, or losses suffered, by such Paying Guarantor. For purposes of this Section 12.10, each Non-Paying Guarantor’s “Applicable Payment Percentage” with respect to any such payment or loss by a Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (x) such Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Non-Paying Guarantor’s Maximum Liability has not been determined, the aggregate amount of all monies received by such Non-Paying Guarantor from any Borrower after the date hereof (whether by loan, capital infusion or by other means) to (y) the aggregate Maximum Liability of all Loan Party Obligors hereunder (including such Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Loan Party Obligor, the aggregate amount of all monies received by such Loan Party Obligors from any Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any Loan Party Obligor’s several liability for the entire amount of the Obligations (up to such Loan Party Obligor’s Maximum Liability). Each of the Loan Party Obligors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a Non-Paying Guarantor shall be subordinate and junior in right of payment to the payment in full in cash of all of the Obligations. This provision is for the benefit of Agent and the Lenders and the Loan Party Obligors and may be enforced by any one, or more, or all of them, in accordance with the terms hereof.
12.11. Liability Cumulative. The liability of each Loan Party Obligor under this Section 12 is in addition to and shall be cumulative with all liabilities of each Loan Party Obligor to Agent and the Lenders under this Agreement and the other Loan Documents to which such Loan Party Obligor is a party or in respect of any obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.
13. PAYMENTS FREE OF TAXES; OBLIGATION TO WITHHOLD; PAYMENTS ON ACCOUNT OF TAXES.
(a) Any and all payments by or on account of any obligation of the Loan Party Obligors hereunder or under any other Loan Document shall to the extent permitted by applicable laws be made free and clear of and without reduction or withholding for any Taxes. If, however, applicable laws require the Loan Party Obligors to withhold or deduct any Tax, such Tax shall be withheld or deducted in accordance with such laws as the case may be, upon the basis of the information and documentation to be delivered pursuant to subsection (e) below.
(b) If any Loan Party Obligor shall be required by applicable law to withhold or deduct any Taxes from any payment, then (i) such Loan Party Obligor shall withhold or make such deductions as are required based upon the information and documentation it has received pursuant to subsection (e) below, (ii) such Loan Party Obligor shall timely pay the full amount withheld or deducted to the relevant
-72-
Governmental Authority in accordance with the applicable law and (iii) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the Loan Party Obligors shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section) the Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made. As soon as practicable after any payment of Taxes by any Loan Party Obligor to a Governmental Authority pursuant to this Section, Borrower Representative shall deliver to Agent (or, upon request, such other Recipient), the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment of Taxes, a copy of any return required by applicable law to report such payment or other evidence of such payment reasonably satisfactory to Agent (or such other Recipient).
(c) Without limiting the provisions of subsections (a) and (b) above, the Loan Party Obligors shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of Agent timely reimburse it for the payment of, any Other Taxes.
(d) Without limiting the provisions of subsections (a) through (c) above, each Loan Party Obligor shall, and does hereby, on a joint and several basis, indemnify Agent, each Lender and each other Recipient (and their respective directors, officers, employees, affiliates and agents) and shall make payment in respect thereof within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes and Other Taxes (including Indemnified Taxes and Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid or incurred by Agent, any Lender or any other Recipient on account of, or in connection with any Loan Document or a breach by a Loan Party Obligor thereof, and any penalties, interest and related expenses and losses arising therefrom or with respect thereto (including the fees, charges and disbursements of any internal or external counsel or other tax advisor for Agent, any Lender or any other Recipient (or their respective directors, officers, employees, affiliates, and agents)), whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of any such payment or liability delivered to Borrower Representative shall be conclusive absent manifest error. Notwithstanding any provision in this Agreement to the contrary, this Section 13 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
(e) Each Lender shall deliver to Borrower Representative and each Lender and each Participant shall deliver to Agent, at the time or times prescribed by applicable laws or as reasonably requested by Agent, such properly completed and executed documentation prescribed by applicable laws or by the taxing authorities of any jurisdiction and such other reasonably requested information as will permit Borrower Representative or Agent, as the case may be, to determine (x) whether or not payments made hereunder or under any other Loan Document are subject to Taxes, (y) if applicable, the required rate of withholding or deduction and (z) such Lender's or Participant's entitlement to any available exemption from, or reduction of, applicable Taxes in respect of all payments to be made to such Recipient by the Loan Party Obligors pursuant to this Agreement or otherwise to establish such Recipient's status for withholding tax purposes in the applicable jurisdiction; provided, that each Recipient shall only be required to deliver such documentation as it may legally provide. Without limiting the generality of the foregoing, if a Borrower is resident for tax purposes in the United States:
(i) each Lender (or Participant) that is a “United States person” within the meaning of Section 7701(a)(30) of the Code shall deliver to Borrower Representative and Agent (or any Lender granting a participation as applicable) an executed original of Internal Revenue Service Form W-9 or such other documentation or information prescribed by applicable law or reasonably requested by Borrower Representative or Agent (or Lender granting a participation) as will enable Borrower Representative or Agent (or Lender granting a participation) as the case may be, to determine whether or not such Lender (or Participant) is subject to backup withholding or information reporting requirements under the Code;
-73-
(ii) each Lender (or Participant) that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code (a “Non-U.S. Recipient”) shall deliver to Borrower Representative and Agent (or any Lender granting a participation in case the Non-U.S. Recipient is a Participant) on or prior to the date on which such Non-U.S. Person becomes a party to this Agreement or a Participant (and from time to time thereafter upon the reasonable request of Borrower Representative or Agent but only if such Non-U.S. Recipient is legally entitled to do so), whichever of the following is applicable: (A) executed originals of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party; (B) executed originals of Internal Revenue Service Form W-8ECI; (C) executed originals of Internal Revenue Service Form W-8IMY and all required supporting documentation; (D) each Non-U.S. Recipient claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, shall provide (x) a certificate to the effect that such Non-U.S. Recipient is not (1) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (2) a “10 percent shareholder” of Borrowers within the meaning of section 881(c)(3)(B) of the Code, or (3) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) executed originals of Internal Revenue Service Form W-8BEN; and/or (E) executed originals of any other form prescribed by applicable law (including FATCA) as a basis for claiming exemption from or a reduction in United States Federal withholding tax together with such supplementary documentation as may be prescribed by applicable law to permit Borrower Representative or Agent to determine the withholding or deduction required to be made. Each Non-U.S. Recipient shall promptly notify Borrower Representative and Agent (or any Lender granting a participation if the Non-U.S. Recipient is a Participant) of any change in circumstances which would modify or render invalid any claimed exemption or reduction.
(f) If a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to Borrower Representative and Agent at the time or times prescribed by applicable laws and at such time or times reasonably requested by Borrower Representative or Agent such documentation prescribed by applicable laws (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Borrower Representative or Agent as may be necessary for Borrower Representative and 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 this subsection (f), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
14. AGENT
14.1. Appointment. Each of the Lenders hereby irrevocably appoints Agent as its agent and authorizes Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Without limiting the generality of the foregoing, Agent shall have the sole and exclusive authority to (a) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection with the Loan Documents; (b) execute and deliver as Agent, each Loan Document, including any intercreditor or subordination agreement, and accept delivery of each Loan Document; (c) make Loans, for itself or on behalf of Lenders, as provided in the Loan Documents, (d) act as collateral agent for Lenders for purposes of perfecting and administering Liens under the Loan Documents, and for all other purposes stated therein and execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents; (e) manage, supervise or otherwise deal with Collateral; (f) exclusively receive, apply, and distribute payments and
-74-
proceeds of the Collateral as provided in the Loan Documents, (g) open and maintain such bank accounts and cash management arrangements as Agent deems necessary and appropriate in accordance with the Loan Documents, (h) take any Enforcement Action or otherwise exercise any rights or remedies with respect to any Collateral or under any Loan Documents, applicable law or otherwise, including the determination of eligibility of Accounts, the necessity and amount of Reserves and all other determinations and decisions relating to ordinary course administration of the credit facilities contemplated hereunder; and (i) incur and pay such expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents, whether or not any Loan Party is obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Documents or otherwise. The provisions of this Article are solely for the benefit of Agent and the Lenders, and the Loan Parties shall not have rights as a third-party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” as used herein or in any other Loan Documents (or any similar term) with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.
14.2. Rights as a Lender. The Person serving as Agent hereunder, if it is a Lender, shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Loan Party or any Subsidiary or any Affiliate thereof as if it were not Agent hereunder without notice to or consent of the other Lenders.
14.3. Duties and Obligations. Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that Agent is required to exercise as directed in writing by the Required Lenders, and, (c) except as expressly set forth in the Loan Documents, Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any Subsidiary that is communicated to or obtained by the Person serving as Agent or any of its Affiliates in any capacity. Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence or willful misconduct as determined by a final nonappealable judgment of a court of competent jurisdiction. Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to Agent by a Borrower or a Lender, and Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to Agent. Agent shall be under no obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the books and records or properties of any Loan Party.
14.4. Reliance. Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. Agent may consult with and employ Agent Professionals, and
-75-
shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any advice given by an Agent Professional (who may be counsel for any Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document, unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.
14.5. Actions through Sub-Agents. Agent may perform any and all of its duties and exercise its rights and powers by or through any one or more sub-agents appointed by Agent. Agent may also perform its duties through employees and other Agent-Related Persons. Agent shall not be responsible for the negligence or misconduct of any sub-agent, employee or Agent Professional that it selects as long as such selection was made without gross negligence or willful misconduct. Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Affiliates and other related parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the related parties of Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent.
14.6. Resignation. Subject to the appointment and acceptance of a successor Agent as provided in this paragraph, Agent may resign at any time by notifying the Lenders and Borrower Representative. Upon any such resignation, the Required Lenders shall have the right, in consultation with Borrower Representative, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of its appointment as Agent hereunder by its successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. The fees payable by Borrowers to a successor Agent shall be the same as those payable to its predecessor, unless otherwise agreed by Borrower Representative and such successor. Notwithstanding the foregoing, in the event no successor Agent shall have been so appointed and shall have accepted such appointment within thirty (30) days after the retiring Agent gives notice of its intent to resign, the retiring Agent may give notice of the effectiveness of its resignation to the Lenders and Borrower Representative, whereupon, on the date of effectiveness of such resignation stated in such notice, (a) the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents, provided that, solely for purposes of maintaining any security interest granted to the Agent under any Loan Document for the benefit of the Lenders, the retiring Agent shall continue to be vested with such security interest as collateral agent for the benefit of the Lenders and, in the case of any Collateral in the possession of Agent, shall continue to hold such Collateral, in each case until such time as a successor Agent is appointed and accepts such appointment in accordance with this paragraph (it being understood and agreed that the retiring Agent shall have no duly or obligation to take any further action under any Loan Document, including any action required to maintain the perfection of any such security interest), and (b) the Required Lenders shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, provided that (i) all payments required to be made hereunder or under any other Loan Document to the Agent for the account of any Person other than Agent shall be made directly to such Person and (ii) all notices and other communications required or contemplated to be given or made to Agent shall also directly be given or made to each Lender. Following the effectiveness of the Agent’s resignation from its capacity
-76-
as such, the provisions of this Article, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective related parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent and in respect of the matters referred to in the proviso under clause (a) above.
14.7. Non-Reliance.
(a) Each Lender acknowledges and agrees that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrowers and their respective Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender further acknowledges the extensions of credit made hereunder are commercial loans and not investments in a business enterprise or securities. Each Lender further represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently and without reliance upon any Agent-Related Person, any arranger of this credit facility or any amendment thereto or any other Lender and based on such due diligence, documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of any Borrower or any other Person party to a Loan Document, and all applicable laws relating to the transactions contemplated hereby, and made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender shall, independently and without reliance upon any Agent-Related Person, any arranger of this credit facility or any amendment thereto or any other Lender and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning any Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its own credit analysis and decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder , and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of any Borrower or any other Person party to a Loan Document and in deciding whether or to the extent to which it will continue as a Lender or assign or otherwise transfer its rights, interests and obligations hereunder. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Borrower or any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. Each Lender acknowledges that Agent does not have any duty or responsibility, either initially or on a continuing to provide such Lender with any credit or other information with respect to any Borrower, its Affiliates or any of their respective business, legal, financial or other affairs, and irrespective of whether such information came into Agent’s or its Affiliates’ or representatives’ possession before or after the date on which such Lender became a party to this Agreement.
(b) Each Lender hereby agrees that (i) it has requested a copy of each appraisal, audit or field examination report prepared by or on behalf of Agent; (ii) Agent (A) makes no representation or warranty, express or implied, as to the completeness or accuracy of any such report or any of the information contained therein or any inaccuracy or omission contained in or relating to any such report and (B) shall not be liable for any information contained in any such report; (iii) such reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties’ books and records, as well as on representations of the Loan Parties’ officer certificates and Loan Documents provided hereunder and that Agent undertakes no obligation to update, correct or supplement such reports; (iv) it will keep all such reports confidential and strictly for its internal use, not share any such report with any Loan Party or any other Person except as otherwise permitted pursuant to this Agreement; and (v) without
-77-
limiting the generality of any other indemnification provision contained in this Agreement, (A) it will hold Agent and any such other Person preparing any such report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any such report in connection with any extension of credit that the indemnifying Lender has made or may make to any Borrower, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a Loan or Loans; and (B) it will pay and protect, and indemnify, defend, and hold Agent and any such other Person preparing any such report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorneys’ fees of both internal and external counsel) of Agent or any such other Person as the direct or indirect result of any third parties who might obtain all or part of any such report through the indemnifying Lender.
14.8. Not Partners or Co-Venturers; Agent as Representative of the Secured Parties.
(a) The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of Agent) authorized to act for, any other Lender. Agent shall have the exclusive right on behalf of the Lenders to enforce the payment of the principal of and interest on any Loan after the date such principal or interest has become due and payable pursuant to the terms of this Agreement.
(b) In its capacity, Agent is a “representative” of the Lenders within the meaning of the term “secured party” as defined in the UCC. Each Lender authorizes Agent to enter into each of the Loan Documents to which it is a party and to take all action contemplated by such documents. Each Lender agrees that no Lender (other than Agent) shall have the right individually to seek to realize upon the security granted by any Loan Document, it being understood and agreed that such rights and remedies may be exercised solely by Agent for the benefit of the Lenders upon the terms of the Loan Documents. In the event that any Collateral is hereafter pledged by any Person as collateral security for the Obligations, Agent is hereby authorized, and hereby granted a power of attorney, to execute and deliver on behalf of the Lenders any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of Agent on behalf of the Lenders.
(c) Agent hereby appoints each other Lender as its agent (and each Lender hereby accepts such appointment) for the purpose of perfecting Agent’s Liens in assets which, in accordance with Article 8 or Article 9, as applicable, of the UCC can be perfected by possession or control. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent’s request therefor shall deliver possession or control of such Collateral to Agent or in accordance with Agent’s instructions. Agent shall have no obligation whatsoever to any of the Lenders (i) to verify or assure that the Collateral exists or is owned by any Borrower or its Subsidiaries or is cared for, protected, or insured or has been encumbered, (ii) to verify or assure that Agent’s Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, (iii) to verify or assure that any particular items of Collateral meet the eligibility criteria applicable in respect thereof, (iv) to impose, maintain, increase, reduce, implement or eliminate any particular reserve hereunder or to determine whether the amount of any reserve is appropriate or not, or (v) 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 pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein,
14.9. Credit Bidding. The Loan Parties and the Lenders hereby irrevocably authorize Agent, during the continuance of an Event of Default and in exercise of remedies permitted under Section 12 of this Agreement or applicable law, based upon the instruction of the Required Lenders, to Credit Bid and purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (and the Loan Parties shall approve Agent as a qualified bidder and such Credit Bid as qualified bid) at any
-78-
sale thereof conducted by Agent, based upon the instruction of the Required Lenders, under any provisions of the UCC, as part of any sale or investor solicitation process conducted by any Loan Party, any interim receiver, receiver, receiver and manager, administrative receiver, trustee, agent or other Person pursuant or under any insolvency laws; provided, however, that (i) the Required Lenders may not direct Agent in any manner that does not treat each of the Lenders equally, without preference or discrimination, in respect of consideration received as a result of the Credit Bid, (ii) the acquisition documents shall be commercially reasonable and contain customary protections for minority holders such as among other things, anti-dilution and tag-along rights, (iii) the exchanged debt or equity securities must be freely transferable, without restriction (subject to applicable securities laws) and (iv) reasonable efforts shall be made to structure the acquisition in a manner that causes the governance documents pertaining thereto to not impose any obligations or liabilities upon the Lenders individually (such as indemnification obligations). Agent, based upon the instruction of the Required Lenders, may accept non-cash consideration, including debt and equity securities issued by any entities used to consummate such Credit Bid or purchase and in connection therewith Agent may reduce the Obligations owed to the Lenders (ratably based upon the proportion of their Obligations credit bid in relation to the aggregate amount of Obligations so credit bid) based upon the value of such non-cash consideration. For purposes of the preceding sentence, the term “Credit Bid” shall mean, an offer submitted by Agent (on behalf of the Lender group), based upon the instruction of the Required Lenders, to acquire the property of any Loan Party or any portion thereof in exchange for and in full and final satisfaction of all or a portion (as determined by Agent, based upon the instruction of the Required Lenders) of the claims and Obligations under this Agreement and other Loan Documents.
14.10. Certain Collateral Matters. The Lenders irrevocably authorize Agent, at its option and in its discretion, (a) to release any Lien granted to or held by Agent under any Loan Document (i) upon payment in full of all Loans and all other obligations of Borrowers hereunder; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder (including the release of any guarantor); (iii) subject to Section 15.5 if approved, authorized or ratified in writing by the Required Lenders; or (iv) to the extent required under the terms of the ABL Intercreditor Agreement; (b) to subordinate its interest in any Collateral to any holder of a Lien on such Collateral which is permitted by clause (a) of the definition of Permitted Liens (it being understood that Agent may conclusively rely on a certificate from Borrower Representative in determining whether the Indebtedness secured by any such Lien is permitted hereunder); and (c) enter into and perform, or take any other actions in connection with, the ABL Intercreditor Agreement, Third Lien Subordination Agreement and any Subordinated Debt Subordination Agreement. Each Lender hereby agrees, solely for the benefit of Agent, that it will be bound by and will take no actions contrary to the provisions of the ABL Intercreditor Agreement, Third Lien Subordination Agreement or any Subordinated Debt Subordination Agreement. Upon request by Agent at any time, the Lenders will confirm in writing Agent’s authority to release, or subordinate its interest in, particular types or items of Collateral pursuant to this Section 14.10. Agent may, and at the direction of Required Lenders shall, give blockage notices in connection with any Subordinated Debt and each Lender hereby authorizes Agent to give such notices. Each Lender further agrees that it will not act unilaterally to deliver such notices.
14.11. Restriction on Actions by Lenders. Each Lender agrees that it shall not, without the express written consent of Agent, and shall, upon the written request of Agent (to the extent it is lawfully entitled to do so), set off against the Obligations, any amounts owing by such Lender to a Loan Party or any deposit accounts of any Loan Party now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so in writing by Agent, take or cause to be taken, any action, including the commencement of any legal or equitable proceedings to foreclose any loan or otherwise enforce any security interest in any of the Collateral or to enforce all or any part of this Agreement or the other Loan Documents. All Enforcement Actions under this Agreement and the other Loan Documents against the Loan Parties or any third party with respect to the Obligations or the Collateral may only be taken by Agent (at the direction of the Required Lenders or as otherwise permitted in this Agreement) or by its agents at the direction of Agent.
-79-
14.12. Expenses. Agent is authorized and directed to deduct and retain sufficient amounts from payments or proceeds of the Collateral received by Agent to reimburse Agent for such reasonable out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses by a Loan Party, each Lender hereby agrees that it is and shall be obligated to pay to Agent such Lender’s ratable share thereof. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender’s ratable share of any such costs or out of pocket expenses (including reasonable Agent Professional fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent.
14.13. Notice of Default or Event of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders and, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a “notice of default.” Agent will promptly notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with this Agreement; provided, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable.
14.14. Liability of Agent. None of the Agent-Related Persons shall (a) be liable to any Lender for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Borrower or any of their respective Subsidiaries or Affiliates, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Borrower, or any of their respective Subsidiaries or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lenders to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the books and records or properties of any Borrower or their respective Subsidiaries.
15. GENERAL PROVISIONS.
15.1. Notices.
(a) Notice by Approved Electronic Communications. Agent and each of its Affiliates is authorized to transmit, post or otherwise make or communicate, in its sole discretion (but shall not be required to do so), by Approved Electronic Communications in connection with this Agreement or any other Loan Document and the transactions contemplated therein. All uses of Approved Electronic Communications shall be governed by and subject to, in addition to the terms of this Agreement, the separate terms, conditions and privacy policy posted or referenced in such system (or such terms, conditions
-80-
and privacy policy as may be updated from time to time, including on such system) and any related contractual obligations executed by Agent and Loan Parties in connection with the use of such system. Each of the Loan Parties, the Lenders and Agent hereby acknowledges and agrees that the use of Approved Electronic Communications is not necessarily secure and that there are risks associated with such use, including risks of interception, disclosure and abuse and each indicates it assumes and accepts such risks by hereby authorizing Agent and each of its Affiliates to transmit Approved Electronic Communications. All Approved Electronic Communications shall be provided “as is” and “as available”. None of Agent or any of its Affiliates or related persons warrants the accuracy, adequacy or completeness of any electronic platform or electronic transmission and disclaims all liability for errors or omissions therein. No warranty of any kind is made by Agent or any of its Affiliates or related persons in connection with any electronic platform or electronic transmission, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects. Each Borrower and each other Loan Party executing this Agreement agrees that Agent has no responsibility for maintaining or providing any equipment, software, services or any testing required in connection with any Approved Electronic Communication or otherwise required for any Approved Electronic Communication. No Approved Electronic Communications shall be denied legal effect merely because it is made electronically. Approved Electronic Communications that are not readily capable of bearing either a signature or a reproduction of a signature may be signed, and shall be deemed signed, by attaching to, or logically associating with such Approved Electronic Communication, an E-Signature, upon which Agent and the Loan Parties may rely and assume the authenticity thereof. Each Approved Electronic Communication containing a signature, a reproduction of a signature or an E-Signature shall, for all intents and purposes, have the same effect and weight as a signed paper original. Each E-Signature shall be deemed sufficient to satisfy any requirement for a “signature” and each Approved Electronic Communication shall be deemed sufficient to satisfy any requirement for a “writing”, in each case including pursuant to this Agreement, any other Loan Document, the UCC, the Uniform Electronic Transactions Act, the Electronic Signatures in Global and National Commerce Act and any substantive or procedural law governing such subject matter. Each party or beneficiary hereto agrees not to contest the validity or enforceability of an Approved Electronic Communication or E-Signature under the provisions of any applicable law requiring certain documents to be in writing or signed; provided, that nothing herein shall limit such party’s or beneficiary’s right to contest whether an Approved Electronic Communication or E-Signature has been altered after transmission.
(b) All Other Notices. All notices, requests, demands and other communications under or in respect of this Agreement or any transactions hereunder, other than those approved for or required to be delivered by Approved Electronic Communications, shall be in writing and shall be personally delivered or mailed (by prepaid registered or certified mail, return receipt requested), sent by prepaid recognized overnight courier service, or by email to the applicable party at its address or email address indicated below,
If to Agent:
Pathlight Capital LP
100 Federal Street
Boston, MA 02110
Attention: Shawn Pennels
Email: spennels@pathlightcapital.com
with a copy to (which shall not constitute notice to Agent):
Choate, Hall & Stewart LLP
Two International Place
Boston, MA 02110
-81-
Attention: Kevin Simard
Email: ksimard@choate.com
If to Borrower Representative, any Borrower or any other Loan Party:
Rubicon Global, LLC
100 West Main Street, Suite 610
Lexington, Kentucky 40507
Attention: Michael Heller and Bill Meyer
Email: Mike.Heller@rubicon.com and Bill.Meyer@rubicon.com
with a mandatory copy to:
Chamberlain Hrdlicka White Williams & Aughtry, P.C.
191 Peachtree Street, NE
46th Floor
Atlanta, Georgia
30303
Attention: Scott A. Augustine
Email: scott.augustine@chamberlainlaw.com
or, as to each party, at such other address as shall be designated by such party in a written notice to the other party delivered as aforesaid. All such notices, requests, demands and other communications shall be deemed given (i) when personally delivered, (ii) three (3) Business Days after being deposited in the mails with postage prepaid (by registered or certified mail, return receipt requested), (iii) one (1) Business Day after being delivered to the overnight courier service, if prepaid and sent overnight delivery, addressed as aforesaid and with all charges prepaid or billed to the account of the sender or (iv) when sent by email transmission to an email address designated by such addressee and the sender receives a confirmation of transmission.
15.2. Severability. If any provision of this Agreement or any other Loan Document is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given circumstances, or excised from this Agreement or such other Loan Document, as the situation may require, and this Agreement and the other Loan Documents shall be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein or therein, as the case may be.
15.3. Integration. This Agreement and the other Loan Documents represent the final, entire and complete agreement between each Loan Party party hereto and thereto and Agent and supersede all prior and contemporaneous negotiations, oral representations and agreements, all of which are merged and integrated into this Agreement. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES THAT ARE NOT SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
15.4. Waivers. The failure of Agent and the Lenders at any time or times to require any Loan Party to strictly comply with any of the provisions of this Agreement or any other Loan Documents shall not waive or diminish any right of Agent later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other Loan Document shall be deemed to have been waived by any act or knowledge of Agent or its agents or employees, but only by a specific written waiver signed by an authorized officer of Agent and any necessary Lenders and delivered to Borrowers. Once an Event of Default shall have occurred, it shall be deemed to continue to exist and not
-82-
be cured or waived unless specifically waived in writing by an authorized officer of Agent and Required Lenders and delivered to Borrowers. Each Loan Party Obligor waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, Instrument, Account, General Intangible, Document, Chattel Paper, Investment Property or guaranty at any time held by Agent on which such Loan Party Obligor is or may in any way be liable, and notice of any action taken by Agent, unless expressly required by this Agreement, and notice of acceptance hereof.
15.5. Amendments.
(a) No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents (other than Conforming Changes, which shall be deemed effective within five (5) Business Days after being so presented by Agent to the Lenders, in writing, unless objected to, in writing, within such period by the Required Lenders) shall in any event be effective unless the same shall be in writing and acknowledged by the Required Lenders, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that, except to the extent set forth in Section 14.9 hereof, no amendment, modification, waiver or consent shall (i) extend or increase the Term Loan Commitment of any Lender without the written consent of such Lender, (ii) extend the date scheduled for payment of any principal (excluding mandatory prepayments) of or interest on the Loans or any fees payable hereunder without the written consent of each Lender directly affected thereby, (iii) reduce the principal amount of any Loan, the rate of interest thereon or any fees payable hereunder, without the consent of each Lender directly affected thereby; (iv) amend or modify the definitions of Borrowing Base, Eligible Accounts, Eligible Billed Accounts, Eligible Billed Aged Accounts, Eligible Billed Cross-Aged Accounts, Eligible Unbilled Accounts, Eligible Uninvoiced Accounts, Eligible Service Contracts, Eligible Service Contracts Component or any components thereof (including, without limitation, any Advance Rates) in a manner that makes more credit available to the Borrowers, without the written consent of each Lender; or (v) release any guarantor from its obligations under any Guaranty, other than as part of or in connection with any disposition permitted hereunder, or release or subordinate its liens on all or any substantial part of the Collateral granted under any of the other Loan Documents (except as permitted by Section 14.10), change the definition of Required Lenders, any provision of Section 6.2, any provision of this Section 15.4, the provisions of Section 14.9 or reduce the aggregate Pro Rata Share required to effect an amendment, modification, waiver or consent, without, in each case set forth in this clause (v), the written consent of all Lenders. No provision of Section 14 or other provision of this Agreement affecting Agent in its capacity as such shall be amended, modified or waived without the consent of Agent. No provision of this Agreement affecting any Loan Party shall be amended or modified without the prior written consent of Borrower Representative.
(b) If, in connection with any proposed amendment, modification, waiver or termination requiring the consent of all Lenders, the consent of the Required Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained being referred to as a “Non-Consenting Lender”), then, so long as Agent is not a Non-Consenting Lender, Agent and/or a Person or Persons reasonably acceptable to Agent shall have the right to purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree that they shall, upon Agent’s request, sell and assign to Agent and/or such Person or Persons, all of the Loans of such Non-Consenting Lenders for an amount equal to the principal balance of all such Loans held by such Non-Consenting Lenders and all accrued interest, fees, expenses and other amounts then due with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment and Assumption.
15.6. Time of Essence. Time is of the essence in the performance by each Loan Party Obligor of each and every obligation under this Agreement and the other Loan Documents.
-83-
15.7. Expenses, Fee and Costs Reimbursement. Each Borrower hereby agrees to promptly pay (a) all reasonable out of pocket costs and expenses of Agent (including the out of pocket fees, costs and expenses of internal and external legal counsel to, and appraisers, accountants, consultants and other professionals and advisors retained by or on behalf of, Agent) in connection with (i) all loan proposals and commitments pertaining to the transactions contemplated hereby (whether or not such transactions are consummated), (ii) the examination, review, due diligence investigation, documentation, negotiation, and closing of the transactions contemplated by the Loan Documents (whether or not such transactions are consummated), (iii) the creation, perfection and maintenance of Liens pursuant to the Loan Documents, (iv) the performance or enforcement by Agent of its rights and remedies under the Loan Documents (or determining whether or how to perform or enforce such rights and remedies), (v) the administration of the Loans (including usual and customary fees for wire transfers and other transfers or payments received by Agent on account of any of the Obligations) and Loan Documents, (vi) any amendments, modifications, consents and waivers to and/or under any and all Loan Documents (whether or not such amendments, modifications, consents or waivers are consummated), (vii) any periodic public record searches conducted by or at the request of Agent (including, title investigations and public records searches), pending litigation and tax lien searches and searches of applicable corporate, limited liability company, partnership and related records concerning the continued existence, organization and good standing of certain Persons), (viii) protecting, storing, insuring, handling, maintaining, auditing, examining, valuing or selling any Collateral, (ix) any litigation, dispute, suit or proceeding relating to any Loan Document and (x) any workout, collection, bankruptcy, insolvency and other enforcement proceedings under any and all of the Loan Documents (it being agreed that (A) such costs and expenses may include the costs and expenses of workout consultants, investment bankers, financial consultants, appraisers, valuation firms and other professionals and advisors retained by or on behalf of Agent (B) each Lender shall also be entitled to reimbursement for all reasonable out of pocket costs and expense of the type described in this clause (x), provided that, to the extent of an actual or reasonably perceived conflict of interest, such reimbursement shall be limited to one additional counsel for the Lenders as a whole), and (b) without limiting the preceding clause (a), all reasonable out of pocket costs and expenses of Agent in connection with Agent’s reservation of funds in anticipation of the funding of the initial Loans to be made hereunder. Any fees, costs and expenses owing by any Borrower or other Loan Party Obligor hereunder shall be due and payable within three (3) days after written demand therefor.
15.8. Benefit of Agreement; Assignability. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of each Borrower, each other Loan Party Obligor party hereto, Agent and each Lender; provided, that neither each Borrower nor any other Loan Party Obligor may assign or transfer any of its rights under this Agreement without the prior written consent of Agent and each Lender, and any prohibited assignment shall be void. No consent by Agent or any Lender to any assignment shall release any Loan Party Obligor from its liability for any of the Obligations. Each Lender shall have the right to assign all or any of its rights and obligations under the Loan Documents to one or more other Persons in accordance with Section 15.9. Notwithstanding any provision of this Agreement or any other Loan Document to the contrary, a Lender may at any time pledge or grant a security interest in all or any portion of its rights under this Agreement and the other Loan Documents to secure any obligations of such Lender, including any pledge or grant to secure obligations to a Federal Reserve Bank.
15.9. Assignments.
(a) Any Lender may at any time assign to one or more Persons (any such Person, an “Assignee”) all or any portion of such Lender’s Loans, with the prior written consent of Agent and, so long as no Event of Default exists, Borrower Representative (which consents shall not be unreasonably withheld or delayed and shall not be required for an assignment by a Lender to a Lender (other than a Defaulting Lender) or an Affiliate of a Lender (other than an Affiliate of a Defaulting Lender) or an Approved Fund (other than an Approved Fund of a Defaulting Lender)). Except as Agent may otherwise agree, any such
-84-
assignment shall be in a minimum aggregate amount equal to $1,000,000 or, if less, the remaining Loans held by the assigning Lender (provided, that an assignment to a Lender, an Affiliate of a Lender or an Approved Fund shall not be subject to the foregoing minimum assignment limitations). The Loan Parties and Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned to an Assignee until Agent shall have received and accepted an effective Assignment and Assumption executed, delivered and fully completed by the applicable parties thereto and a processing fee of $3,500. Notwithstanding anything herein to the contrary, no assignment may be made to any equity holder of a Loan Party, any Affiliate of any equity holder of a Loan Party, any Loan Party, any holder of Subordinated Debt of a Loan Party, any holder of any Debt that is secured by liens or security interests that have been contractually subordinated to the liens and security interests securing the Obligations, or any Affiliate of any of the foregoing Persons without the prior written consent of Agent, which consent may be withheld in Agent’s sole discretion and, in any event, if granted, may be conditioned on such terms and conditions as Agent shall require in its sole discretion, including, without limitation, a limitation on the aggregate amount of Loans which may be held by such Person and/or its Affiliates and/or limitations on such Person’s and/or its Affiliates’ voting and consent rights and/or rights to attend Lender meetings or obtain information provided to other Lenders. Any attempted assignment not made in accordance with this Section 15.9 shall be null and void. Each Borrower shall be deemed to have granted its consent to any assignment requiring its consent hereunder unless Borrower Representative has expressly objected to such assignment within five (5) Business Days after receipt of written notice thereof.
(b) From and after the date on which the conditions described in Section 15.9(a) above have been met, (i) such Assignee shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned to such Assignee pursuant to the applicable Assignment and Assumption, shall have the rights and obligations of a Lender hereunder and (ii) the assigning Lender, to the extent that rights and obligations hereunder have been assigned by it pursuant to the applicable Assignment and Assumption, shall be released from its rights (other than its indemnification rights) and obligations hereunder. Upon the request of the Assignee (and, as applicable, the assigning Lender) pursuant to an effective Assignment and Assumption, Borrowers shall execute and deliver to Agent for delivery to the Assignee (and, as applicable, the assigning Lender) a promissory note in the principal amount of the Assignee’s Term Loan (and, as applicable, a promissory note in the principal amount of the Term Loan retained by the assigning Lender). Upon receipt by Agent of such promissory note(s), the assigning Lender shall return to Borrowers any prior promissory note held by it.
(c) Agent shall, as a non-fiduciary agent of Borrowers, maintain a copy of each Assignment and Assumption delivered and accepted by it and register (the “Register”) for the recordation of names and addresses of the Lenders and principal and stated interest of each Loan owing to each Lender from time to time and whether such Lender is the original Lender or the Assignee. No assignment shall be effective unless and until the Assignment and Assumption is accepted and registered in the Register. All records of transfer of a Lender’s interest in the Register shall be conclusive, absent manifest error, as to the ownership of the interests in the Loans. Agent shall not incur any liability of any kind with respect to any Lender with respect to the maintenance of the Register. Each Lender granting a participation shall, as a non-fiduciary agent of the Borrowers, maintain a register containing information similar to that of the Register in a manner such that the loans hereunder are in “registered form” for the purposes of the Code. This Section shall be construed so that the Loans are at all times maintained in “registered form” for the purpose of the Code and any related regulations (and any successor provisions).
15.10. Participations. Anything in this Agreement or any other Loan Document to the contrary notwithstanding, any Lender may, at any time and from time to time, without in any manner affecting or impairing the validity of any Obligations, sell to one or more Persons participating interests in its Loans or other interests hereunder or under any other Loan Document (any such Person, a “Participant”). In the event of a sale by a Lender of a participating interest to a Participant, (a) such Lender’s obligations hereunder and under the other Loan Documents shall remain unchanged for all purposes, (b) Borrowers
-85-
and such Lender shall continue to deal solely and directly with each other in connection with such Lender’s rights and obligations hereunder and under the other Loan Documents and (c) all amounts payable by Borrowers shall be determined as if such Lender had not sold such participation and shall be paid directly to such Lender; provided, that a Participant shall be entitled to the benefits of Section 13 as if it were a Lender if Borrower Representative is notified of the Participation and the Participant complies with Section 13. Each Borrower agrees that if amounts outstanding under this Agreement or any other Loan Document are due and payable (as a result of acceleration or otherwise), each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and the other Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement; provided, that such right of set-off shall not be exercised without the prior written consent of such Lender and shall be subject to the obligation of each Participant to share with such Lender its share thereof. Each Borrower also agrees that each Participant shall be entitled to the benefits of Section 15.9 as if it were a Lender. Notwithstanding the granting of any such participating interests, (i) Borrowers shall look solely to the applicable Lender for all purposes of this Agreement, the Loan Documents and the transactions contemplated hereby, (ii) Borrowers shall at all times have the right to rely upon any amendments, waivers or consents signed by the applicable Lender as being binding upon all of the Participants and (iii) all communications in respect of this Agreement and such transactions shall remain solely between Borrowers and the applicable Lender (exclusive of Participants) hereunder. If a Lender grants a participation hereunder, such Lender shall maintain, as a non-fiduciary agent of Borrowers, a register as to the participations granted and transferred under this Section containing the same information specified in Section 15.9 on the Register as if each Participant were a Lender to the extent required to cause the Loans to be in registered form for the purposes of Sections 163(F), 165(J), 871, 881, and 4701 of the Code.
15.11. Headings; Construction. Section and subsection headings are used in this Agreement only for convenience and do not affect the meanings of the provisions that they precede.
15.12. USA PATRIOT Act Notification. Agent hereby notifies the Loan Parties that pursuant to the requirements of the USA PATRIOT Act, it may be required to obtain, verify and record certain information and documentation that identifies such Person, which information may include the name and address of each such Person and such other information that will allow Agent to identify such Persons in accordance with the USA PATRIOT Act.
15.13. Counterparts; Fax/Email Signatures. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same agreement. This Agreement may be executed by signatures delivered by facsimile or electronic mail, each of which shall be fully binding on the signing party.
15.14. GOVERNING LAW. THIS AGREEMENT, ALONG WITH ALL OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED OTHERWISE IN SUCH OTHER LOAN DOCUMENT) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. FURTHER, THE LAW OF THE STATE OF NEW YORK SHALL APPLY TO ALL DISPUTES OR CONTROVERSIES ARISING OUT OF OR CONNECTED TO OR WITH THIS AGREEMENT AND ALL SUCH OTHER LOAN DOCUMENTS WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
15.15. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL; CONSENT TO SERVICE OF PROCESS. ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS IN THE COUNTY OF COOK OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR IN ANY OTHER
-86-
COURT (IN ANY JURISDICTION) SELECTED BY THE AGENT IN ITS SOLE DISCRETION, AND EACH BORROWER AND EACH OTHER LOAN PARTY OBLIGOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFOREMENTIONED COURTS. EACH BORROWER AND EACH OTHER LOAN PARTY OBLIGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, OR BASED ON 28 U.S.C. § 1404, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING AND ADJUDICATION OF ANY SUCH ACTION, SUIT OR PROCEEDING IN ANY OF THE AFOREMENTIONED COURTS AND AMENDMENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND EACH OTHER LOAN PARTY OBLIGOR HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR UNDER ANY AMENDMENT, WAIVER, AMENDMENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH BORROWER AND EACH OTHER LOAN PARTY OBLIGOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON ANY BORROWER OR ANY OTHER LOAN PARTY OBLIGOR AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO BORROWER’S’ NOTICE ADDRESS (ON BEHALF OF BORROWERS OR SUCH LOAN PARTY OBLIGOR) SET FORTH IN SECTION 15.1 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE MAIL, OR, AT THE AGENT’S OPTION, BY SERVICE UPON ANY BORROWER OR ANY OTHER LOAN PARTY OBLIGOR IN ANY OTHER MANNER PROVIDED UNDER THE RULES OF ANY SUCH COURTS.
15.16. Publication. Each Borrower and each other Loan Party Obligor consents to the publication by Agent of a tombstone, press releases or similar advertising material relating to the financing transactions contemplated by this Agreement, and Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.
15.17. Confidentiality. Agent and each Lender agree to use commercially reasonable efforts not to disclose Confidential Information to any Person without the prior consent of Borrower Representative; provided, that nothing herein contained shall limit any disclosure of the tax structure of the transactions contemplated hereby, or the disclosure of any information (a) to the extent required by applicable law, statute, rule, regulation or judicial process or in connection with the exercise of any right or remedy under any Loan Document, or as may be required in connection with the examination, audit or similar investigation of Agent or any of its Affiliates, (b) to examiners, auditors, accountants or any regulatory authority, (c) to the officers, partners, managers, directors, employees, agents and advisors (including independent auditors, lawyers and counsel) of Agent and each Lender or any of their respective Affiliates, (d) in connection with any litigation or dispute which relates to this Agreement or any other Loan Document to which Agent or any Lender is a party or is otherwise subject, (e) to a subsidiary or Affiliate of Agent or any Lender, (f) to any Assignee or Participant (or prospective Assignee or Participant) which agrees to be bound by this Section 15.17 and (g) to any lender or other funding source of Agent or any Lender (each reference to Agent and Lender in the foregoing clauses shall be deemed to include (i) the actual and prospective Assignees and Participants referred to in clause (f) and the lenders and other funding sources referred to in clause (g), as applicable for purposes of this Section 15.17), and further provided, that in no
-87-
event shall Agent or any Lender be obligated or required to return any materials furnished by or on behalf of any Borrower or any other Loan Party or Obligor. The obligations of Agent and Lenders under this Section 15.17 shall supersede and replace the obligations of Agent and Lenders under any confidentiality letter or provision in respect of this financing or any other financing previously signed and delivered by Agent or any Lender to any Borrower or any of its Affiliates.
[Signature Pages Follow]
-88-
IN WITNESS WHEREOF, each Borrower, each other Loan Party Obligor party hereto, Agent and each Lender have signed this Agreement as of the date first set forth above.
Agent: | ||
PATHLIGHT CAPITAL LP | ||
By: Pathlight Partners GP, LLC, its General Partner | ||
By: | ||
Name: | ||
Its: | ||
Lenders: | ||
PATHLIGHT CAPITAL FUND I LP | ||
By: Pathlight Partners GP, LLC, its General Partner | ||
By: | ||
Name: | ||
Its: |
Signature Page to Loan and Security Agreement
Loan Party Obligors: | ||
RUBICON GLOBAL, LLC, as a Borrower and a Loan Party Obligor | ||
By: | ||
Name: | ||
Its: | ||
RIVERROAD WASTE SOLUTIONS, INC., as a Borrower and a Loan Party Obligor | ||
By: | ||
Name: | ||
Its: | ||
RUBICON TECHNOLOGIES HOLDINGS, LLC, as a Loan Party Obligor | ||
By: | ||
Name: | ||
Its: | ||
CLEANCO LLC, as a Loan Party Obligor | ||
By: | ||
Name: | ||
Its: | ||
CHARTER WASTE MANAGEMENT, INC., as a Loan Party Obligor | ||
By: | ||
Name: | ||
Its: | ||
RUBICON TECHNOLOGIES INTERNATIONAL, INC., as a Loan Party Obligor | ||
By: | ||
Name: | ||
Its: |
Signature Page to Loan and Security Agreement
Exhibit 10.52
EIGHTH AMENDMENT TO LOAN
AND SECURITY AGREEMENT
This EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”), is dated as of February 7, 2023, by and among the lenders identified on the signature pages hereof (each of such lenders, together with its successors and permitted assigns, is referred to hereinafter as a “Lender”), ECLIPSE BUSINESS CAPITAL LLC, a Delaware limited liability company, as administrative agent for the Lenders (f/k/a Encina Business Credit, LLC, in such capacity, together with its successors and assigns in such capacity, “Agent”), and RUBICON GLOBAL, LLC, a Delaware limited liability company (“Rubicon”) and RIVERROAD WASTE SOLUTIONS, INC., a New Jersey corporation (“RiverRoad”; together with Rubicon, each a “Borrower” and collectively the “Borrowers”), and Rubicon Technologies Holdings, LLC, a Delaware limited liability company (“Holdings”), CLEANCO LLC, a New Jersey limited liability company (“Cleanco”), CHARTER WASTE MANAGEMENT, INC., a Delaware corporation (“Charter”), and RUBICON TECHNOLOGIES INTERNATIONAL, INC., a Delaware corporation (“International” together with Charter, Holdings and Cleanco, each a “Loan Party Obligor”).
WITNESSETH:
WHEREAS, Borrowers, Loan Party Obligors, Lenders and Agent are parties to that certain Loan and Security Agreement, dated as of December 14, 2018 (the “Original Loan Agreement”);
WHEREAS, the Original Loan Agreement was amended pursuant to that certain First Amendment to Loan and Security Agreement dated as of March 29, 2019 (the “First Amendment”) in connection with the Borrowers and Loan Party Obligors obtaining secured term loan financing agented by PATHLIGHT CAPITAL LP pursuant to that certain Loan and Security Agreement dated as of March 29, 2019 (the “Original Term Loan Agreement”); and
WHEREAS, the Original Loan Agreement as amended by the First Amendment was further amended pursuant to that certain Second Amendment to Loan and Security Agreement dated as of February 27, 2020 (the “Second Amendment”) which was further amended pursuant to that certain Third Amendment to Loan and Security Agreement dated as of March 24, 2021 (the “Third Amendment”) which was further amended pursuant to that certain Fourth Amendment to Loan and Security Agreement dated as of October 15, 2021(“Fourth Amendment”) which was further amended pursuant to that certain Fifth Amendment to Loan and Security Agreement dated as of April 26, 2022 (“Fifth Amendment”) which was further amended pursuant to that certain Sixth Amendment to Loan and Security Agreement dated as of November 18, 2022 (“Sixth Amendment”) which was further amended pursuant to that certain Seventh Amendment to Loan and Security Agreement dated as of January 31, 2023 (“Seventh Amendment”) (the Original Loan Agreement as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment and the Seventh Amendment, the “Existing Loan Agreement”); and
Eighth Amendment to
loan and security agreement
WHEREAS, the Original Term Loan Agreement was amended pursuant to that certain First Amendment to Loan and Security Agreement dated as of February 27, 2020 (“First Amendment to Term Loan Agreement”) which was further amended pursuant to that certain Second Amendment to Loan and Security Agreement dated as of March 24, 2021 (“Second Amendment to Term Loan Agreement”) which was further amended pursuant to that certain Third Amendment to Loan and Security Agreement dated as of October 15, 2021(“Third Amendment to Term Loan Agreement”) which was further amended pursuant to that certain Fourth Amendment to Loan and Security Agreement dated as of April 26, 2022 (“Fourth Amendment to Term Loan Agreement”) which was further amended pursuant to that certain Fifth Amendment to Loan and Security Agreement dated as of November 18, 2022 (“Fifth Amendment to Term Loan Agreement”) which was further amended pursuant to that certain Sixth Amendment to Loan and Security Agreement dated as of November 30, 2022 (“Sixth Amendment to Term Loan Agreement”) and which was further amended pursuant to that certain Seventh Amendment to Loan and Security Agreement dated as of February 7, 2023 (“Seventh Amendment to Term Loan Agreement”) (the Original Term Loan Agreement as amended by the First Amendment to Term Loan Agreement, Second Amendment to Term Loan Agreement, Third Amendment to Term Loan Agreement, Fourth Amendment to Term Loan Agreement, Fifth Amendment to Term Loan Agreement, Sixth Amendment to Term Loan Agreement and Seventh Amendment to Term Loan Agreement, the “Existing Term Loan Agreement”);
WHEREAS, the Borrowers have requested that the Agent and the Lenders agree to extend the Maturity Date and increase the Maximum Revolving Facility Amount in accordance with the terms and conditions of this Amendment, in each case, subject to the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1 Defined Terms. Unless otherwise defined herein, all capitalized terms used herein have the meanings assigned to such terms in the Existing Loan Agreement, as amended hereby (the “Loan Agreement”).
SECTION 2 Amendment to Loan Agreement. The Loan Agreement is hereby amended (a) to delete the red or green stricken text (indicated textually in the same manner as the following examples: stricken text and stricken text) and (b) to add the blue or green 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 attached hereto as Exhibit A hereto and made a part hereof for all purposes.
SECTION 3 Representations, Warranties and Covenants of Each Borrower and each Loan Party Obligor. Each Borrower and each Loan Party Obligor represents and warrants to the Lenders and Agent and agrees that:
(a) the representations and warranties contained in the Loan Agreement (as amended hereby) and the other outstanding Loan Documents are true and correct in all material respects at and as of the date hereof as though made on and as of the date hereof, except (i) to the extent specifically made with regard to a particular date, and (ii) for such changes that are a result of any act or omission specifically permitted under the Loan Agreement (or under any Loan Document), or as otherwise specifically permitted by the Lenders;
2
(b) on the Eighth Amendment Effective Date, after giving effect to this Amendment, no Default or Event of Default will have occurred and be continuing;
(c) the execution, delivery and performance of this Amendment have been duly authorized by all necessary action on the part of, and duly executed and delivered by each Borrower and each Loan Party Obligor, and this Amendment is a legal, valid and binding obligation of each Borrower and each Loan Party Obligor, enforceable against such Person in accordance with its terms, except as the enforcement thereof may be subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law); and
(d) the execution, delivery and performance of this Amendment do not conflict with or result in a breach by any Borrower or any Loan Party Obligor of any term of any material contract, loan agreement, indenture or other agreement or instrument to which such Person is a party or is subject.
SECTION 4 Conditions Precedent to Effectiveness of Amendment. This Amendment shall become effective (the “Eighth Amendment Effective Date”) upon satisfaction of each of the following conditions:
(a) Each Borrower, the Loan Party Obligors, the Lenders and Agent shall have executed and delivered to the Agent this Amendment and such other documents as the Agent may reasonably request;
(b) Agent shall have received evidence satisfactory to Agent in its Permitted Discretion that each of the conditions precedent set forth in Section 4 of the Loan Agreement have been satisfied;
(c) Agent shall have received any and all fees due and payable to Agent as a result of the transactions contemplated by this Amendment (including, but not limited to, a $375,000 amendment fee which shall be payable and net settled on the date of this Amendment and treated as creating original issue discount on the Loans under Treasury Reg. section 1.1273- 2(g)(2) for US federal income tax purposes);
(d) All legal matters incident to the transactions contemplated hereby shall be reasonably satisfactory to counsel for the Agent;
(e) Agent shall have received a final fully executed copy of the Seventh Amendment to Term Loan Agreement;
(f) Agent shall have received evidence satisfactory to Agent as of the date hereof that Borrowers have received equity in the aggregate amount of $30,000,000;
(g) Agent shall have received a fully executed copy of that certain Consent and Second Amendment to Amended and Restated Intercreditor Agreement, dated as of the date hereof, by and between Agent and Term Agent;
3
(h) Agent shall have received a fully executed copy of the Amended and Restated Revolving Note dated as of the date hereof;
(i) Agent shall have received for each Borrower and Loan Party Obligor, such Person’s (A) charter (or similar formation document), certified by the appropriate Governmental Authority; (B) good standing certificates in its state of incorporation (or formation) and in each other state requested by Agent; (C) bylaws (or similar governing document); (D) resolutions of its board of directors (or similar governing body) approving and authorizing such Person’s execution, delivery and performance of the Loan Documents to which it is party and the transactions contemplated thereby; and (E) signature and incumbency certificates of its officers executing any of the Loan Documents (it being understood that Agent and Lenders may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein), all certified by its secretary or an assistant secretary (or similar officer) as being in full force and effect without modification;
(j) Agent shall have received certified copies of Uniform Commercial Code search reports dated a date reasonably near to the date hereof, listing all effective financing statements which name any Borrower and Loan Party Obligor as debtors and such other Uniform Commercial Code termination statements as Agent may reasonably request;
(k) Agent shall have received opinions of counsel for each Borrower and Loan Party Obligor, including local counsel reasonably requested by Agent; and
(l) Agent shall have received each document (including Uniform Commercial Code financing statements) required under law or reasonably requested by Agent to be filed, registered or recorded in order to create in favor of Agent, for the benefit of the Lenders, a perfected Lien on the collateral described therein, in proper form for filing, registration or recording.
SECTION 5 Costs and Expenses. Each Borrower and Loan Party Obligor hereby affirms its obligation under the Loan Agreement to reimburse the Agent for all fees and expenses paid or incurred by the Agent in connection with the preparation, negotiation, execution and delivery of this Amendment, including but not limited to the internal and external attorneys’ fees and expenses of attorneys for the Agent with respect thereto.
SECTION 6 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUCTED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE INTERNAL CONFLICTS OF LAWS PROVISIONS THEREOF.
4
SECTION 7 Effect of Amendment; Reaffirmation of Loan Documents. (a) Nothing contained in this Amendment in any manner or respect limits or terminates any of the provisions of the Loan Agreement or the other outstanding Loan Documents other than as expressly set forth herein. The Loan Agreement (as amended hereby) and each of the other outstanding Loan Documents remain and continue in full force and effect and are hereby ratified and reaffirmed in all respects. Each Borrower and Loan Party Obligor hereby further ratifies and reaffirms the validity and enforceability of all of the Liens heretofore granted, pursuant to and in connection with the Loan Agreement or any other Loan Document to the Agent on behalf and for the benefit of the Lenders, as collateral security for the Obligations under the Loan Documents, in accordance with their respective terms, and acknowledges that all of such Liens, and all collateral heretofore pledged as security for such Obligations, continues to be and remain collateral for such obligations from and after the date hereof. Upon the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import shall mean and be a reference to the Loan Agreement as amended hereby.
(b) Execution of this Amendment by the Lenders and Agent (i) shall not constitute a waiver of any Default or Event of Default that may currently exist or hereafter arise under the Loan Agreement, (ii) shall not impair, modify, restrict or limit any right, power, privilege or remedy of the Lenders or Agent with respect to any Default or Event of Default that may now exist or hereafter arise under the Loan Agreement or any of the other Loan Documents, and (iii) shall not constitute any custom, course of dealing or other basis for altering any obligation of any Borrower or any Loan Party Obligor or any right, power, privilege or remedy of the Lenders and Agent under the Loan Agreement or any of the other Loan Documents.
(c) The amendments, consents, modifications and other agreements set forth herein are limited to the specifics hereof, shall not apply with respect to any facts or occurrences other than those on which the same are based, shall neither excuse any future non- compliance with the Loan Agreement or any other Loan Document, nor operate as a waiver of any Default or Event of Default.
(d) This Amendment is a Loan Document.
(e) To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Loan Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Loan Agreement and the Loan Documents as modified or amended hereby.
SECTION 8 Headings. Section headings in this Amendment are included herein for convenience of any reference only and shall not constitute a part of this Amendment for any other purposes.
5
SECTION 9 Release. EACH BORROWER AND LOAN PARTY OBLIGOR HEREBY ACKNOWLEDGE 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 THEIR LIABILITY TO REPAY THE OBLIGATIONS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDERS, AGENT, OR THEIR RESPECTIVE AFFILIATES, PARTICIPANTS OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, AGENTS, MANAGERS, MEMBERS, EMPLOYEES OR ATTORNEYS. EACH BORROWER AND LOAN PARTY OBLIGOR HEREBY VOLUNTARILY AND KNOWINGLY RELEASE AND FOREVER DISCHARGE LENDERS, AGENT, THEIR RESPECTIVE AFFILIATES AND PARTICIPANTS, AND THEIR PREDECESSORS, AGENTS, MANAGERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH ANY BORROWER OR LOAN PARTY OBLIGOR MAY NOW OR HEREAFTER HAVE AGAINST LENDERS, AGENT, OR THEIR RESPECTIVE PREDECESSORS, AGENTS, MANAGERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM THE LIABILITIES, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. EACH BORROWER AND LOAN PARTY OBLIGOR HEREBY COVENANTS AND AGREES NEVER TO INSTITUTE ANY ACTION OR SUIT AT LAW OR IN EQUITY, NOR INSTITUTE, PROSECUTE, OR IN ANY WAY AID IN THE INSTITUTION OR PROSECUTION OF ANY CLAIM, ACTION OR CAUSE OF ACTION, RIGHTS TO RECOVER DEBTS OR DEMANDS OF ANY NATURE AGAINST LENDERS, AGENT, THEIR RESPECTIVE AFFILIATES AND PARTICIPANTS, OR THEIR RESPECTIVE SUCCESSORS, AGENTS, MANAGERS, MEMBERS, ATTORNEYS, OFFICERS, DIRECTORS, EMPLOYEES, AND PERSONAL AND LEGAL REPRESENTATIVES ARISING ON OR BEFORE THE DATE HEREOF OUT OF OR RELATED TO LENDERS’ OR AGENT’S ACTIONS, OMISSIONS, STATEMENTS, REQUESTS OR DEMANDS IN ADMINISTERING, ENFORCING, MONITORING, COLLECTING OR ATTEMPTING TO COLLECT THE OBLIGATIONS OF ANY BORROWER OR ANY LOAN PARTY OBLIGOR TO LENDERS AND AGENT, WHICH OBLIGATIONS ARE EVIDENCED BY THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, EXCEPT FOR THOSE CLAIMS ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF AGENT OR ANY LENDER.
SECTION 10 Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, such provision shall be severable from the remainder of this Amendment and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
6
SECTION 11 Entire Agreement. This Amendment, and terms and provisions hereof, the Loan Agreement and the other Loan Documents constitute the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and supersedes any and all prior or contemporaneous amendments or understandings with respect to the subject matter hereof, whether express or implied, oral or written and is the final expression and agreement of the parties hereto with respect to the subject matter hereof
SECTION 12 Execution in Counterparts. This Amendment may be executed in counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. The words “execution,” “execute”, “signed,” “signature,” and words of like import in or related to any document to be signed in connection with this letter agreement shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by Agent, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
[Remainder of page intentionally left blank with signature pages immediately to follow]
7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first above written.
LENDER: | Eclipse Business Capital SPV, LLC, | ||
a Delaware limited liability company | |||
By: | /s/ Tracy Salyers | ||
Name: | Tracy Salyers | ||
Title: | Authorized Signatory | ||
AGENT: | ECLIPSE BUSINESS CAPITAL LLC, | ||
a Delaware limited liability company | |||
By: | /s/ Tracy Salyers | ||
Name: | Tracy Salyers | ||
Title: | Authorized Signatory |
[Signature Pages Continue]
Eighth Amendment to
loan and security agreement
8
BORROWERS/LOAN PARTY OBLIGORS: | ||
RUBICON GLOBAL, LLC, as a Borrower and a Loan Party Obligor |
||
By: | /s/ Phil Rodoni | |
Name: | Phil Rodoni | |
Title: | Chief Executive Officer of its Sole Member | |
RIVERROAD WASTE SOLUTIONS, INC., as a Borrower and a Loan Party Obligor |
||
By: | /s/ Marc Spiegel | |
Name: | Marc Spiegel | |
Title: | President | |
RUBICON TECHNOLOGIES holdings, LLC, as a Loan Party Obligor |
||
By: | /s/ Phil Rodoni | |
Name: | Phil Rodoni | |
Title: | Chief Executive Officer | |
CLEANCO LLC, as a Loan Party Obligor |
||
By: | /s/ Phil Rodoni | |
Name: | Phil Rodoni | |
Title: | Chief Executive Officer | |
CHARTER WASTE MANAGEMENT, INC., as a Loan Party Obligor |
||
By: | /s/ Marc Spiegel | |
Name: | Marc Spiegel | |
Title: | President | |
RUBICON TECHNOLOGIES INTERNATIONAL, INC., as a Loan Party Obligor |
||
By: | /s/ Marc Spiegel | |
Name: | Marc Spiegel | |
Title: | President |
Eighth Amendment to
loan and security agreement
9
Exhibit A to SixthEighth Amendment to Loan and Security Agreement
LOAN AND SECURITY AGREEMENT
Dated as of December 14, 2018
by and among
RUBICON GLOBAL, LLC and
RIVERROAD WASTE SOLUTIONS, INC.,
as Borrowers,
RUBICON TECHNOLOGIES HOLDINGS, LLC, CLEANCO LLC and,
CHARTER WASTE MANAGEMENT, INC. and RUBICON TECHNOLOGIES INTERNATIONAL, INC.,
as Loan Party Obligors
the Lenders from time to time party hereto,
and
ECLIPSE BUSINESS CAPITAL LLC,
as Agent
TABLE OF CONTENTS
Page | ||||
1. | DEFINITIONS | 1 | ||
1.1. | Certain Defined Terms | 1 | ||
1.2. | Accounting Terms and Determinations | 29 | ||
1.3. | Rates | 30 | ||
1.4. | Other Definitional Provisions and References | 30 | ||
2. | LOANS | 31 | ||
2.1. | Amount of Loans | 31 | ||
2.2. | Protective Advances; Overadvances | 32 | ||
2.3. | Notice of Borrowing; Manner of Revolving Loan Borrowing | 33 | ||
2.4. | Swingline Loans | 34 | ||
2.5. | Repayments | 35 | ||
2.6. | Prepayments / Voluntary Termination / Application of Prepayments | 35 | ||
2.7. | Obligations Unconditional | 36 | ||
2.8. | Reversal of Payments | 37 | ||
2.9. | Notes | 37 | ||
2.10. | Defaulting Lenders | 37 | ||
2.11. | Appointment of Borrower Representative | 38 | ||
2.12. | Joint and Several Liability | 39 | ||
3. | INTEREST AND FEES; LOAN ACCOUNT | 41 | ||
3.1. | Interest | 41 | ||
3.2. | Fees | 41 | ||
3.3. | Computation of Interest and Fees | 42 | ||
3.4. | Loan Account; Monthly Accountings | 42 | ||
3.5. | Further Obligations; Maximum Lawful Rate | 43 | ||
3.6. | Certain Provisions Regarding SOFR Loans; Replacement of Lenders | 43 | ||
3.7. | Term SOFR Conforming Changes | 46 | ||
4. | CONDITIONS PRECEDENT | 46 | ||
4.1. | Conditions to Initial Loans | 46 | ||
4.2. | Conditions to all Loans | 47 | ||
5. | COLLATERAL | 48 | ||
5.1. | Grant of Security Interest | 48 | ||
5.2. | Possessory Collateral | 48 | ||
5.3. | Further Assurances | 48 | ||
5.4. | UCC Financing Statements | 49 |
-i-
TABLE OF CONTENTS
(continued)
Page | ||||
6. | CERTAIN PROVISIONS REGARDING ACCOUNTS, COLLECTIONS AND APPLICATIONS OF PAYMENTS | 49 | ||
6.1. | Lock Boxes and Blocked Accounts | 49 | ||
6.2. | Application of Payments | 50 | ||
6.3. | Notification; Verification | 51 | ||
6.4. | Power of Attorney | 51 | ||
6.5. | Disputes | 52 | ||
6.6. | Invoices | 52 | ||
Reserved | 52 | |||
7. | REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS | 53 | ||
7.1. | Existence and Authority | 53 | ||
7.2. | Names; Trade Names and Styles | 53 | ||
7.3. | Title to Collateral; Third Party Locations; Permitted Liens | 54 | ||
7.4. | Accounts and Chattel Paper | 54 | ||
7.5. | Electronic Chattel Paper | 54 | ||
7.6. | Capitalization; Investment Property | 55 | ||
7.7. | Commercial Tort Claims | 56 | ||
7.8. | Jurisdiction of Organization; Location of Collateral | 57 | ||
7.9. | Financial Statements and Reports; Solvency | 57 | ||
7.10. | Tax Returns and Payments; Pension Contributions | 58 | ||
7.11. | Compliance with Laws; Intellectual Property; Licenses | 59 | ||
7.12. | Litigation | 60 | ||
7.13. | Use of Proceeds | 60 | ||
7.14. | Insurance | 60 | ||
7.15. | Financial, Collateral and Other Reporting / Notices | 61 | ||
7.16. | Litigation Cooperation | 64 | ||
7.17. | Maintenance of Collateral, Etc | 64 | ||
7.18. | Material Contracts | 64 | ||
7.19. | No Default | 65 | ||
7.20. | No Material Adverse Change | 65 | ||
7.21. | Full Disclosure | 65 | ||
7.22. | Sensitive Payments | 65 | ||
7.23. | Parent | 65 | ||
7.24. | Subordinated Debt | 66 | ||
7.25. | Access to Collateral, Books and Records | 66 | ||
7.26. | Appraisals | 66 | ||
7.27. | Lender Meetings | 66 | ||
7.28. | Interrelated Businesses | 67 | ||
7.29. | Post-Closing Matters | 67 | ||
7.30. | Term Debt | 67 | ||
7.31. | Third Lien Obligations | 67 | ||
8. | NEGATIVE COVENANTS | 68 |
-ii-
TABLE OF CONTENTS
(continued)
Page | ||||
9. | FINANCIAL COVENANTS | 71 | ||
9.1. | Capital Expenditure Limitation | 71 | ||
9.2. | Minimum Excess Availability | 71 | ||
10. | RELEASE, LIMITATION OF LIABILITY AND INDEMNITY | 71 | ||
10.1. | Release | 71 | ||
10.2. | Limitation of Liability | 72 | ||
10.3. | Indemnity | 72 | ||
11. | EVENTS OF DEFAULT AND REMEDIES | 73 | ||
11.1. | Events of Default | 73 | ||
11.2. | Remedies with Respect to Lending Commitments/Acceleration, Etc | 76 | ||
11.3. | Remedies with Respect to Collateral | 77 | ||
12. | LOAN GUARANTY | 83 | ||
12.1. | Guaranty | 83 | ||
12.2. | Guaranty of Payment | 83 | ||
12.3. | No Discharge or Diminishment of Loan Guaranty | 83 | ||
12.4. | Defenses Waived | 84 | ||
12.5. | Rights of Subrogation | 84 | ||
12.6. | Reinstatement; Stay of Acceleration | 84 | ||
12.7. | Information | 85 | ||
12.8. | Termination | 85 | ||
12.9. | Maximum Liability | 85 | ||
12.10. | Contribution | 86 | ||
12.11. | Liability Cumulative | 86 | ||
13. | PAYMENTS FREE OF TAXES; OBLIGATION TO WITHHOLD; PAYMENTS ON ACCOUNT OF TAXES | 86 | ||
14. | AGENT | 89 | ||
14.1. | Appointment | 89 | ||
14.2. | Rights as a Lender | 89 | ||
14.3. | Duties and Obligations | 90 | ||
14.4. | Reliance | 90 | ||
14.5. | Actions through Sub-Agents | 91 | ||
14.6. | Resignation | 91 | ||
14.7. | Non-Reliance | 92 | ||
14.8. | Not Partners or Co-Venturers; Agent as Representative of the Secured Parties | 93 | ||
14.9. | Credit Bidding | 94 | ||
14.10. | Certain Collateral Matters | 95 | ||
14.11. | Restriction on Actions by Lenders | 95 | ||
14.12. | Expenses | 95 | ||
14.13. | Notice of Default or Event of Default | 96 | ||
14.14. | Liability of Agent | 96 |
-iii-
TABLE OF CONTENTS
(continued)
Page | ||||
15. | GENERAL PROVISIONS | 97 | ||
15.1. | Notices | 97 | ||
15.2. | Severability | 98 | ||
15.3. | Integration | 99 | ||
15.4. | Waivers | 99 | ||
15.5. | Amendments | 99 | ||
15.6. | Time of Essence | 100 | ||
15.7. | Expenses, Fee and Costs Reimbursement | 100 | ||
15.8. | Benefit of Agreement; Assignability | 101 | ||
15.9. | Assignments | 101 | ||
15.10. | Participations | 103 | ||
15.11. | Headings; Construction | 103 | ||
15.12. | USA PATRIOT Act Notification | 103 | ||
15.13. | Counterparts; Fax/Email Signatures | 103 | ||
15.14. | GOVERNING LAW | 104 | ||
15.15. | CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL; CONSENT TO SERVICE OF PROCESS | 104 | ||
15.16. | Publication | 105 | ||
15.17. | Confidentiality | 105 |
Perfection Certificate | |
Annex I | Description of Certain Terms |
Annex II | Reporting |
Annex III | Commitment Schedule |
Exhibit A | Form of Notice of Borrowing |
Exhibit B | Closing Checklist |
Exhibit C | Client User Form |
Exhibit D | Authorized Accounts Form |
Exhibit E | Form of Account Debtor Notification |
Exhibit F | Form of Compliance Certificate |
Exhibit G | Form of Assignment and Assumption Agreement |
-iv-
Loan and Security Agreement
This
Loan and Security Agreement (as it may be amended, restated or otherwise modified from time to time pursuant to the terms hereof,
this “Agreement”) is entered into on December 14,
2018, by and among RUBICON GLOBAL, LLC, a Delaware limited liability company (“Rubicon”) and RIVERROAD
WASTE SOLUTIONS, INC., a New Jersey corporation (“RiverRoad”; together with Rubicon, each a
“Borrower” and collectively the “Borrowers”), and RUBICON TECHNOLOGIES
HOLDINGS, LLC, a Delaware limited liability company (“Holdings’), CLEANCO LLC, a New
Jersey limited liability company (“Cleanco”), and
CHARTER WASTE MANAGEMENT, INC., a Delaware corporation (“Charter”)
and RUBICON TECHNOLOGIES INTERNATIONAL, INC., a Delaware corporation (“International” together
with Charter, Holdings
and Cleanco, each a “Loan Party Obligor”), the Lenders party hereto from time to time and ECLIPSE
BUSINESS CAPITAL LLC, as agent for the Lenders (f/k/a Encina Business Credit, LLC, in such capacity, “Agent”).
The Schedules and Exhibits to this Agreement are an integral part of this Agreement and are incorporated herein by
reference.
1. | DEFINITIONS. |
1.1. Certain Defined Terms. Unless otherwise defined herein, the following terms are used herein as defined in the UCC: Accounts, Account Debtor, Certificated Security, Chattel Paper, Commercial Tort Claims, Debtor, Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Farm Products, Financing Statement, Fixtures, General Intangibles, Goods, Health-Care-Insurance Receivables, Instruments, Inventory, Letter-of-Credit Rights, Money, Payment Intangible, Proceeds, Secured Party, Securities Accounts, Security Agreement, Supporting Obligations and Tangible Chattel Paper.
As used in this Agreement, the following terms have the following meanings:
“ABLSoft” means the electronic and/or internet-based system approved by Agent for the purpose of making notices, requests, deliveries, communications and for the other purposes contemplated in this Agreement or otherwise approved by Agent, whether such system is owned, operated or hosted by Agent, any of its Affiliates or any other Person.
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such calculation plus (b) the Term SOFR Adjustment; provided, that if Adjusted Term SOFR as so determined shall ever be less than the Floor, then Adjusted Term SOFR shall be deemed to be the Floor.
“Advance Rates” means, collectively, the Billed Accounts Advance Rate and the Unbilled Accounts Advance Rate.
1
“Affiliate” means, with respect to any Person, any other Person in control of, controlled by, or under common control with the first Person, and any other Person who has a substantial interest, direct or indirect, in the first Person or any of its Affiliates, including, any officer or director of the first Person or any of its Affiliates (and if that Person is an individual, any member of the immediate family (including parents, siblings, spouse, children, stepchildren, nephews, nieces and grandchildren) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust); provided, that neither Agent, any Lender nor any of their respective Affiliates shall be deemed an “Affiliate” of Borrower for any purposes of this Agreement. For the purpose of this definition, a “substantial interest” shall mean the direct or indirect legal or beneficial ownership of more than ten (10%) percent of any class of equity or similar interest.
“Agent” means Eclipse in its capacity as agent for the Lenders hereunder, and any successor agent appointed in accordance with Section 14.6 herein.
“Agent Fee Letter” means that certain fee letter agreement dated as of the Closing Date between Agent and Borrowers.
“Agent-Related Persons” means Agent, together with its Affiliates, officers, directors, employees, members, managers, attorneys, and agents.
“Agent Professionals” means attorneys, accountants, appraisers, auditors, business valuation experts, liquidation agents, collection agencies, auctioneers, environmental engineers or consultants, turnaround consultants, and other professionals and experts retained by Agent.
“Agent’s Bank” means the bank specified by Agent in Section 5 of Annex I or other bank as Agent may subsequently designate as such in writing to Borrower Representative.
“Agreement” and “this Agreement” has the meaning set forth in the preamble to this Agreement.
“Allocable Amounts” has the meaning set forth in Section 2.12(f)(ii) of this Agreement.
“Applicable Payment Percentage” has the meaning set forth in Section 12.10 of this Agreement.
“Applicable Percentage” has the meaning set forth in Section 3.2(e) this Agreement.
“Applicable Unused Line Rate” means, if the average balance of Revolving Loans for such determination period is less than $20,000,000, seven-tenths of one percent (0.70%) per annum; or, if the average balance of Revolving Loans for such determination period is equal to or greater than $20,000,000, three and three quarters tenth of one percent (0.375%).
2
“Approved Electronic Communication” means each notice, demand, communication, information, document and other material transmitted, posted or otherwise made or communicated by e-mail, facsimile, ABLSoft or any other equivalent electronic service, whether owned, operated or hosted by Agent, any of its Affiliates or any other Person, that any party is obligated to, or otherwise chooses to, provide to Agent pursuant to this Agreement or any other Loan Document, including any financial statement, financial and other report, notice, request, certificate and other information or material; provided, that Approved Electronic Communications shall not include any notice, demand, communication, information, document or other material that Agent specifically instructs a Person to deliver in physical form. “Approved Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business, in each case that is administered, managed, advised or underwritten by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Assignee” has the meaning set forth in Section 15.9(a).
“Assignment and Assumption” means an assignment and assumption agreement substantially in the form of Exhibit G.
“Assignment of Claims Act”, means the Assignment of Claims Act of 1940, as amended, currently codified at 31 U.S.C. 3727 and 41 U.S.C. 6305, and includes the prior historically referenced Federal Anti-Claims Act (31 U.S.C. 3727) and the Federal Anti-Assignment Act (41 U.S.C. 6305).
“Authorized Accounts Form” means an authorized accounts form substantially in the form of Exhibit D.
“Availability Block” means $5,000,000 until the Availability Block Release Date and thereafter $0.
“Availability Block Release Date” the earlier of (i) August 1, 2021 or (ii) date on which the Loan Party Obligors have received at least $15,000,000 in aggregate proceeds following the Third Amendment Effective Date from the issuance of additional equity in the form of membership interests (or warrants therefor) in Holdings.
“Bankruptcy Code” means the United States Bankruptcy Code (11 U.S.C. § 101 et seq.).
“Base Rate” means, for any day, the greatest of (a) the Floor, (b) the Federal Funds Rate in effect on such day plus ½%, (c) Adjusted Term SOFR in effect on such day, plus one percent (1.0%), provided, that this clause (c) shall not be applicable during any period in which Adjusted Term SOFR is unavailable or unascertainable, and (d) the rate of interest announced, from time to time, within Wells Fargo Bank, N.A. at its principal office in San Francisco as its “prime rate” in effect on such day, with the understanding that the “prime rate” is one of Wells Fargo Bank, N.A.’s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo Bank, N.A. may designate (or, if such rate ceases to be so published, as quoted from such other generally available and recognizable source as Agent may select in its Permitted Discretion).
3
“Base Rate Loan” means any Loan which bears interest at or by reference to the Base Rate.
“Base Rate Term SOFR Determination Day” has the meaning specified therefor in the definition of “Term SOFR”.
“Benchmark” means, initially, the Term SOFR Reference Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Reference Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 3.6(d).
“Benchmark Replacement” means, with respect to any Benchmark Transition Event, the sum of: (a) the alternate benchmark rate that has been selected by Agent and Borrower Representative giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for Dollar-denominated syndicated credit facilities and (b) the related Benchmark Replacement Adjustment; provided that if such Benchmark Replacement as so determined would be less than the Floor, such Benchmark Replacement shall be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by Agent and Borrower Representative giving due consideration to (a) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for Dollar-denominated syndicated credit facilities.
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark:
(a) in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide such Benchmark (or such component thereof); or
(b) in the case of clause (c) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by to be non-representative; provided that such non-representativeness, will be determined by reference to the most recent statement or publication referenced in such clause (c) even if such Benchmark (or such component thereof) continues to be provided on such date.
4
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark:
(a) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide such Benchmark (or such component thereof);
(b) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board of Governors, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide such Benchmark (or such component thereof); or
(c) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such Benchmark (or such component thereof) is not, or as of a specified future date will not be, representative.
“Benchmark Transition Start Date” means, in the case of a Benchmark Transition Event, the earlier of (a) the applicable Benchmark Replacement Date and (b) if such Benchmark Transition Event is a public statement or publication of information of a prospective event, the 90th day prior to the expected date of such event as of such public statement or publication of information (or if the expected date of such prospective event is fewer than 90 days after such statement or publication, the date of such statement or publication).
“Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.6(d) and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.6(d).
“Billed Accounts Advance Rate” means the advance rate set forth in Section 1(b)(i) of Annex I.
“Blocked Account” has the meaning set forth in Section 6.1.
“Board of Governors” means FRB.
“Borrower” and “Borrowers” has the meaning set forth in the preamble to this Agreement.
5
“Borrower Representative” means Rubicon, in such capacity pursuant to the provisions of Section 2.9, or any permitted successor Borrower Representative selected by Borrowers and approved by Lender.
“Borrowing Base” means, as of any date of determination, the Dollar Equivalent Amount as of such date of determination of (a) the aggregate amount of Eligible Billed Accounts multiplied by the Billed Accounts Advance Rate, plus (b) the aggregate amount of Eligible Unbilled Accounts multiplied by the Unbilled Accounts Advance Rate but in no event to exceed the Unbilled Accounts Sublimit, minus (c) the Availability Block, minus (d) the Term Loan Push-Down Reserve and minus (d) all Reserves which Agent has established pursuant to Section 2.1(b) (including those to be established in connection with any requested Revolving Loan).
“Borrowing Base Certificate” means a certificate in the form provided by Agent to Borrower Representative for use in reporting the Borrowing Base.
“Business Day” means a day other than a Saturday or, Sunday or any other day on which Agent or the Federal Reserve Bank of New York is closed.
“Capital Expenditures” means all expenditures which, in accordance with GAAP, would be required to be capitalized and shown on the consolidated balance sheet of Borrowers, but excluding expenditures made in connection with the acquisition, replacement, substitution or restoration of assets to the extent financed (a) from insurance proceeds (or other similar recoveries) paid on account of the loss of or damage to the assets being replaced or restored or (b) with cash awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced.
“Capitalized Lease” means any lease which is or should be capitalized on the balance sheet of the lessee thereunder in accordance with GAAP.
“Client User Form” means a client user form in substantially the form attached hereto as Exhibit C.
“Closing Date” means December 14, 2018.
“Closing Fee” has the meaning set forth in Section 3.2(a) of this Agreement.
“Code” means the Internal Revenue Code of 1986, as amended.
“Collateral” means all property and interests in property in or upon which a security interest, mortgage, pledge or other Lien is granted pursuant to this Agreement or the other Loan Documents, including all of the property of each Loan Party Obligor described in Section 5.1.
6
“Collections” has the meaning set forth in Section 6.1.
“Commitment” and “Commitments” means, individually or collectively as required by the context, the Revolving Loan Commitment.
“Commitment Schedule” means the Commitment Schedule attached hereto as Annex III.
“Compliance Certificate” means a compliance certificate substantially in the form of Exhibit F hereto to be signed by the Chief Financial Officer or President of Borrower Representative.
“Confidential Information” means confidential information that any Loan Party furnishes to the Agent pursuant to any Loan Document concerning any Loan Party’s business, but does not include any such information once such information has become, or if such information is, generally available to the public or available to the Agent (or other applicable Person) from a source other than the Loan Parties which is not, to the Agent’s knowledge, bound by any confidentiality obligation in respect thereof.
“Conforming Changes” means, with respect to either the use or administration of Term SOFR or the use, administration, adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day” or any similar or analogous definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of Section 3.6(d) and other technical, administrative or operational matters) that Agent in consultation with Borrowers decides may be appropriate to reflect the adoption and implementation of any such rate or to permit the use and administration thereof by Agent in a manner substantially consistent with market practice (or, if Agent decides that adoption of any portion of such market practice is not administratively feasible or if Agent in consultation with Borrowers determines that no market practice for the administration of any such rate exists, in such other manner of administration as Agent in consultation with Borrowers decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Control Agreement” means an agreement with respect to any deposit, securities or commodities account, in form and substance reasonably satisfactory to Agent, establishing control (as defined in the UCC to the extent applicable) of such account by Agent and is executed and delivered by the bank (with respect to a deposit account), securities intermediary (with respect to a securities account), or commodities intermediary (with respect to a commodities account) maintaining such account, the applicable Loan Party Obligor, Agent and Term Agent.
7
“Credit Bid” has the meaning set forth in Section 14.9 of this Agreement.
“Default” means any event or circumstance which with notice or passage of time, or both, would constitute an Event of Default.
“Default Rate” has the meaning set forth in Section 3.1.
“Defaulting Lender” means any Lender that (a) has failed, within one (1) Business Day of the date required to be funded or paid, to (i) fund any portion of its Loans or (ii) pay over to Agent or any other Lender any other amount required to be paid by it hereunder, (b) has notified Borrower Representative or Agent in writing, or it or its parent has made a public statement, to the effect that it does not intend or expect to comply with any of its funding obligations under this Agreement or generally under other agreements in which it or its parent commits to extend credit, (c) has failed, within two (2) Business Days after request by Agent, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon Agent’s receipt of such certification in form and substance satisfactory to Agent, (d) had an involuntary proceeding commenced or an involuntary petition filed seeking (i) liquidation, reorganization or other relief in respect of such Lender or its parent or its or its parent’s debts, or of a substantial part of its or its parent’s assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Lender or its parent or for a substantial part of its or its parent’s assets, or (e) shall have or whose parent shall have (i) voluntarily commenced any proceeding or filed any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consented to the institution of, or failed to contest in a timely and appropriate manner, any proceeding or petition described in clause (d) of this definition, (iii) applied for or consented to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for it or a substantial part of its assets, (iv) filed an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) made a general assignment for the benefit of creditors or (vi) taken any action for the purpose of effecting any of the foregoing.
“Dilution” means, as of any date of determination, a percentage, based upon the experience of the immediately prior twelve (12) months, that is the result of dividing the Dollar Equivalent Amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to a Borrower’s Accounts during such period by (b)such Borrower’s billings with respect to Accounts during such period.
“Dilution Reserve” has the meaning set forth in Section 1(b)(i) of Annex I.
“Division” in reference to any Person which is an entity, means the division of such Person into two (2) or more separate 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.
8
“Dollar Equivalent Amount” means, at any time, (a) as to any amount denominated in Dollars, the amount thereof at such time, and (b) as to any amount denominated in a currency other than Dollars, the equivalent amount in Dollars as determined by Agent at such time that such amount could be converted into Dollars by Agent according to prevailing exchange rates selected by Agent.
“Dollars” or “$” means United States Dollars.
“E-Signature” means the process of attaching to or logically associating with an Approved Electronic Communication an electronic symbol, encryption, digital signature or process (including the name or an abbreviation of the name of the party transmitting the Approved Electronic Communication) with the intent to sign, authenticate or accept such Approved Electronic Communication.
“Early Payment/Termination Premium” has the meaning set forth in Section 3.2(e).
“EBITDA” means, for the applicable period, for the Loan Parties on a consolidated basis, the sum of: (a) Net Income; plus (b) Interest Expense deducted in the calculation of such Net Income; plus (c) all fees, costs and expenses (including all fees, costs and expenses paid to the Agent, Term Agent, and Third Lien Agent) incurred in connection with outstanding Indebtedness (including all fees, costs and expenses paid to the Agent, Term Agent, and Third Lien Agent incurred in connection with amendments or modifications to, or waivers or consents under this Agreement, the other Loan Documents, the Term Loan Agreement, the other Term Loan Documents, the Third Lien Loan Agreement, and the other Third Lien Loan Documents); plus (d) taxes on income, whether paid, payable or accrued, deducted in the calculation of such Net Income; plus (e) depreciation expense deducted in the calculation of such Net Income; plus (f) amortization expense deducted in the calculation of such Net Income; plus (g) any other non-cash charges that have been deducted in the calculation of such Net Income; plus (h) other nonrecurring costs and expenses approved by Agent in its reasonable discretion; minus (i) any other non-cash gains that have been added in the calculation of such Net Income.
“Eclipse” means Eclipse Business Capital LLC, a Delaware limited liability company.
“Electronic Signatures in Global and National Commerce Act” means 15 U.S.C. § 7001 et seq.
“Eligible Accounts” means, collectively, Eligible Billed Accounts and Eligible Unbilled Accounts.
“Eligible Billed Account” means, at any time of determination and subject to the criteria below, an Account of a Borrower, which was generated and billed by a Borrower in the Ordinary Course of Business, and which Agent, in its Permitted Discretion, deems to be an Eligible Billed Account. The net amount of an Eligible Billed Account at any time shall be the face amount of such Eligible Billed Account as originally billed minus all customer deposits, unapplied cash collections and other Proceeds of such Account received from or on behalf of the Account Debtor thereunder as of such date and any and all returns, rebates, discounts (which may, at Agent’s option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time. Without limiting the generality of the foregoing, the following Accounts shall not be Eligible Billed Accounts:
9
(i) the Account Debtor or any of its Affiliates is an Affiliate of any Loan Party;
(ii) it remains unpaid longer than the earlier to occur of (A) the number of days after the original invoice date set forth in Section 4(a) of Annex I or (B) the number of days after the original invoice due date set forth in Section 4(b) of Annex I;
(iii) the Account Debtor or its Affiliates are past any of the applicable dates referenced in clause (ii) above on other Accounts owing to a Borrower comprising more than twenty-five percent (25%) of all of the Accounts owing to a Borrower by such Account Debtor or its Affiliates;
(iv) all Accounts owing by the Account Debtor or its Affiliates (excluding the Account Debtors Walmart, Inc.(“Walmart”), Five Below (“Five Below”) and TJ Maxx (“TJ Maxx”)) represent more than fifteen percent (15%) of all otherwise Eligible Billed Accounts (for Walmart, such percentage shall be twenty-five percent (25%))(for Five Below, such percentage shall be twenty percent (20%) solely for RiverRoad) (for TJ Maxx such percentage shall be twenty percent (20%) solely for Rubicon); provided, that Accounts which are deemed to be ineligible solely by reason of this clause (iv) shall be considered Eligible Billed Accounts to the extent of the amount thereof which does not exceed the applicable percentages set forth above of all otherwise Eligible Billed Accounts;
(v) a covenant, representation or warranty contained in this Agreement or any other Loan Document with respect to such Account (including any of the representations set forth in Section 7.4) has been breached;
(vi) the Account is subject to any contra relationship, counterclaim, dispute or set-off; provided, that Accounts which are deemed to be ineligible by reason of this clause (vi) shall be considered ineligible only to the extent of such applicable contra relationship, counterclaim, dispute or set-off;
(vii) the Account Debtor’s chief executive office or principal place of business is located outside of the United States;
(viii) it is payable in a currency other than Dollars;
(ix) it is not absolutely owing to a Borrower or arises from a sale on a bill-and-hold, guarantied sale, sale-or-return, sale-on-approval, consignment, retainage or any other repurchase or return basis or consist of progress billings or other advance billings that are due prior to the completion of performance by a Borrower of the subject contract for goods or services;
10
(x) the Account Debtor is the United States of America or any state or political subdivision (or any department, agency or instrumentality thereof), unless such Borrower has complied with the Assignment of Claims Act or other applicable similar state or local law in a manner reasonably satisfactory to Agent;
(xi) it is not at all times subject to Agent’s duly perfected, first-priority security interest or is subject to any other Lien that is not a Permitted Lien, or the goods giving rise to such Account were, at the time of sale, subject to any Lien that is not a Permitted Liens;
(xii) it is evidenced by Chattel Paper or an Instrument of any kind (unless such Chattel Paper or Instrument is delivered to Agent in accordance with Section 5.2) or has been reduced to judgment;
(xiii) the Account Debtor’s total indebtedness to Borrowers exceeds the amount of any credit limit established by Borrowers or Agent or the Account Debtor is otherwise deemed not to be creditworthy by Agent; provided, that Accounts which are deemed to be ineligible solely by reason of this clause (xiii) shall be considered Eligible Billed Accounts to the extent the amount of such Accounts does not exceed the lower of such credit limits;
(xiv) there are facts or circumstances existing, or which could reasonably be anticipated to occur, which might result in an adverse change in the Account Debtor’s financial condition or impair or delay the collectability of all or any portion of such Account;
(xv) Agent has not been furnished with all documents and other information pertaining to such Account which Agent has requested, or which any Borrower is obligated to deliver to Agent, pursuant to this Agreement;
(xvi) Any Borrower has made an agreement with the Account Debtor to extend the time of payment thereof beyond the time periods set forth in clause (ii) above;
(xvii) Any Borrower has posted a surety or other bond in respect of the contract or transaction under which such Account arose;
(xviii) the Account Debtor is subject to any proceeding seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar applicable law;
(xix) the sale giving rise to such Account is on cash in advance or cash on delivery terms;
(xx) the goods giving rise to such Account have been sold by a Borrower to the Account Debtor outside such Borrower’s Ordinary Course of Business or the services giving rise to such Account have been performed by Borrower outside such Borrower’s Ordinary Course of Business;
11
(xxi) Accounts with respect to which (i) the goods giving rise to such Account have not been shipped and billed to the Account Debtor, or (ii) the services giving rise to such Account have not been performed and billed to the Account Debtor;
(xxii) the Account Debtor on such Accounts is located in any jurisdiction which adopts a statute or other requirement that any Person that obtains business from within such jurisdiction or is otherwise subject to such jurisdiction’s tax law must file a “Business Activity Report” (or other applicable report) or make any required filings in a timely manner in order to enforce its claims in such jurisdiction’s courts or arising under such jurisdiction’s laws; provided, however, that such Accounts shall nonetheless be Eligible Billed Accounts if such Borrower has filed a “Business Activity Report” (or other applicable report or required filing);
(xxiii) any Eligible Unbilled Accounts or
(xxiv) any Accounts obtained in a Permitted Acquisition unless Agent has caused a field examination to be performed on such Accounts and the results of such examination are satisfactory to Agent and Agent has consented to such Accounts being Eligible Billed Accounts in writing.
“Eligible Unbilled Accounts” means at any time of determination and subject to the criteria set forth in the definition of Eligible Billed Account (other than the disqualification in subsection (xxi) thereof as to the Account not having been “billed”) an Account of a Borrower (excluding all Eligible Billed Accounts), which was generated by a Borrower in the Ordinary Course of Business but not yet billed, and which Agent, in its Permitted Discretion, deems to be an Eligible Unbilled Account, provided, no Account that arises from services provided more than 60 days prior to the date of determination shall qualify as an Eligible Unbilled Account unless (i) Agent has been provided with supporting documentation relating to such Account, (ii) such account will be billed in the next billing cycle for such Account Debtor and (iii) such Account does not arise from services provided more than 60 days prior to the end of the month during which such services were rendered.
“Enforcement Action” means any action to enforce any Obligations or Loan Documents or to exercise any rights or remedies relating to any Collateral, whether by judicial action, self-help, notification of Account Debtors, setoff or recoupment, credit bid, deed in lieu of foreclosure, action in any proceeding seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar applicable law or otherwise.
“ERISA” means the Employee Retirement Income Security Act of 1974 and all rules, regulations and orders promulgated thereunder.
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with a Loan Party within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code and Section 302 of ERISA).
12
“ERISA Event” means: (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by a Loan Party or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon a Loan Party or any ERISA Affiliate.
“Event of Default” has the meaning set forth in Section 11.1.
“Excess Availability” means the amount, as determined by Agent, calculated at any date, equal to the (a) the lesser of (i) the Maximum Revolving Facility Amount minus Reserves (including, without limitation, the Term Loan Push-Down Reserve) and (ii) the Borrowing Base, minus (b) the sum of (i) the outstanding balance of all Revolving Loans plus (ii) fees and expenses which are due and payable by any Borrower under this Agreement but which have not been paid or charged to the Loan Account; provided, that if any of the Loan Limits for Revolving Loans is exceeded as of the date of calculation, then Excess Availability shall be zero.
“Exchange Act” means the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of Agent or any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof); (b) in the case of a Non-U.S. Recipient (as defined in Section 13(e)), U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Non-U.S. Recipient with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which Non-U.S. Recipient becomes a party to this Agreement or acquires a participation, except in each case to the extent that, pursuant to Section 13 amounts with respect to such Taxes were payable either to such Non-U.S. Recipient assignor (or Lender granting such participation) immediately before such assignment or grant of participation; (c) United States federal withholding Taxes that would not have been imposed but for such Recipient’s failure to comply with Section 13(e) (except where the failure to comply with Section 13(e) was the result of a change in law, ruling, regulation, treaty, directive, or interpretation thereof by a Governmental Authority after the date the Recipient became a party to this Agreement or a Participant) and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.
13
“FATCA” means 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) and any current or future regulations or official interpretations thereof.
“Fifth Amendment Effective Date” means April 25, 2022.
“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended.
“Fiscal Year” means the fiscal year of Borrowers which ends on December 31 of each year.
“Fixed Charge Coverage Ratio” means, as of the last day of any applicable period, the ratio of (i) EBITDA for the twelve-month period then ending, minus unfinanced Capital Expenditures of the Loan Parties on a consolidated basis for such period, to (ii) Fixed Charges for such period.
“Fixed Charges” means, for the period in question, on a consolidated basis, the sum of (a) all principal payments scheduled or required to be made during or with respect to such period in respect of Indebtedness of the Loan Parties, plus (b) all Interest Expense of the Loan Parties for such period paid or required to be paid in cash attributable to such period, plus (c) all taxes of the Loan Parties paid or required to be paid for such period and plus (d) all cash distributions, dividends, redemptions, Permitted Tax Distributions and other cash payments made or required to be made during such period with respect to equity securities issued by any Loan Party. As used in clause (a) of this definition, “principal payments scheduled or required to be made during or with respect to such period in respect of Indebtedness,” shall not include such greater portion of principal amount that will become due upon the date of maturity of an Indebtedness in excess of the principal portion of a regularly scheduled amortization payment that would be due on or about such date of maturity under the applicable amortization schedule for such Indebtedness but for the maturity of the entire Indebtedness on such date of maturity.
“Floor” means one percent (1%).
“Fourth Amendment Effective Date” means October 15, 2021.
“FRB” means the Board of Governors of the Federal Reserve System or any successor thereto.
“Funding Account” has the meaning set forth in Section 2.3(b).
14
“GAAP” means generally accepted accounting principles set forth from time to time 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 agencies with similar functions of comparable stature and authority within the United States accounting profession) which are applicable to the circumstances as of the date of determination, in each case consistently applied.
“Governing Documents” means, with respect to any Person, the certificate of incorporation, articles of incorporation, certificate of formation, certificate of limited partnership, by-laws, operating agreement, limited liability company agreement, limited partnership agreement or other similar governance document of such Person.
“Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Guarantor Payment” has the meaning set forth in Section 2.12(f)(i).
“Guaranty” or “Guarantied”, as applied to any Indebtedness, liability or other obligation, means (a) a guaranty, directly or indirectly, in any manner, including by way of endorsement (other than endorsements of negotiable instruments for collection in the Ordinary Course of Business), of any part or all of such Indebtedness, liability or obligation and (b) an agreement, contingent or otherwise, and whether or not constituting a guaranty, assuring, or intended to assure, the payment or performance (or payment of damages in the event of non-performance) of any part or all of such Indebtedness, liability or obligation by any means (including the purchase of securities or obligations, the purchase or sale of property or services or the supplying of funds).
“Indebtedness” means (without duplication), with respect to any Person, (a) all obligations or liabilities of such Person, contingent or otherwise, for borrowed money, (b) all obligations of such Person represented by promissory notes, bonds, debentures or the like, or on which interest charges are customarily paid, (c) all liabilities secured by any Lien on such Person’s property owned or acquired, whether or not such liability shall have been assumed by such Person, (d) all obligations of such Person under conditional sale or other title-retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade payables which are not ninety (90) days past the invoice date incurred in the Ordinary Course of Business, but including the maximum potential amount payable under any earn-out or similar obligations), (f) all Capitalized Leases of such Person, (g) all obligations (contingent or otherwise) of such Person as an account party or applicant in respect of letters of credit and bankers’ acceptances or in respect of financial or other hedging obligations, (h) all equity interests issued by such Person subject to repurchase or redemption at any time on or prior to the Scheduled Maturity Date (valued at, in the case of redeemable preferred equity interests, the greater of the voluntary liquidation preference and the involuntary liquidation preference of such equity interests plus accrued and unpaid dividends), other than voluntary repurchases or redemptions that are at the sole option of such Person, (i) all principal outstanding under any synthetic lease, off-balance sheet loan or similar financing product of such Person and (j) all Guaranties, endorsements (other than for collection in the Ordinary Course of Business) and other contingent obligations of such Person in respect of the obligations of others.
15
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
“Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks and trademark licenses and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.
“Intercreditor Agreement” means that certain Amended and Restated Intercreditor Agreement, dated as of February 27, 2020, by and between Agent and Term Agent, and acknowledged and agreed by the Borrowers and the other Loan Party Obligors, as the same may be amended, restated, supplemented or replaced from time to time subject to the terms thereof.
“Interest Expense” means, for the applicable period, for the Loan Parties on a consolidated basis, total interest expense (including interest attributable to Capitalized Leases in accordance with GAAP) and fees with respect to outstanding Indebtedness.
“Investment Property” means the collective reference to (a) all “investment property” as such term is defined in Section 9-102 of the UCC, (b) all “financial assets” as such term is defined in Section 8-102(a)(9) of the UCC and (c) whether or not constituting “investment property” as so defined, all Pledged Equity.
“Issuers” means the collective reference to each issuer of Investment Property.
“Lender” means each Person listed on the Commitment Schedule and any other Person that shall have become a Lender hereunder pursuant to an Assignment and Assumption, other than any such Person that ceases to be a Lender hereunder pursuant to an Assignment and Assumption. Unless the context expressly provides otherwise, “Lender” shall include the Swingline Lender.
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory or other), security interest or other security arrangement and any other preference, priority, or preferential arrangement in the nature of a security interest of any kind or nature whatsoever, including any conditional sale contract or other title-retention agreement, the interest of a lessor under a Capitalized Lease and any synthetic or other financing lease having substantially the same economic effect as any of the foregoing.
“Loan Account” has the meaning set forth in Section 3.4.
16
“Loan Documents” means, collectively, this Agreement and all notes, guaranties, security agreements, mortgages, certificates, landlord’s agreements, Lock Box and Blocked Account agreements, Borrowing Base Certificates, Intercreditor Agreement, the Third Lien Subordination Agreement, Compliance Certificates, the Subordinated Debt Subordination Agreement and all other agreements, documents and instruments now or hereafter executed or delivered by any Borrower, any Loan Party, or any Other Obligor in connection with, or to evidence the transactions contemplated by, this Agreement.
“Loan Guaranty” means the guaranty encompassed in Section 12.
“Loan Limits” means, collectively, the Loan Limits for Revolving Loans set forth in Section 1 of Annex I and all other limits on the amount of Loans set forth in this Agreement.
“Loan Party” means Rubicon, RiverRoad, Charter, Holdings and CleanCo.
“Loan Party Obligor” means, individually, each Borrower, Charter, Holdings and CleanCo and any Obligor that becomes a Loan Party hereafter; and “Loan Party Obligors” means, collectively, each Borrower and each Loan Party Obligor.
“Loans” means, collectively, the Revolving Loans (including any Protective Advances and Overadvances) and the Swingline Loans.
“Lock Box” has the meaning set forth in Section 6.1.
“Material Adverse Effect” means any event, act, omission, condition or circumstance which, which individually or in the aggregate, has or could reasonably be expected to have a material adverse effect on (a) the business, operations, properties, assets or condition, financial or otherwise, of any Loan Party or any Other Obligor, as applicable, (b) the ability of any Loan Party or any Other Obligor, as applicable, to perform any of its obligations under any of the Loan Documents, (c) the validity or enforceability of, or Agent’s and Lenders’ rights and remedies under, any of the Loan Documents, (d) the ability of Agent and Lenders to realize upon Collateral in which Agent has previously perfected a Lien or (e) the existence, perfection or priority of any security interest granted in any Loan Document and covering Collateral in which Agent has previously perfected a Lien; provided, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to any action required or permitted by this Agreement or action taken (or omitted to be taken) with the written consent of or at the written request of Agent.
“Material Contract” means has the meaning set forth in Section 7.18.
“Maturity Date” means the Scheduled Maturity Date (or, if earlier, the Termination Date), or such earlier date as (i) the Obligations may be accelerated in accordance with the terms of this Agreement (including pursuant to Section 11.2) or, (ii) ninety (90) days prior to the Maturity Date under (and as defined in) the Term Loan Agreement shall occur or (iii) the Maturity Date under (and as defined in) the Third-Lien Loan Agreement.
17
“Maximum Lawful Rate” has the meaning set forth in Section 3.5.
“Maximum Liability” has the meaning set forth in Section 12.9.
“Maximum Revolving Facility Amount” means the amount set forth in Section 1(a) of Annex I.
“Merger Agreement” has the meaning set forth in the Fifth Amendment.
“Merger Sub LLC” has the meaning set forth in the Fifth Amendment.
“Minimum Revolving Outstanding Amount” means Revolving Loans in an aggregate principal amount equal to $25,000,00020,000,000.
“Minimum Revolver Period” means from the Third Amendment Effective Date through and including September 30December 31, 20212023.
“Monthly Administration Fee” has the meaning set forth in Section 3.2(b).
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which a Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
“Net Income” means, for the applicable period, for the Loan Parties on a consolidated basis, the net income (or loss) of the Loan Parties on a consolidated basis, as applicable, for such period, excluding any gains or non-cash losses from dispositions, any extraordinary gains or extraordinary non-cash losses and any gains or non-cash losses from discontinued operations, in each case, for such period.
“Non-Consenting Lender” has the meaning set forth in Section 15.5(b).
“Non-Paying Guarantor” has the meaning set forth in Section 12.10.
“Non-U.S. Recipient” has the meaning set forth in Section 13(e)(ii).
“Notice of Borrowing” has the meaning set forth in Section 2.3.
“Obligations” means all present and future Loans, advances, debts, liabilities, fees, expenses, obligations, guaranties, covenants, duties and indebtedness at any time owing by any Borrower or any Loan Party Obligor to Agent and Lenders, whether evidenced by this Agreement or any other Loan Document, whether arising from an extension of credit, guaranty, indemnification or otherwise, whether direct or indirect, whether absolute or contingent, whether due or to become due and whether arising before or after the commencement of a proceeding under the Bankruptcy Code or any similar statute.
18
“Obligor” means any guarantor, endorser, acceptor, surety or other Person liable on, or with respect to, any of the Obligations or who is the owner of any property which is security for any of the Obligations, other than Borrower.
“Ordinary Course of Business” means, in respect of any transaction involving any Person, the ordinary course of business of such Person, as conducted by such Person as of the Closing Date and, without obligation on the part of such Person to undertake such practices, any practices that are utilized to improve past practices or to conform with customary operating procedures for a similar business, as reasonably determined by such Person.
“Other Obligor” means any Obligor other than any Loan Party Obligor.
“Other Taxes” means all present or future stamp, court or documentary, property, excise, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document.
“Outstanding Amount” means with respect to Revolving Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Revolving Loans occurring on such date.
“Overadvances” has the meaning set forth in Section 2.2(b).
“Parent” means Rubicon Technologies Holdings, LLC.
“Participant” has the meaning set forth in Section 15.10(b).
“Paying Guarantor” has the meaning set forth in Section 12.10.
“PBGC” means the Pension Benefit Guaranty Corporation.
“Pension Act” means the Pension Protection Act of 2006.
“Pension Funding Rules” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and Multiemployer Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA, and any sections of the Code or ERISA related thereto that are enacted after the date of this Agreement.
“Pension Plan” means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by a Loan Party and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.
19
“Perfection Certificate” means the Perfection Certificate attached to this Agreement as of the Closing Date, together with any updates thereto as contemplated by this Agreement or otherwise permitted by Agent from time to time.
“Periodic Term SOFR Determination Day” has the meaning specified therefor in the definition of “Term SOFR”.
“Permitted Acquisition” means any consensual acquisition by any Loan Party Obligor (other than asset acquisitions by Holdings), whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the equity interests of, or a business line or unit or a division of, any Person; in each case, provided:
(i) no Default or Event of Default shall have occurred and be continuing either immediately prior to or immediately after giving effect to such acquisition;
(ii) at or prior to the closing of any such acquisition, Agent will be granted a first priority Lien (subject only to Permitted Liens) in favor of Agent in substantially all the assets(wherever located) acquired pursuant thereto constituting Collateral (including, if applicable, any equity interests of any Person being acquired), and the Loan Party Obligors, and such Person shall have executed such documents and taken such actions as may be reasonably required by Agent in connection therewith (including, without limitation, the delivery of (A) certified copies of the resolutions of the governing board of Parent, any applicable Loan Party Obligor and such Person authorizing such Permitted Acquisition and the granting of Liens described herein, (B) legal opinions, in form and substance reasonably acceptable to Agent, with respect to the transactions described herein (if required), (C) evidence of insurance of the business to be acquired consistent with the requirements of this Agreement and (D) any joinders or other agreements required pursuant to Section 5.3);
(iii) the Borrower Representative shall have furnished Agent with five (5) Business Days’ (or such shorter period as may be agreed by agent) prior written notice of such intended acquisition and shall have furnished Agent with a current draft of the applicable material acquisition documents (and final copies thereof as and when executed);
(iv) before and after giving pro forma effect to such acquisition, (y) the Fixed Charge Coverage Ratio for the trailing twelve-month period most recently ended is greater than 1.10 and (z) Excess Availability is not less than $15,000,000, and Borrower Representative shall have furnished to Agent calculations and evidence of compliance with such requirements; and
the Borrower Representative shall have furnished to Agent at least ten (10) Business Days prior to the date on which any such acquisition is to be consummated or such shorter time as Agent may allow, a certificate of a responsible officer of Borrower, in form and substance reasonably satisfactory to Agent, certifying that all of the other requirements for a Permitted Acquisition will be satisfied on or prior to the closing date of such acquisition; provided, further that no hostile takeover or non-consensual transaction shall qualify as a Permitted Acquisition.
20
“Permitted Discretion” means a determination made by Agent in good faith and in the exercise of reasonable (from the perspective of an asset-based secured lender) business judgment.
“Permitted Equity Transfers” means transfers of beneficial ownership interests in Parent in compliance with Parent’s Governing Documents, provided that following such transfers, current equity owners as of the Closing Date continue (i) to, directly or indirectly, own and control at least fifty-one percent (51%) of the aggregate Voting Power represented by the issued and outstanding equity interests of Parent on a fully diluted basis and (ii) to possess the right to elect (through contract, ownership of voting securities or otherwise) at all times a majority of the board of directors (or similar governing body) of Parent and to direct the management policies and decisions of Parent.
“Permitted Indebtedness” means: (a) the Obligations; (b) the Indebtedness existing on the date hereof described in Section 7 of the Perfection Certificate; in each case along with extensions, refinancings, modifications, amendments and restatements thereof; provided, that (i) the principal amount thereof is not increased, (ii) if secured by a Permitted Lien, no additional collateral beyond that existing as of the Closing Date is granted to secure such Indebtedness; (iii) if such Indebtedness is subordinated to any or all of the Obligations, the applicable subordination terms shall not be modified without the prior written consent of Agent and (iv) the terms thereof are not modified to impose more burdensome terms upon any Loan Party; (c) Capitalized Leases and purchase-money Indebtedness secured by Permitted Liens in an aggregate amount not exceeding $15,000,000 at any time outstanding; (d) Indebtedness incurred as a result of endorsing negotiable instruments received in the Ordinary Course of Business; (e) Term Debt in an aggregate principal amount not to exceed the limits set forth in the Intercreditor Agreement; (f) the Subordinated Debt owing by Borrower solely to the extent the Subordinated Debt is subject to, and permitted by, the Subordinated Debt Subordination Agreement and (g) Indebtedness incurred under the Third Lien Loan Agreement in an aggregate principal amount at any time outstanding not to exceed $20,000,000 (plus amounts capitalized to principal in accordance with the terms of the Third Lien Loan Agreement as in effect on the Third Lien Debt Incurrence Date) so long as such Indebtedness is subject to the Third Lien Subordination Agreement.
“Permitted Liens” means (a) purchase-money security interests in specific items of Equipment securing Permitted Indebtedness described under clause (c) of the definition of Permitted Indebtedness; (b) Liens for taxes, fees, assessments, or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings (which proceedings have the effect of preventing the enforcement of such Lien) for which adequate reserves in accordance with GAAP are being maintained provided the same have no priority over any of Agent’s security interests; (c) Liens of materialmen, mechanics, carriers, or other similar Liens arising in the Ordinary Course of Business and securing obligations which are not delinquent or are being contested in good faith by appropriate proceedings (which proceedings have the effect of preventing the enforcement of such Lien) for which adequate reserves in accordance with GAAP are being maintained; (d) Liens which constitute banker’s Liens, rights of set-off, or similar rights as to Deposit Accounts or other funds maintained with a bank or other financial institution (but only to the extent such banker’s Liens, rights of set-off or other rights are in respect of customary service charges relative to such Deposit Accounts and other funds, and not in respect of any loans or other extensions of credit by such bank or other financial institution to any Loan Party); (e) cash deposits or pledges of an aggregate amount not to exceed $100,000 to secure the payment of worker’s compensation, unemployment insurance, or other social security benefits or obligations, public or statutory obligations, surety or appeal bonds, bid or performance bonds, or other obligations of a like nature incurred in the Ordinary Course of Business; (f) judgment Liens in respect of judgments that do not constitute an Event of Default; (g) Liens securing the Term Debt, subject to the Intercreditor Agreement, including the relative Lien priorities set forth therein; and (h) Liens securing Third Lien Obligations, subject to the terms of the Third Lien Subordination Agreement, including the relative Lien Priorities set forth therein.
21
“Permitted SPAC Merger” means the merger of Merger Sub LLC with and into Holdings, provided:
(i) the SPAC Merger shall be consummated pursuant to and in accordance with the terms and conditions of the Merger Agreement as in effect as of the Fifth Amendment Effective Date;
(ii) the SPAC Merger shall constitute a Permitted Equity Transfer; and
(iii) Agent shall maintain a Requisite Priority Lien (subject only to Permitted Liens) in the Collateral, and in connection therewith: (A) Loan Party Obligors and Merger Sub LLC shall deliver to the Agent certified copies of the resolutions of the governing board of any applicable Loan Party Obligor and such Person authorizing such Permitted SPAC Merger; (B) Holdings shall execute and deliver a Ratification Agreement, in form and substance reasonably acceptable to the Agent, ratifying and confirming the Loan Documents in its capacity as Borrower and Loan Party Obligor; and (C) Holdings and the Agent shall have agreed to the form of a UCC 3 amendment giving effect to Holdings name change to Rubicon Technologies Holdings, LLC or such other name as agreed upon among the Loan Parties.
The Borrower Representative shall have furnished to Agent at least five (5) Business Days (or such shorter period as may be agreed by Agent) prior to the date on which the SPAC Merger is to be consummated or such shorter time as Agent may allow, a certificate of a responsible officer of Borrower, in form and substance reasonably satisfactory to Agent, certifying that all of the other requirements for a Permitted SPAC Merger will be satisfied on or prior to the closing date of the SPAC Merger.
“Permitted Tax Distributions” means, with respect to any Person, for any taxable period after the Closing Date during which time such Person is a pass-through entity for income tax purposes, any dividend or distribution to any holder of such Person’s stock or other equity interests to permit such holders to pay federal income taxes and all relevant state and local income taxes at a rate equal to the highest marginal applicable tax rate for the applicable tax year, however denominated imposed as a result of taxable income allocated to such holder as a partner of such Person under federal, state, and local income tax laws, taking into account applicable deductions, losses, and credits of such Person (including, without limitation, deductions pursuant to Section 199A of the Internal Revenue Code) and allocated to such holder in proportion and to the extent of such holder’s hold stock or other equity interests of such Person.
22
“Person” means any individual, sole proprietorship, partnership, joint venture, limited liability company, trust, unincorporated organization, association, corporation, government or any agency or political division thereof, or any other entity.
“Plan” means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan) maintained for employees of any Loan Party or any such plan to which any Loan Party (or with respect to any plan subject to Section 412 of the Code or Section 302 or Title IV of ERISA, any ERISA Affiliate) is required to contribute on behalf of any of its employees.
“Pledged Equity” means the equity interests listed on Sections 1(f) and 1(g) of the Perfection Certificate, together with any other equity interests, certificates, options, or rights or instruments of any nature whatsoever in respect of the equity interests of any Person that may be issued or granted to, or held by, any Loan Party Obligor while this Agreement is in effect, and including, to the extent attributable to, or otherwise related to, such pledged equity interests, all of such Loan Party Obligor’s (a) interests in the profits and losses of each Issuer, (b) rights and interests to receive distributions of each Issuer’s assets and properties and (c) rights and interests, if any, to participate in the management of each Issuer related to such pledged equity interests.
“Pro Rata Share” means with respect to all matters relating to any Lender the percentage obtained by dividing (i) the Loan Commitment of that Lender by (ii) the aggregate Loan Commitments of all Lenders, in each case as any such percentages may be adjusted by assignments pursuant to an Assignment and Assumption.
“Protective Advances” has the meaning set forth in Section 2.2(a).
“Recipient” means any Agent, any Lender, any Participant, or any other recipient of any payment to be made by or on account of any Obligation of any Loan Party under this Agreement or any other Loan Document, as applicable.
“Register” has the meaning set forth in Section 15.9(c).
“Released Parties” has the meaning set forth in Section 10.1.
“Relevant Governmental Body” means the Federal Reserve Board or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board or the Federal Reserve Bank of New York, or any successor thereto.
“Replacement Lender” has the meaning set forth in Section 3.6(c).
23
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty-day notice period has been waived.
“Required Lenders” means at any time Lenders (other than Defaulting Lenders) then holding at least fifty-one percent (51%) of the sum of their aggregate Loan Commitment then in effect; provided, that if there are two or more Lenders, then Required Lenders shall include at least two (2) Lenders (Lenders that are Affiliates or Approved Funds of one (1) another being considered as one Lender for purposes of this proviso).
“Reserves” has the meaning set forth in Section 2.1(b).
“Restricted Accounts” means Deposit Accounts (a) established and used (and at all times will be used) solely for the purpose of paying current payroll obligations of Loan Parties (and which do not (and will not at any time) contain any deposits other than those necessary to fund current payroll), in each case in the Ordinary Course of Business, or (b) maintained (and at all times will be maintained) solely in connection with an employee benefit plan, but solely to the extent that all funds on deposit therein are solely held for the benefit of, and owned by, employees (and will continue to be so held and owned) pursuant to such plan.
“Revolving Loan Commitment” means (a) as to any Lender, the aggregate commitment of such Lender to make Revolving Loans as set forth in the Commitment Schedule or in the most recent Assignment and Assumption to which it is a party (as adjusted to reflect any assignments as permitted hereunder) and (b) as to all Lenders, the aggregate commitment of all Lenders to make Revolving Loans, which aggregate commitment shall be in an amount equal to the Maximum Revolving Facility Amount.
“Revolving Loans” has the meaning set forth in Section 2.1(a).
“Rodina Capital Financing Commitment Letter” means that certain Financing Commitment Letter dated November 14, 2022, by and between Rubicon Technologies, Inc. and Rodina Capital.
“S-1 Filing” means the registration statement on Form S-1 initially filed by Rubicon Technologies, Inc. on August 22, 2022 with the Securities and Exchange Commission (the “SEC”), as the same may be amended or supplemented.
“S-1 Trigger Date” means the earlier of five (5) Business Days after the date the S-1 Filing becomes effective and January 31February 3, 2023.
“Scheduled Maturity Date” means the date set forth in Section 6 of Annex I.
“Securities Act” means the Securities of Act of 1933, as amended.
“Settlement” has the meaning set forth in Section 2.4(c).
“Settlement Date” has the meaning set forth in Section 2.4(c).
24
“Sixth Amendment Effective Date” means November 18, 2022.
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Loan” means any Loan that bears interest at a rate determined by reference to Adjusted Term SOFR (other than pursuant to clause (c) of the definition of “Base Rate”).
“SPAC Merger” shall have the meaning set forth in the Fifth Amendment.
“Stated Rate” has the meaning set forth in Section 3.5.
“Subordinated Debt” means unsecured debt of a Loan Party that is in an amount and on terms satisfactory to Agent and is subject to the Subordinated Debt Subordination Agreement.
“Subordinated Debt Documents” means the documents approved by Agent in writing to govern the Subordinated Debt.
“Subordinated Debt Subordination Agreement” means a subordination agreement with terms and conditions satisfactory to Agent that governs the respective priority and rights of the Subordinated Debt and the Obligations and is entered into by the holders of the Subordinated Debt (or their agent), the Agent and Borrower Representative (and any other relevant Loan Parties).
“Subsidiary” means any corporation or other entity of which a Person owns, directly or indirectly, through one or more intermediaries, more than 50% of the capital stock or other equity interest at the time of determination. Unless the context indicates otherwise, references to a Subsidiary shall be deemed to refer to a Subsidiary of Borrower.
“Swingline Lender” means Eclipse Business Capital SPV, LLC, in its capacity as lender of Swingline Loans hereunder.
“Swingline Loans” has the meaning set forth in Section 2.4(a).
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Agent” means Pathlight Capital LP, as Agent and Collateral Agent for the lenders under the Term Loan Agreement, and any successor agent thereunder.
25
“Term Borrowing Base” means the “Borrowing Base” as defined in the Term Loan Agreement.
“Term Debt” means the “Loans” and all other “Obligations” each as defined in the Term Loan Agreement.
“Term Lenders” means the lenders under the Term Loan Agreement.
“Term Loan Agreement” means (i) that certain Loan and Security Agreement, dated as of the Third Amendment Effective Date, entered into by and among Borrowers and Loan Party Obligors, the Term Lenders and Term Agent, or (ii) one or more credit agreements among Borrowers and Loan Party Obligors, and other parties from time to time party thereto pursuant to which the Indebtedness under the Loan and Security Agreement referenced in clause (i) above or Indebtedness under a subsequent loan agreement referenced in this clause (ii) has been refinanced, replaced or extended in whole or in part in accordance with the Intercreditor Agreement, in each case as the same may be amended, restated, modified and/or supplemented from time to time in accordance with the terms thereof and the Intercreditor Agreement.
“Term Loan Documents” means the Term Loan Agreement, the Intercreditor Agreement and each other Loan Document (as defined in the Term Loan Agreement (as it may be refinanced (or replaced or extended) in accordance with clause (ii) of the definition thereof)), in each case as the same may be amended, restated, modified and/or supplemented from time to time in accordance with the terms thereof and the Intercreditor Agreement.
“Term Loan Push-Down Reserve” has the meaning set forth in the Term Loan Agreement as in effect on the Third Amendment Effective Date or as amended from time to time in accordance with the Intercreditor Agreement.
“Term SOFR” means:
(A) for any calculation for a SOFR, the Term SOFR Reference Rate for a tenor of one month on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day, as such rate is published by the Term SOFR Administrator; provided, that if as of 5:00 p.m. (New York City time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for a tenor of one month has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for a tenor of one month as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for a tenor of one month was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day; and
26
(B) for any calculation with respect to a Base Rate Loan on any day, the Term SOFR Reference Rate for a tenor of one month on the day (such day, the “Base Rate Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to such Base Rate Term SOFR Determination Day, as such rate is published by the Term SOFR Administrator; provided, that if as of 5:00 p.m. (New York City time) on any Base Rate Term SOFR Determination Day the Term SOFR Reference Rate for a tenor of one month has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for a tenor of one month as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for a tenor of one month was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Base Rate Term SOFR Determination Day.
“Term SOFR Adjustment” means a percentage equal to 0.11448% (11.448 basis points) per annum.
“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by Agent in its reasonable discretion).
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Termination Date” means the date on which all of the Obligations have been paid in full in cash and all of Agent and Lenders’ lending commitments under this Agreement and under each of the other Loan Documents have been terminated.
“Third Amendment Effective Date” means March 24, 2021.
“Third Lien Agent” means Mizzen Capital, LP, in its capacity as “Agent” under (and as defined in) the Third Loan Agreement, and any of its successors in such capacity.
“Third Lien Debt Incurrence Date” means the date on which all of the following conditions are satisfied: (a) the Third Lien Subordination Agreement shall have been executed by the parties thereto, (b) the Agent and the Term Agent shall have confirmed in writing that each such Person is satisfied with the form and substance (including all terms and conditions) of the Third Lien Loan Agreement and other Third Lien Loan Documents, and the Third Lien Loan Agreement and other Third Lien Loan Documents shall have been executed by the parties thereto, and (c) the Third Lien Lenders shall have funded the loans pursuant to the Third Lien Loan Agreement.
“Third Lien Lender” means each “Lender” under (and as defined in) the Third Lien Loan Agreement.
“Third Lien Loan Agreement” means the subordinated term loan agreement dated as of the Third Lien Debt Incurrence Date by and among the Loan Party Obligors, the Third Lien Lenders and the Third Lien Agent, in form and substance (including all terms and conditions) satisfactory to the Agent.
27
“Third Lien Loan Documents” means the “Loan Documents”, or other similar definition of the same effect, as defined in the Third Lien Loan Agreement as in effect on the Third Lien Debt Incurrence Date or as amended from time to time in accordance with the Third Lien Subordination Agreement.
“Third Lien Obligations” means the “Obligations”, or other similar definition of the same effect as defined in the Third Lien Loan Agreement as in effect on the Third Lien Debt Incurrence Date or as amended from time to time in accordance with the Third Lien Subordination Agreement.
“Third Lien Subordination Agreement” means that certain Subordination and Intercreditor Agreement, dated as of the Third Lien Debt Incurrence Date, by and between, Agent, Term Agent and the Third Lien Agent and acknowledged by the Loan Party Obligors, and shall also include any replacement subordination agreement entered into in accordance with the terms thereof, in each case in form and substance (including all terms and conditions) satisfactory to the Agent.
“UCC” means, at any given time, the Uniform Commercial Code as adopted and in effect at such time in the State of New York or other applicable jurisdiction.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“Unbilled Accounts Sublimit” means $35,000,000 through and including April 30, 2021 and thereafter $32,500,00040,000,000.
“Unbilled Accounts Advance Rate” means the advance rate set forth in Section 1(b)(ii) of Annex I.
“Uniform Electronic Transactions Act” means that certain Uniform Electronic Transactions Act published by the Uniform Law Commission in 1999 giving electronic signatures the same effect as traditional handwritten signatures under the statute of frauds.
“Unused Line Amount” means an amount equal to (A) the Maximum Revolving Facility Amount, calculated without giving effect to any Reserves (including, without limitation, the Term Loan Push-Down Reserve) applied to the Maximum Revolving Facility Amount, minus (B) the average daily outstanding principal balance of the Revolving Loans for such period.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“Unused Line Fee” has the meaning set forth in Section 3.2(c).
28
“U.S. Government Securities Business Day” means any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association (or any successor thereto) recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“Voting Power” means, with respect to any Person, the exclusive ability to control, through the ownership of shares of capital stock, partnership interests, membership interests or otherwise, the election of members of the board of directors or other similar governing body of such Person. The holding of a designated percentage of Voting Power of a Person means the ownership of shares of capital stock, partnership interests, membership interests or other interests of such Person sufficient to control exclusively the election of that percentage of the members of the board of directors or similar governing body of such Person.
1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder (including determinations made pursuant to the exhibits hereto) shall be made, and all financial statements required to be delivered hereunder shall be prepared on a consolidated basis in accordance with GAAP consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or financial requirement set forth in any Loan Document, and either Borrower Representative or Agent shall so request, Required Lenders and Borrower Representative shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower Representative shall provide to Agent and Lenders financial statements and other documents required under this Agreement and the other Loan Documents which include a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Statement of Financial Accounting Standards 159 (Codification of Accounting Standards 825-10) to value any Indebtedness or other liabilities of any Loan Party at “fair value”, as defined therein.
Notwithstanding anything to the contrary contained in the paragraph above or the definitions of Capital Expenditures or Capitalized Leases, in the event of a change in GAAP after the Closing Date requiring all leases to be capitalized, only those leases (assuming for purposes of this paragraph that they were in existence on the Closing Date) that would constitute Capitalized Leases on the Closing Date shall be considered Capitalized Leases (and all other such leases shall constitute operating leases) and all calculations and deliverables under this Agreement or the other Loan Documents shall be made in accordance therewith (other than the financial statements delivered pursuant to this Agreement; provided that all such financial statements delivered to Agent and Lenders in accordance with the terms of this Agreement after the date of such change in GAAP shall contain a schedule showing the adjustments necessary to reconcile such financial statements with GAAP as in effect immediately prior to such change).
29
1.3. Rates. Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, (a) the continuation of, administration of, submission of, calculation of or any other matter related to the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR or any other Benchmark, any component definition thereof or rates referred to in the definition thereof, or with respect to any alternative, successor or replacement rate thereto (including any then-current Benchmark or any Benchmark Replacement), including whether the composition or characteristics of any such alternative, successor or replacement rate (including any Benchmark Replacement), as it may or may not be adjusted pursuant to Section 3.6(d), will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR or any other Benchmark, prior to its discontinuance or unavailability, or (b) the effect, implementation or composition of any Conforming Changes. Agent and its affiliates or other related entities may engage in transactions that affect the calculation of the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR, any alternative, successor or replacement rate (including any Benchmark Replacement) or any relevant adjustments thereto and such transactions may be adverse to a Borrower. Agent may select information sources or services in its reasonable discretion to ascertain the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, or any other Benchmark, any component definition thereof or rates referred to in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to any Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
1.4. Other Definitional Provisions and References. References in this Agreement to “Articles”, “Sections”, “Annexes”, “Exhibits” or “Schedules” shall be to Articles, Sections, Annexes, Exhibits or Schedules of or to this Agreement unless otherwise specifically provided. Any term defined herein may be used in the singular or plural. “Include”, “includes” and “including” shall be deemed to be followed by “without limitation”. “Or” shall be construed to mean “and/or”. Except as otherwise specified or limited herein, references to any Person include the successors and assigns of such Person. References “from” or “through” any date mean, unless otherwise specified, “from and including” or “through and including”, respectively. No provision of any Loan Documents shall be construed against any party by reason of such party having, or being deemed to have, drafted the provision. Unless otherwise specified herein, the settlement of all payments and fundings hereunder between or among the parties hereto shall be made in lawful money of the United States and in immediately available funds. Time is of the essence for each performance obligation of the Loan Parties under this Agreement and each Loan Document. All amounts used for purposes of financial calculations required to be made herein shall be without duplication. References to any statute or act shall include all related current regulations and all amendments and any successor statutes, acts and regulations. References to any agreement, instrument or document (a) shall include all schedules, exhibits, annexes and other attachments thereto and (b) shall be construed as referring to such agreement, instrument or other document as from time to time amended, amended and restated, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein or in any other Loan Document). The words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Unless otherwise specified herein Dollar ($) baskets set forth in the representations and warranty, covenants and event of default provisions of this Agreement (and other similar baskets) are calculated as of each date of measurement by the Dollar Equivalent Amount thereof as of such date of measurement. Reference to a Loan Party’s “knowledge” or similar concept means actual knowledge of a senior officer, or knowledge that a senior officer would have obtained if he or she had engaged in good faith and diligent performance of his or her duties, including reasonably specific inquiries of employees or agents and a good faith attempt to ascertain the matter.
30
2. LOANS.
2.1. Amount of Loans.
(a) Revolving Loans. Subject to the terms and conditions of this Agreement, each Lender with a Revolving Loan Commitment will severally (and not jointly), from time to time prior to the Maturity Date, at Borrower Representative’s request, make revolving loans to Borrowers (“Revolving Loans”); provided, that after giving effect to each such Revolving Loan, (A) the outstanding balance of all Revolving Loans plus fees and expenses which are due and payable by Borrower under this Agreement but which have not been paid or charged to the Loan Account will not exceed the lesser of (x) the Maximum Revolving Facility Amount minus the amount of Reserves (including, without limitation, the Term Loan Push-Down Reserve) established against the Maximum Revolving Facility Amount and (y) the Borrowing Base, (B) the sum of each Lender’s outstanding balance of Revolving Loans will not exceed such Lender’s Revolving Loan Commitment and (C) none of the other Loan Limits for Revolving Loans will be exceeded. All Revolving Loans shall be made in and repayable in Dollars.
(b) Reserves. Agent may, with or without notice to Borrower Representative, from time to time establish and revise reserves against the Borrowing Base and the Maximum Revolving Facility Amount in such amounts and of such types as Agent deems appropriate in its Permitted Discretion (“Reserves”) to reflect (i) events, conditions, contingencies or risks which affect or may affect (A) the Collateral or its value, or the enforceability, perfection or priority of the security interests and other rights of Agent in the Collateral or (B) the assets, business or prospects of any Borrower or any Loan Party Obligor (including the Dilution Reserve), (ii) Agent’s good faith concern that any Collateral report or financial information furnished by or on behalf of any Borrower or any Loan Party Obligor to Agent is or may have been incomplete, inaccurate or misleading in any material respect, (iii) any fact or circumstance which Agent determines in good faith constitutes, or could constitute, a Default or Event of Default, or (iv) any other events or circumstances which Agent determines in good faith make the establishment or revision of a Reserve prudent. In no event shall the establishment of a Reserve in respect of a particular actual or contingent liability obligate Agent to make advances to pay such liability or otherwise obligate Agent with respect thereto.
31
(c) Minimum Revolving Outstanding Amount. During the Minimum Revolver Period, Borrowers shall maintain an Outstanding Amount of Revolving Loans in a minimum principal amount equal to the Minimum Revolving Outstanding Amount at all times. During the Minimum Revolver Period, Borrowers shall not be permitted to voluntarily prepay the Revolving Loans if any such prepayment would result in the Outstanding Amount of the Revolving Loans being less than the Minimum Revolving Outstanding Amount. Notwithstanding the foregoing two sentences, however, Borrower shall be required to repay the Revolving Loans if and to the extent such repayment is required under Section 2.5, even if such prepayment would result in the Outstanding Amount of Revolving Loans falling below the Minimum Revolving Outstanding Amount; provided that Borrowers shall re-borrow an amount sufficient to comply with this Section 2.1(c) as soon as they may do so pursuant to Section 2.1(a).
2.2. Protective Advances; Overadvances.
(a) Notwithstanding any contrary provision of this Agreement or any other Loan Document, at any time (i) after the occurrence and during the continuance of a Default or Event of Default or (ii) that any of the other applicable conditions precedent set forth in Section 4 or otherwise are not satisfied, Agent is authorized by each Borrower and each Lender, from time to time, in Agent’s sole discretion, to make such Revolving Loans to, or for the benefit of, any Borrower, as Agent in its sole discretion deems necessary or desirable (1) to preserve or protect the Collateral, or any portion thereof, or (2) to enhance the likelihood of repayment of the Obligations (the Revolving Loans described in this Section 2.2 shall be referred to as “Protective Advances”). Notwithstanding any contrary provision of this Agreement or any other Loan Document, Agent may disburse the proceeds of any Protective Advance to any Borrower or to such other Person(s) as Agent determines in its sole discretion. All Protective Advances shall be payable immediately upon demand. Notwithstanding the foregoing, (i) the aggregate amount of all Protective Advances outstanding at any time shall not exceed an amount equal to ten percent (10%) of the Maximum Revolving Facility Amount and (ii) after giving effect to any such Protective Advances, the outstanding balance of all Revolving Loans will not exceed the Maximum Revolving Facility Amount.
(b) Notwithstanding any contrary provision of this this Agreement, at the request of Borrower Representative, Agent may in its sole discretion (but with absolutely no obligation), make Revolving Loans to any Borrower, on behalf of the Lenders with a Revolving Loan Commitment, in amounts that exceed Excess Availability (any such excess Revolving Loans are herein referred to herein, collectively, as “Overadvances”); provided, that, no Overadvance shall result in a Default due to any Borrower’s failure to comply with Section 2.1(a) for so long as such Overadvance remains outstanding in accordance with the terms of this paragraph, but solely with respect to the amount of such Overadvance. Overadvances may be made even if the conditions precedent set forth in Section 4.2 have not been satisfied. The authority of Agent to make Overadvances is limited to an aggregate amount not to exceed an amount equal to ten percent (10%) of the Maximum Revolving Facility Amount at any time. No Overadvance may remain outstanding for more than thirty (30) days and no Overadvance shall cause any Lender’s outstanding balance of Revolving Loans to exceed its Revolving Loan Commitment. Required Lenders may, at any time, revoke Agent’s authorization to make Overadvances, provided that any such revocation must be in writing and shall become effective prospectively upon Agent’s receipt thereof.
32
(c) Upon the making of any Protective Advance or Overadvance (whether before or after the occurrence of a Default), each Lender with a Revolving Loan Commitment shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from Agent, without recourse or warranty, an undivided interest and participation in such Protective Advance or Overadvance, as applicable, in proportion to its Pro Rata Share of the Revolving Loan Commitment. Agent may, at any time, require the applicable Lenders to fund their participations. From and after the date, if any, on which any Lender is required to fund its participation in any Protective Advance or Overadvance, as applicable, purchased hereunder, Agent shall promptly distribute to such Lender, such Lender’s Pro Rata Share of all payments of principal and interest and all proceeds of Collateral received by such Agent in respect of such Loan. Each Lender acknowledges and agrees that (i) Agent may elect to fund a Protective Advance or Overadvance through one or more of its Affiliates (including, without limitation, Eclipse Business Capital SPV, LLC) on behalf of Agent for administrative convenience and (ii) any such funding shall constitute a Protective Advance or Overadvance, as applicable, as if made by Agent subject to the terms and conditions of this Agreement.
2.3. Notice of Borrowing; Manner of Revolving Loan Borrowing.
(a) Borrower Representative shall request each Revolving Loan by submitting such request by ABLSoft (or, if requested by Agent, by delivering, in writing or by an Approved Electronic Communication, a Notice of Borrowing substantially in the form of Exhibit A hereto) (each such request a “Notice of Borrowing”). Subject to the terms and conditions of this Agreement, Agent shall, except as provided in Section 2.2, deliver the amount of the Revolving Loan requested in the Notice of Borrowing for credit to any account of Borrower as Borrower Representative may specify at a bank acceptable to Agent (provided, that such account must be one identified on Section 3 of the Perfection Certificate and approved by Agent as an account to be used for funding of Loan proceeds) (any such account, a “Funding Account”) by wire transfer of immediately available funds (i) on the same day if the Notice of Borrowing is received by Agent on or before 10:00 a.m. Central Time on a Business Day or (ii) on the immediately following Business Day if the Notice of Borrowing is received by Agent after 10:00 a.m. Central Time on a Business Day or on a day that is not a Business Day. Agent shall charge to the Revolving Loan Agent’s usual and customary fees for the wire transfer of each Loan.
(b) Promptly following receipt of a Notice of Borrowing in accordance with this Section, Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Revolving Loan to be made as part of the requested borrowing. Each Lender shall make each Revolving Loan to be made by such Lender hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 p.m., Central Time, to the account of Agent most recently designated by it for such purpose by notice to the Lenders in an amount equal to such Lender’s Pro Rata Share. Unless Agent shall have received notice from a Lender prior to the proposed date of any borrowing that such Lender will not make available to Agent such Lender’s share of such borrowing, Agent may assume that such Lender has made (or will make) such share available on such date in accordance with this Section and may, in reliance upon such assumption, make available to Borrowers a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable borrowing available to Agent, then the applicable Lender and Borrowers 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 Borrowers to but excluding the date of payment to Agent, at the interest rate applicable to such Revolving Loans. If such Lender pays such amount to Agent, then such amount shall constitute such Lender’s Revolving Loan included in such borrowing.
33
2.4. Swingline Loans.
(a) Agent, Swingline Lender and the Lenders agree that in order to facilitate the administration of this Agreement and the other Loan Documents, promptly after Borrower Representative requests a Revolving Loan, the Swingline Lender may elect to have the terms of this Section 2.4 apply to such borrowing request by advancing, on behalf of the Lenders with a Revolving Loan Commitment and in the amount requested, same day funds to Borrowers (each such Loan made solely by the Swingline Lender pursuant to this Section 2.4 is referred to in this Agreement as a “Swingline Loan”), with settlement among them as to the Swingline Loans to take place on a periodic basis as set forth in Section 2.4(c). Each Borrower hereby authorizes the Swingline Lender to, and Swingline Lender shall, subject to the terms and conditions set forth herein (but without any further written notice required), deliver the amount of the Swingline Loan requested to the applicable Funding Account (i) on the same day if the Notice of Borrowing is received by Agent on or before 10:00 a.m. Central Time on a Business Day or (ii) on the immediately following Business Day if the Notice of Borrowing is received by Agent after 10:00 a.m. Central Time on a Business Day or on a day that is not a Business Day. The aggregate amount of Swingline Loans outstanding at any time shall not exceed $10,000,000. Swingline Lender shall not make any Swingline Loan if the requested Swingline Loan exceeds Excess Availability (before giving effect to such Swingline Loan).
(b) Upon the making of a Swingline Loan (whether before or after the occurrence of a Default and regardless of whether a Settlement has been requested with respect to such Swingline Loan), each Lender with a Revolving Loan Commitment shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the Swingline Lender, without recourse or warranty, an undivided interest and participation in such Swingline Loan in proportion to its Pro Rata Share of the Revolving Loan Commitment. The Swingline Lender may, at any time, require the applicable Lenders to fund their participations. From and after the date, if any, on which any Lender is required to fund its participation in any Swingline Loan purchased hereunder, Agent shall promptly distribute to such Lender, such Lender’s Pro Rata Share of all payments of principal and interest and all proceeds of Collateral received by such Agent in respect of such Loan.
(c) Agent, on behalf of Swingline Lender, shall request settlement (a “Settlement”) with respect to Swingline Loans with the Lenders holding a Revolving Loan Commitment on at least a weekly basis or on any date that Agent elects, by notifying the applicable Lenders of such requested Settlement by facsimile, telephone, or e-mail no later than noon, Chicago time on the date of such requested Settlement (the “Settlement Date”). Each applicable Lender (other than the Swingline Lender) shall transfer the amount of such Lender’s Pro Rata Share of the outstanding principal amount of the Swingline Loan with respect to which Settlement is requested to Agent, to such account of Agent as Agent may designate, not later than 2:00 p.m., Chicago time, on such Settlement Date. Settlements may occur during the existence of a Default and whether or not the applicable conditions precedent set forth in Section 4.2 have then been satisfied. Such amounts transferred to Agent shall be applied against the amounts of the Swingline Lender’s Swingline Loans and, together with such Swingline Lender’s Pro Rata Share of such Swingline Loan, shall constitute Revolving Loans of such Lenders, respectively. If any such amount is not transferred to Agent by any applicable Lender on such Settlement Date, the Swingline Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon.
34
2.5. Repayments.
(a) Revolving Loans. If at any time for any reason whatsoever (including as a result of currency fluctuations) (i) the outstanding balance of all Revolving Loans exceeds the lesser of (x) the Maximum Revolving Facility Amount and (y) the Borrowing Base or (ii) any of the Loan Limits for Revolving Loans are exceeded, then, in each case, Borrowers will immediately pay to Agent such amounts as shall cause Borrowers to eliminate such excess.
(b) Reserved.
(c) Maturity Date Payments. All remaining outstanding monetary Obligations (including, all accrued and unpaid fees described in Section 3.2) shall be payable in full on the Maturity Date.
2.6. Prepayments / Voluntary Termination / Application of Prepayments.
(a) Reserved.
(b) Reserved.
(c) Reserved.
(d) Voluntary Termination of Loan Facilities. Borrower Representative may, on at least thirty (30) days prior written notice received by Agent, permanently terminate the Loan facilities by repaying all of the outstanding Obligations, including all principal, interest and fees with respect to the Revolving Loans, and an Early Payment/Termination Premium in the amount specified in Section 3.2(e). From and after such Termination Date, Agent shall have no obligation whatsoever to extend any additional Loans, and all of its lending Commitments hereunder shall be terminated.
(e) Reserved.
35
2.7. Obligations Unconditional.
(a) The payment and performance of all Obligations shall constitute the absolute and unconditional obligations of each Loan Party Obligor, and shall be independent of any defense or right of set-off, recoupment or counterclaim that any Loan Party Obligor or any other Person might otherwise have against Agent, any Lender or any other Person. All payments required by this Agreement or the other Loan Documents shall be made in Dollars (unless payment in a different currency is expressly provided otherwise in the applicable Loan Document) and paid free of any deductions or withholdings for any taxes or other amounts and without abatement, diminution or set-off. If any Loan Party Obligor is required by applicable law to make such a deduction or withholding from a payment under this Agreement or under any other Loan Document, such Loan Party Obligor shall pay to Agent such additional amount as shall be necessary to ensure that, after the making of such deduction or withholding, Agent receives (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. Each Loan Party Obligor shall (a) pay the full amount of any deduction or withholding that it is required to make by law, to the relevant authority within the payment period set by applicable law and (b) promptly after any such payment, deliver to Agent an original (or certified copy) official receipt issued by the relevant authority in respect of the amount withheld or deducted or, if the relevant authority does not issue such official receipts, such other evidence of payment of the amount withheld or deducted as is reasonably acceptable to Agent.
(b) If, at any time and from time to time after the Closing Date (or at any time before or after the Closing Date with respect to the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, regulations, guidelines or directives thereunder or issued in connection therewith), (a) any change in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (b) any new law, regulation, treaty or directive enacted or application thereof or (c) compliance by Agent with any request or directive (whether or not having the force of law) from any Governmental Authority, central bank or comparable agency (i) subjects Agent or any Lender to any tax, levy, impost, deduction, assessment, charge or withholding of any kind whatsoever with respect to any Loan Document, or changes the basis of taxation of payments to Agent or any Lender of any amount payable thereunder (except for net income taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, state, local or other taxing authorities with respect to interest or fees payable hereunder or under any other Loan Document or changes in the rate of tax on the overall net income of Agent, any Lender or their respective members) or (ii) imposes, modifies or deems applicable any reserve (including any reserve imposed by the FRB, but excluding any reserve included in the determination of the Adjusted Term SOFR), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by Agent or any Lender or imposes on Agent or any Lender any other condition affecting its SOFR Loans or its obligation to make SOFR Loans, the result of which is to increase the cost to (or to impose a cost on) Agent or any Lender of making or maintaining any SOFR Loan or (iii) imposes on Agent or any Lender any other condition or increased cost in connection with the transactions contemplated thereby or participations therein, and the result of any of the foregoing is to increase the cost to Agent or any Lender of making or continuing any Loan or to reduce any amount receivable hereunder or under any other Loan Documents, then, in each such case, Borrowers shall promptly pay to Agent or such Lender, when notified to do so by Agent or such Lender, any additional amounts necessary to compensate Agent or such Lender, on an after-tax basis, for such additional cost or reduced amount as determined by Agent or such Lender, but only to the extent such amounts relate to this Agreement or the Loan Documents. Each such notice of additional amounts payable pursuant to this Section 2.7(b) submitted by Agent or any Lender, as applicable, to Borrower Representative shall, absent manifest error, be final, conclusive and binding for all purposes.
(c) This Section 2.7 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
36
2.8. Reversal of Payments. To the extent that any payment or payments made to or received by Agent or any Lender pursuant to this Agreement or any other Loan Document are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to any trustee, receiver or other Person under any state, federal or other bankruptcy or other such applicable law, then, to the extent thereof, such amounts (and all Liens, rights and remedies relating thereto) shall be revived as Obligations (secured by all such Liens) and continue in full force and effect under this Agreement and under the other Loan Documents as if such payment or payments had not been received by Agent or such Lender. This Section 2.8 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
2.9. Notes. The Loans and Commitments shall, at the request of any Lender, be evidenced by one or more promissory notes in form and substance reasonably satisfactory to such Lender. However, if such Loans are not so evidenced, such Loans may be evidenced solely by entries upon the books and records maintained by Agent.
2.10. Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) Unused Line Fees pursuant to Section 3.2(c) shall cease to accrue on the unfunded portion of the Revolving Loan Commitment of such Defaulting Lender.
(b) Any amount payable to a Defaulting Lender hereunder (whether on account of principal, interest, fees or otherwise) shall, in lieu of being distributed to such Defaulting Lender, be retained by Agent in a segregated account and, subject to any applicable requirements of law, be applied at such time or times as may be determined by Agent (i) first, to the payment of any amounts owing by such Defaulting Lender to Agent hereunder, (ii) second, to the funding of any Revolving Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by Agent, (iii) third, if so determined by Agent and Borrowers, held in such account as cash collateral for future funding obligations of the Defaulting Lender under this Agreement, (iv) fourth, pro rata, to the payment of any amounts owing to Borrowers or the Lenders as a result of any judgment of a court of competent jurisdiction obtained by Borrowers or any Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement, and (v) fifth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided, that if such payment is made at a time when the conditions set forth in Section 4.2 are satisfied, such payment shall be applied solely to prepay the Loans of all Revolving Lenders that are not Defaulting Lenders pro rata prior to being applied to the prepayment of any Loans, or reimbursement obligations owed to, any Defaulting Lender.
(c) No Defaulting Lender shall have any right to approve or disapprove any amendment, waiver, consent or any other action the Lenders or the Required Lenders have taken or may take hereunder, provided that any waiver, amendment or modification requiring the consent of all Lenders or each directly affected Lender which affects such Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender.
37
2.11. Appointment of Borrower Representative.
(a) Each Borrower hereby irrevocably appoints and constitutes Borrower Representative as its agent and attorney-in-fact to request and receive Loans in the name or on behalf of such Borrower and any other Borrowers, deliver Notices of Borrowing, and Borrowing Base Certificates, give instructions with respect to the disbursement of the proceeds of the Loans, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) in the name or on behalf of any Borrower or Borrowers pursuant to this Agreement and the other Loan Documents. Lender may disburse the Loans to such bank account of Borrower Representative or a Borrower or otherwise make such Loans to a Borrower, in each case as Borrower Representative may designate or direct, without notice to any other Borrower. Notwithstanding anything to the contrary contained herein, Lender may at any time and from time to time require that Loans to or for the account of any Borrower be disbursed directly to an operating account of such Borrower.
(b) Borrower Representative hereby accepts the appointment by Borrowers to act as the agent and attorney-in-fact of Borrowers pursuant to this Section 2.11. Borrower Representative shall ensure that the disbursement of any Loans that are at any time requested by or to be remitted to or for the account of a Borrower requested on behalf of a Borrower hereunder, shall be remitted or issued to or for the account of such Borrower.
(c) Each Borrower hereby irrevocably appoints and constitutes Borrower Representative as its agent to receive statements on account and all other notices from Lender with respect to the Obligations or otherwise under or in connection with this Agreement and the other Loan Documents.
(d) Any notice, election, representation, warranty, agreement or undertaking made or delivered by or on behalf of any Borrower by Borrower Representative shall be deemed for all purposes to have been made or delivered by such Borrower, as the case may be, and shall be binding upon and enforceable against such Borrower to the same extent as if made or delivered directly by such Borrower.
(e) No resignation by or termination of the appointment of Borrower Representative as agent and attorney-in-fact as aforesaid shall be effective, except after ten (10) Business Days’ prior written notice to Agent. If the Borrower Representative resigns under this Agreement, Borrowers shall be entitled to appoint a successor Borrower Representative (which shall be a Borrower and shall be reasonably acceptable to Agent as such successor). Upon the acceptance of its appointment as successor Borrower Representative hereunder, such successor Borrower Representative shall succeed to all the rights, powers and duties of the retiring Borrower Representative and the term “Borrower Representative” shall mean such successor Borrower Representative for all purposes of this Agreement and the other Loan Documents, and the resigning or terminated Borrower Representative’s appointment, powers and duties as Borrower Representative shall be thereupon terminated.
38
2.12. Joint and Several Liability.
(a) Joint and Several. Each Borrower hereby agrees that such Borrower is jointly and severally liable for the full and prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of, all Obligations owed or hereafter owing to Agent and Lenders by each other Borrower. Each Borrower agrees that its obligation hereunder shall not be discharged until payment and performance, in full, of the Obligations has occurred, and that its obligations under this Section 2.12 shall be absolute and unconditional, irrespective of, and unaffected by,
(i) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Loan Document or any other agreement, document or instrument to which any Borrower is or may become a party;
(ii) the absence of any action to enforce this Agreement (including this Section 2.12) or any other Loan Document or the waiver or consent by Agent or any Lender with respect to any of the provisions thereof;
(iii) the existence, value or condition of, or failure to perfect Agent’s Lien against, any security for the Obligations or any action, or the absence of any action, by Agent in respect thereof (including the release of any such security);
(iv) the insolvency of any Loan Party or Other Obligor; or
(v) any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor.
(b) Waivers by Borrowers. Each Borrower expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Agent to marshal assets or to proceed in respect of the Obligations against any other Loan Party or Other Obligor, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Borrower. It is agreed among each Borrower, Agent and Lenders that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Loan Documents and that, but for the provisions of this Section 2.12 and such waivers, Agent and Lenders would decline to enter into this Agreement.
(c) Benefit of Joint and Several Obligations. Each Borrower agrees that the provisions of this Section 2.12 are for the benefit of Agent and Lenders and their successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any other Borrower, Agent and any Lender, the obligations of such other Borrower under the Loan Documents.
39
(d) Subordination of Subrogation, Etc. Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, each Borrower hereby expressly and irrevocably subordinates to payment of the Obligations any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off and any and all defenses available to a surety, guarantor or accommodation co-obligor with respect to any other Loan Party or any Other Obligor until the Obligations are indefeasibly paid in full in cash. Each Borrower acknowledges and agrees that this subordination is intended to benefit Agent and Lenders and shall not limit or otherwise affect such Borrower’s liability hereunder or the enforceability of this Section 2.12, and that Agent and Lenders and their successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 2.12(d).
(e) Election of Remedies. If Agent may, under applicable law, proceed to realize its benefits under any of the Loan Documents giving Agent a Lien upon any Collateral, whether owned by any Borrower or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Agent may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Section 2.12. If, in the exercise of any of its rights and remedies, Agent shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Borrower or any other Person, whether because of any applicable laws pertaining to “election of remedies” or the like, each Borrower hereby consents to such action by Agent and waives any claim based upon such action, even if such action by Agent shall result in a full or partial loss of any rights of subrogation that each Borrower might otherwise have had but for such action by Agent.
(f) Contribution with Respect to Guaranty Obligations.
(i) To the extent that any Borrower shall make a payment under this Section 2.12 of all or any of the Obligations (other than Loans made to that Borrower for which it is primarily liable) (a “Guarantor Payment”) that, taking into account all other Guarantor Payments then previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Borrower’s “Allocable Amount” (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Borrowers as determined immediately prior to the making of such Guarantor Payment, then, following indefeasible payment in full in cash of the Obligations and termination of the Commitments, such Borrower shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment.
(ii) As of any date of determination, the “Allocable Amount” of any Borrower shall be equal to the maximum amount of the claim that could then be recovered from such Borrower under this Section 2.12 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law.
40
(iii) This Section 2.12(f) is intended only to define the relative rights of Borrowers and nothing set forth in this Section 2.12(f) is intended to or shall impair the obligations of Borrowers, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement, including Section 2.12(a). Nothing contained in this Section 2.12(f) shall limit the liability of any Borrower to pay the Loans made directly or indirectly to that Borrower and accrued interest, fees and expenses with respect thereto for which such Borrower shall be primarily liable.
(iv) The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of each Borrower to which such contribution and indemnification is owing.
(v) The rights of the indemnifying Borrowers against other Loan Parties under this Section 2.12(f) shall be exercisable upon the full and indefeasible payment of the Obligations and the termination of the Commitments.
(g) Liability Cumulative. The liability of Borrowers under this Section 2.12 is in addition to and shall be cumulative with all liabilities of each Borrower to Agent and Lenders under this Agreement and the other Loan Documents to which such Borrower is a party or in respect of any Obligations or obligation of the other Borrower, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.
3. INTEREST AND FEES; LOAN ACCOUNT.
3.1. Interest. All Loans and other monetary Obligations shall bear interest at the interest rate(s) set forth in Section 3 of Annex I, and accrued interest shall be payable (a) on the first day of each month in arrears, (b) upon a prepayment of Loan in accordance with Section 2.6 and (c) on the Maturity Date; provided, that after the occurrence and during the continuation of an Event of Default, all Loans and other monetary Obligations shall bear interest at a rate per annum equal to two (2) percentage points (2.00%) in excess of the rate otherwise applicable thereto (the “Default Rate”), and all such interest shall be payable on demand. Changes in the interest rate shall be effective as of the date of any change in the Base Rate or Adjusted Term SOFR, as applicable. Subject to Section 3.6 and so long as no Event of Default shall have occurred and be continuing, all Loans shall constitute SOFR Loans.
3.2. Fees. Borrowers shall pay Agent the following fees on the dates provided therefor, which fees are in addition to all fees and other sums payable by Borrowers or any other Person to Agent under this Agreement or under any other Loan Document and, in each case, are not refundable once paid:
(a) Closing Fee. A fee, for the ratable benefit of the Lenders, equal to $600,000 (the “Closing Fee”), which shall be deemed to be fully earned and payable as of the Closing Date.
(b) Monthly Administration Fee. A monthly fee, for the sole benefit of Agent, equal to $2,500 from the Closing Date through March 2019 and thereafter $4,000 (the “Monthly Administration Fee”) for each month, or part thereof prior to the Termination Date. The Monthly Administration Fee shall payable on the Closing Date and monthly in advance on the first day of each month following the Closing Date.
41
(c) Unused Line Fee. An unused line fee (the “Unused Line Fee”), for the ratable benefit of the Lenders, equal to the product of (i) the Applicable Unused Line Rate multiplied by (ii) the Unused Line Amount during the immediately preceding month (or part thereof), which fee shall be deemed to be fully earned and payable, in arrears, on the first day of each month until the Termination Date.
(d) Reserved.
(e) Early Payment/Termination Premium. In the event that, for any reason (including as a result of any voluntary or mandatory prepayment of the Loans, any acceleration of the Loans resulting from an Event of Default, any foreclosure and sale of Collateral, or any sale of Collateral in any bankruptcy or insolvency proceeding), all or any portion of the Lenders’ commitment to make Revolving Loans is terminated prior to the Scheduled Maturity Date, in each case pursuant to Section 2.6(d), Section 11.2 or otherwise, then in each such case, in addition to the payment of the principal amount and all unpaid accrued interest and other amounts due thereon, Borrowers immediately shall be required to pay to Agent, for the ratable benefit of the Lenders, a premium (each, an “Early Payment/Termination Premium”) (as liquidated damages and compensation for the cost of the Lenders being prepared to make funds available under this Agreement with respect to such Loans during the scheduled term of this Agreement) in an amount equal to the Applicable Percentage (as defined below) of the amount of any such Revolving Loan commitment termination, as applicable. In each such case, the “Applicable Percentage” shall be (i) two percent (2.0%), if such event occurs on or before December 14, 2023January 31, 2024; (ii) one percent (1.0%), if such event occurs after January 31, 2024 and on or before January 31, 2025 and (iii) one half of one percent (0.5%) thereafter. Each Borrower acknowledges and agrees that (x) the provisions of this paragraph shall remain in full force and effect notwithstanding any rescission by Agent of an acceleration with respect to all or any portion of the Obligations pursuant to Section 11.2 or otherwise, (y) payment of any Early Payment/Termination Premium under this paragraph constitutes liquidated damages and not a penalty and (z) the actual amount of damages to Lenders or profits lost by Lenders as a result of such early payment or termination would be impracticable and extremely difficult to ascertain, and the Early Payment/Termination Premium under this paragraph is provided by mutual agreement of Borrowers and Lenders as a reasonable estimation and calculation of such lost profits or damages of Borrowers and Lenders.
3.3. Computation of Interest and Fees. All interest and fees shall be calculated daily on the outstanding monetary Obligations based on the actual number of days elapsed in a year of 360 days.
3.4. Loan Account; Monthly Accountings. Agent shall maintain a loan account for Borrowers reflecting all outstanding Loans, along with interest accrued thereon and such other items reflected therein (the “Loan Account”), and shall provide Borrower Representative with a monthly accounting reflecting the activity in the Loan Account, viewable by Borrowers on ABLSoft. Each accounting shall be deemed correct, accurate and binding on Borrowers and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Agent), unless Borrower Representative notifies Agent in writing to the contrary within thirty (30) days after such account is rendered, describing the nature of any alleged errors or omissions. However, Agent’s failure to maintain the Loan Account or to provide any such accounting shall not affect the legality or binding nature of any of the Obligations. Interest, fees and other monetary Obligations due and owing under this Agreement may, in Agent’s discretion, be charged to the Loan Account, and will thereafter be deemed to be Revolving Loans and will bear interest at the same rate as other Revolving Loans.
42
3.5. Further Obligations; Maximum Lawful Rate. With respect to all monetary Obligations for which the interest rate is not otherwise specified herein (whether such Obligations arise hereunder or under any other Loan Document, or otherwise), such Obligations shall bear interest at the rate(s) in effect from time to time with respect to the Revolving Loans and shall be payable upon demand by Agent. In no event shall the interest charged with respect to any Loan or any other Obligation exceed the maximum amount permitted under applicable law. Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of interest payable or other amounts hereunder or under any other Loan Document (the “Stated Rate”) would exceed the highest rate of interest or other amount permitted under any applicable law to be charged (the “Maximum Lawful Rate”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest and other amounts payable shall be equal to the Maximum Lawful Rate; provided, that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrowers shall, to the extent permitted by applicable law, continue to pay interest and such other amounts at the Maximum Lawful Rate until such time as the total interest and other such amounts received is equal to the total interest and other such amounts which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable or such other amounts payable. Thereafter, the interest rate and such other amounts payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply. In no event shall the total interest or other such amounts received by Agent exceed the amount which it could lawfully have received had the interest and other such amounts been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, Agent has received interest or other such amounts hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of the Loans or to other Obligations (other than interest) payable hereunder, and if no such principal or other Obligations are then outstanding, such excess or part thereof remaining shall be paid to Borrowers. In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.
3.6. Certain Provisions Regarding SOFR Loans; Replacement of Lenders.
(a) Inadequate or Unfair Basis. If Agent or any Lender reasonably determines (which determination shall be binding and conclusive on Borrowers) that, by reason of circumstances affecting the interbank market or otherwise, adequate and reasonable means do not exist for ascertaining the applicable Adjusted Term SOFR, then Agent or such Lender shall promptly notify Borrower Representative (and Agent, if applicable) thereof and, so long as such circumstances shall continue, (i) Agent and/or such Lender shall be under no obligation to make any SOFR Loans and (ii) on the last day of the current calendar month, each SOFR Loan shall, unless then repaid in full, automatically convert to a Base Rate Loan.
43
(b) Change in Law. If, after the Closing Date, any change in, or the adoption of any new, law, treaty or regulation, or any change in the interpretation of any applicable law or regulation by any Governmental Authority charged with the administration thereof, would make it (or in the good faith judgment of Agent or the applicable Lender cause a substantial question as to whether it is) unlawful for Agent or such Lender to make, maintain or fund SOFR Loans, then Agent or such Lender shall promptly notify Borrower Representative and, so long as such circumstances shall continue, (i) Agent or such Lender shall have no obligation to make any SOFR Loan and (ii) on the last day of the current calendar month for each SOFR Loan (or, in any event, on such earlier date as may be required by the relevant law, regulation or interpretation), such SOFR Loan shall, unless then repaid in full, automatically convert to a Base Rate Loan.
(c) If any Borrower becomes obligated to pay additional amounts to any Lender pursuant to Section 2.7(b), or any Lender gives notice of the occurrence of any circumstances described in Section 2.7(b), or if Lender becomes a Defaulting Lender, Borrowers may designate another Person engaged in the making of commercial loans in the ordinary course of business which is acceptable to Agent in its sole discretion (such other Person being called a “Replacement Lender”) to purchase the Loans and Commitments of such Lender and such Lender’s rights hereunder, without recourse to or warranty by, or expense to, such Lender, for a purchase price equal to the outstanding principal amount of the Loans payable to such Lender plus any accrued but unpaid interest on such Loans and all accrued but unpaid fees owed to such Lender and any other amounts payable to such Lender under this Agreement, and to assume all the obligations of such Lender hereunder, and, upon such purchase and assumption (pursuant to an Assignment and Assumption), such Lender shall no longer be a party hereto or have any rights hereunder (other than rights with respect to indemnities and similar rights applicable to such Lender prior to the date of such purchase and assumption) and shall be relieved from all obligations to Borrowers hereunder, and the Replacement Lender shall succeed to the rights and obligations of such Lender hereunder.
(d) Benchmark Replacement Setting.
(i) Benchmark Replacement.
(A) Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Loan Document, upon the occurrence of a Benchmark Transition Event, Agent and Borrower Representative may amend this Agreement to replace the then-current Benchmark with a Benchmark Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. on the fifth (5th) Business Day after Agent has posted such proposed amendment to all affected Lenders and Borrower Representative so long as Agent has not received, by such time, written notice of objection to such amendment from Lenders comprising the Required Lenders. No replacement of a Benchmark with a Benchmark Replacement pursuant to this Section 3.6(d) will occur prior to the applicable Benchmark Transition Start Date.
(B) Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, Agent will in consultation with Borrowers have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
44
(C) Notices; Standards for Decisions and Determinations. Agent will promptly notify Borrower Representative and the Lenders of (1) the implementation of any Benchmark Replacement and (2) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement. Agent will promptly notify Borrower Representative of the removal or reinstatement of any tenor of a Benchmark pursuant to Section 3.6(d)(i)(D). Any determination, decision or election that may be made by Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.6(d), including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 3.6(d).
(D) Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (1) if the then-current Benchmark is a term rate (including the Term SOFR Reference Rate) and either (I) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by Agent in its reasonable discretion or (II) the administrator of such Benchmark or the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be representative, then Agent may modify the definition of “Term SOFR” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable, non-representative and (2) if a tenor that was removed pursuant to clause (1) above either (I) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (II) is not, or is no longer, subject to an announcement that it is not or will not be representative (including a Benchmark Replacement), then Agent may modify the definition of “Term SOFR” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(E) Benchmark Unavailability Period. Upon Borrower Representative’s receipt of notice of the commencement of a Benchmark Unavailability Period, (1) Borrower Representative may revoke any pending request for a borrowing of, conversion to or continuation of SOFR Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, Borrower Representative will be deemed to have converted any such request into a request for a borrowing of or conversion to Base Rate Loans and (2) any outstanding affected SOFR Loans will be deemed to have been converted to Base Rate Loans at the end of the applicable calendar month. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an available tenor, the component of the Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the Base Rate.
45
(ii) No Requirement of Matched Funding. Anything to the contrary contained herein notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually to match fund any Obligation as to which interest accrues at Adjusted Term SOFR or the Term SOFR Reference Rate.
3.7. Term SOFR Conforming Changes. In connection with the use or administration of Term SOFR, Agent will in consultation with Borrowers have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document. Agent will promptly notify Borrower Representative and the Lenders of the effectiveness of any Conforming Changes in connection with the use or administration of Term SOFR.
4. CONDITIONS PRECEDENT.
4.1. Conditions to Initial Loans. Each Lender’s obligation to fund the initial Loans under this Agreement is subject to the following conditions precedent (as well as any other conditions set forth in this Agreement or any other Loan Document), all of which must be satisfied in a manner acceptable to Agent (and as applicable, pursuant to documentation which in each case is in form and substance acceptable to Agent):
(a) each Loan Party Obligor shall have duly executed and/or delivered, or, as applicable, shall have caused such other applicable Persons to have duly executed and or delivered, to Agent such agreements, instruments, documents, proxies and certificates as Agent may require, including such other agreements, instruments, documents and certificates listed on the closing checklist attached hereto as Exhibit B;
(b) Agent shall have completed its business and legal due diligence pertaining to the Loan Parties and their respective businesses and assets, with results thereof satisfactory to Agent in its sole discretion;
(c) each Lender’s obligations and commitments under this Agreement shall have been approved by such Lender’s Credit Committee;
(d) after giving effect to such Loans, as well as to the payment of all trade payables older than sixty days past due and the consummation of all transactions contemplated hereby to occur on the Closing Date, closing costs and any book overdraft, Excess Availability shall be no less than $30,000,000;
46
(e) since December 31, 2017, no event shall have occurred which has had, or could reasonably be expected to have, a Material Adverse Effect on any Loan Party; and
(f) Borrowers shall have paid to Agent all fees due on the date hereof, and shall have paid or reimbursed Agent for all of Agent’s costs, charges and expenses incurred through the Closing Date (and in connection herewith, Borrowers hereby irrevocably authorizes Agent to charge such fees, costs, charges and expenses as Revolving Loans) provided, that Borrowers shall only be obligated to pay or reimburse Agent for legal fees in amount up to and not to exceed $30,000.
4.2. Conditions to all Loans. No Lender shall be obligated to fund any Loans, unless the following conditions are satisfied:
(a) Borrower Representative shall have provided to Agent such information as Agent may require in order to determine the Borrowing Base (including the items set forth in Section 7.15(a), (b) and (c) (as applicable)), as of such borrowing or issue date, after giving effect to such Loans;
(b) each of the representations and warranties set forth in this Agreement and in the other Loan Documents shall be true and correct in all respects as of the date such Loan is made (or, to the extent any representations or warranties are expressly made solely as of an earlier date, such representations and warranties shall be true and correct as of such earlier date), both before and after giving effect thereto;
(c) no Default or Event of Default shall be in existence, both before and after giving effect thereto; and
(d) no event shall have occurred or circumstance shall exist that has or could reasonably be expected to have a Material Adverse Effect.
Each request (or deemed request) by Borrowers for funding of a Loan shall constitute a representation by each Borrower that the foregoing conditions are satisfied on the date of such request and on the date of such funding or issuance. As an additional condition to any funding, issuance or grant, Agent shall have received such other information, documents, instruments and agreements as it deems appropriate in connection therewith.
47
5. COLLATERAL.
5.1. Grant of Security Interest. To secure the full payment and performance of all of the Obligations, each Loan Party Obligor hereby assigns to Agent and grants to Agent, for itself and on behalf of the Lenders, a continuing security interest in all property of each Loan Party Obligor, whether tangible or intangible, real or personal, now or hereafter owned, existing, acquired or arising and wherever now or hereafter located, and whether or not eligible for lending purposes, including: (a) all Accounts and all Goods whose sale, lease or other disposition by any Loan Party Obligor has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, any Loan Party Obligor; (b) all Chattel Paper (including Electronic Chattel Paper), Instruments, Documents, and General Intangibles (including all patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, copyright applications, registrations, licenses, software, franchises, customer lists, tax refund claims, claims against carriers and shippers, guaranty claims, contracts rights, payment intangibles, security interests, security deposits and rights to indemnification); (c) all Inventory (whether or not Eligible Inventory); (d) all Goods (other than Inventory), including Equipment, vehicles, and Fixtures; (e) all Investment Property, including all rights, privileges, authority, and powers of each Loan Party Obligor as an owner or as a holder of Pledged Equity, including all economic rights, all control rights, authority and powers, and all status rights of each Loan Party Obligor as a member, equity holder or shareholder, as applicable, of each Issuer and any rights related to any Loan Party Obligors’ capital account within the Issuer in respect of Investment Property; (f) all Deposit Accounts, bank accounts, deposits, money and cash; (g) all Letter-of-Credit Rights; (h) all Commercial Tort Claims including those listed in Section 2 of the Perfection Certificate (if any); (i) all Supporting Obligations; (j) all life insurance policies; (k) all leases; (l) any other property of any Loan Party Obligor now or hereafter in the possession, custody or control of Agent or any agent or any parent, Affiliate or Subsidiary of Agent, any Lender or any Participant with Lender in the Loans, for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise); and (m) all additions and accessions to, substitutions for, and replacements, products and Proceeds of the foregoing property, including proceeds of all insurance policies insuring the foregoing property (including hazard, flood and credit insurance), and all of each Loan Party Obligor’s books and records relating to any of the foregoing and to any Loan Party’s business.
5.2. Possessory Collateral. Promptly, but in any event no later than five (5) Business Days after any Loan Party Obligor’s receipt of any portion of the Collateral evidenced by an agreement, Instrument or Document, including any Tangible Chattel Paper and any Investment Property consisting of certificated securities, such Loan Party Obligor shall deliver the original thereof to Agent together with an appropriate endorsement or other specific evidence of assignment thereof to Agent (in form and substance acceptable to Agent). If an endorsement or assignment of any such items shall not be made for any reason, Agent is hereby irrevocably authorized, as attorney and agent-in-fact (coupled with an interest) for each Loan Party Obligor, to endorse or assign the same on such Loan Party Obligor’s behalf.
5.3. Further Assurances. Each Loan Party Obligor shall, at its own cost and expense, promptly and duly take, execute, acknowledge and deliver (or cause each other applicable Person to take, execute, acknowledge and deliver) all such further acts, documents, agreements and instruments as may from time to time be necessary or desirable or as Agent may from time to time require in order to (a) carry out the intent and purposes of the Loan Documents and the transactions contemplated thereby, (b) establish, create, preserve, protect and perfect a first priority Lien (subject only to Permitted Liens) in favor of Agent in all the Collateral (wherever located) from time to time owned by the Loan Party Obligors and in all capital stock and other equity from time to time issued by the Loan Parties (other than Parent) (including appraisals of real property in compliance with FIRREA), (c) cause Parent and each Subsidiary of Borrower to guaranty all of the Obligations, all pursuant to documentation that is in form and substance reasonably satisfactory to Agent and (d) facilitate the collection of the Collateral. Without limiting the foregoing, each Loan Party Obligor shall, at its own cost and expense, promptly and duly take, execute, acknowledge and deliver (or cause each other applicable Person to take, execute, acknowledge and deliver) to Agent all promissory notes, security agreements, agreements with landlords, mortgagees and processors and other bailees, subordination and intercreditor agreements and other agreements, instruments and documents, in each case in form and substance reasonably acceptable to Agent, as Agent may request from time to time to perfect, protect and maintain Agent’s security interests in the Collateral, including the required priority thereof, and to fully carry out the transactions contemplated by the Loan Documents.
48
5.4. UCC Financing Statements. Each Loan Party Obligor authorizes Agent to file, transmit or communicate, as applicable, from time to time, UCC Financing Statements, along with amendments and modifications thereto, in all filing offices selected by Agent, listing such Loan Party Obligor as the Debtor and Agent as the Secured Party, and describing the collateral covered thereby in such manner as Agent may elect, including using descriptions such as “all personal property of debtor” or “all assets of debtor,” or words of similar effect, in each case without such Loan Party Obligor’s signature. Each Loan Party Obligor also hereby ratifies its authorization for Agent to have filed, in any filing office, any Financing Statements filed prior to the date hereof.
6. CERTAIN PROVISIONS REGARDING ACCOUNTS, COLLECTIONS AND APPLICATIONS OF PAYMENTS.
6.1. Lock Boxes and Blocked Accounts. Each Loan Party Obligor hereby represents and warrants that all Deposit Accounts and all other depositary and other accounts maintained by each Loan Party Obligor as of the Closing Date are described in Section 3 of the Perfection Certificate, which description includes for each such account the name of the Loan Party Obligor maintaining the account, the name of the financial institution at which the account is maintained, the account number and the purpose of the account. After the Closing Date, no Loan Party Obligor shall open any new Deposit Account or any other depositary or other account without the prior written consent of Agent and without updating Section 3 of the Perfection Certificate to reflect such Deposit Account or other account. No Deposit Account or other account of any Loan Party Obligor shall at any time constitute a Restricted Account other than accounts expressly indicated on Section 3 of the Perfection Certificate as being Restricted Accounts (and each Loan Party Obligor hereby represents and warrants that each such account shall at all times meet the requirements set forth in the definition of Restricted Account to qualify as a Restricted Account). Each Loan Party Obligor will, at its expense, establish (and revise from time to time as Agent may require) procedures acceptable to Agent, in Agent’s sole discretion, for the collection of checks, wire transfers and all other proceeds of all of such Loan Party Obligor’s Accounts and other Collateral (“Collections”), which shall include (a) directing all Account Debtors to send all Account proceeds directly to a post office box designated by Agent either in the name of such Loan Party Obligor (but as to which Agent has access subject to a Control Agreement) or, at Agent’s option, in the name of Agent (a “Lock Box”) and (b) depositing all Collections received by such Loan Party Obligor into one or more bank accounts maintained in the name of such Loan Party Obligor (but as to which Agent has access subject to a Control Agreement) or, at Agent’s option, in the name of Agent (each, a “Blocked Account”), under an arrangement acceptable to Agent with a depository bank acceptable to Agent, pursuant to which all funds deposited into each Blocked Account are to be transferred to Agent in such manner, and with such frequency, as Agent shall specify, and/or (c) a combination of the foregoing. Each Loan Party Obligor agrees to execute, and to cause its depository banks and other account holders to execute, such Lock Box and Blocked Account control agreements and other documentation as Agent shall require from time to time in connection with the foregoing, all in form and substance acceptable to Agent, and in any event such arrangements and documents must be in place on the date hereof with respect to accounts in existence on the date hereof, or prior to any such account being opened with respect to any such account opened after the date hereof, in each case excluding Restricted Accounts. Prior to the Closing Date, Borrowers shall deliver to Agent a complete and executed Authorized Accounts form regarding each Borrower’s operating account(s) into which the proceeds of Loans are to be paid in the form of Exhibit D annexed hereto.
49
6.2. Application of Payments. All amounts paid to or received by Agent in respect of monetary Obligations, from whatever source (whether from any Borrower or any other Loan Party Obligor pursuant to such other Loan Party Obligor’s guaranty of the Obligations, any realization upon any Collateral or otherwise) shall be applied by Agent to the Obligations as follows:
(i) FIRST, to reimburse Agent for all out-of-pocket costs and expenses, and all indemnified losses, incurred by Agent which are reimbursable to Agent in accordance with this Agreement or any of the other Loan Documents;
(ii) SECOND, to any accrued but unpaid interest on any Protective Advances;
(iii) THIRD, to the outstanding principal of any Protective Advances;
(iv) FOURTH, to any accrued but unpaid fees owing to Agent and Lenders under this Agreement and/or any other Loan Documents;
(v) FIFTH, to any unpaid accrued interest on the Obligations;
(vi) SIXTH, to the outstanding principal of the Loans; and
(vii) SEVENTH, to the payment of any other outstanding Obligations; and after payment in full in cash of all of the outstanding monetary Obligations, any further amounts paid to or received by Agent in respect of the Obligations (so long as no monetary Obligations are outstanding) shall be paid over to Borrowers or such other Person(s) as may be legally entitled thereto.
For purposes of determining the Borrowing Base, such amounts will be credited to the Loan Account and the Collateral balances to which they relate upon Agent’s receipt of an advice from Agent’s Bank (set forth in Section 5 of Annex I) that such items have been credited to Agent’s account at Agent’s Bank (or upon Agent’s deposit thereof at Agent’s Bank in the case of payments received by Agent in kind), in each case subject to final payment and collection. However, for purposes of computing interest on the Obligations, such items shall be deemed applied by Agent two (2) Business Days after Agent ‘s receipt of advice of deposit thereof at Agent’s Bank.
50
6.3. Notification; Verification. Agent or its designee may, from time to time: (a) whether or not a Default or Event of Default has occurred, verify directly with the Account Debtors of the Loan Party Obligors (or by any manner and through any medium Agent considers advisable) the validity, amount and other matters relating to the Accounts and Chattel Paper of the Loan Party Obligors, by means of mail, telephone or otherwise, either in the name of the applicable Loan Party Obligor or Agent or such other name as Agent may choose; (b) whether or not a Default or Event of Default has occurred, notify Account Debtors of the Loan Party Obligors that Agent has a security interest in the Accounts of the Loan Party Obligors and direct such Account Debtors to make payment thereof directly to Agent; each such notification to be sent on the letterhead of such Loan Party Obligor and substantially in the form of Exhibit E annexed hereto; and (c) following the occurrence and during the continuance of a Default or Event of Default, demand, collect or enforce payment of any Accounts and Chattel Paper (but without any duty to do so) and, in furtherance of the foregoing, each Loan Party Obligor hereby authorizes Account Debtors to make payments directly to Agent and to rely on notice from Agent without further inquiry. Agent may on behalf of each Loan Party Obligor endorse all items of payment received by Agent that are payable to such Loan Party Obligor for the purposes described above.
6.4. Power of Attorney. Without limiting any of Agent’s and the other Lenders’ other rights under this Agreement or any other Loan Document, each Loan Party Obligor hereby grants to Agent an irrevocable power of attorney, coupled with an interest, authorizing and permitting Agent (acting through any of its officers, employees, attorneys or agents), at Agent’s option but without obligation, with or without notice to such Loan Party Obligor, and at each Loan Party Obligor’s expense, to do any or all of the following, in such Loan Party Obligor’s name or otherwise:
(a) at any time, whether or not an Event of Default has occurred or is continuing, (i) execute on behalf of such Loan Party Obligor any documents that Agent may, in its sole discretion, deem advisable in order to perfect, protect and maintain Agent’s security interests, and priority thereof, in the Collateral and to fully consummate all the transactions contemplated by this Agreement and the other Loan Documents (including such Financing Statements and continuation Financing Statements, and amendments or other modifications thereto, as Agent shall deem necessary or appropriate) and to notify Account Debtors of the Loan Party Obligors in the manner contemplated by Section 6.3, (ii) endorse such Loan Party Obligor’s name on all checks and other forms of remittances received by Agent, (iii) pay any sums required on account of such Loan Party Obligor’s taxes or to secure the release of any Liens therefor, (iv) pay any amounts necessary to obtain, or maintain in effect, any of the insurance described in Section 7.14, (v) receive and otherwise take control in any manner of any cash or non-cash items of payment or Proceeds of Collateral, (vi) receive, open and dispose of all mail addressed to such Loan Party Obligor at any post office box or lockbox maintained by Agent for such Loan Party Obligor or at any other business premises of Agent and (vii) endorse or assign to Agent on such Loan Party Obligor’s behalf any portion of Collateral evidenced by an agreement, Instrument or Document if an endorsement or assignment of any such items is not made by such Loan Party Obligor pursuant to Section 5.2; and
51
(b) at any time, after the occurrence and during the continuance of an Event of Default, (i) execute on behalf of such Loan Party Obligor any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or lease (as lessor or lessee) any real or personal property which is part of the Collateral or in which Agent has an interest, (ii) execute on behalf of such Loan Party Obligor any invoices relating to any Accounts, any draft against any Account Debtor, any proof of claim in bankruptcy, any notice of Lien or claim, and any assignment or satisfaction of mechanic’s, materialman’s or other Lien, (iii) execute on behalf of such Loan Party Obligor any notice to any Account Debtor, (iv) pay, contest or settle any Lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same, (v) grant extensions of time to pay, compromise claims relating to, and settle Accounts, Chattel Paper and General Intangibles for less than face value and execute all releases and other documents in connection therewith, (vi) settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor, (vii) instruct any third party having custody or control of any Collateral or books or records belonging to, or relating to, such Loan Party Obligor to give Agent the same rights of access and other rights with respect thereto as Agent has under this Agreement or any other Loan Document, (viii) change the address for delivery of such Loan Party Obligor’s mail, (ix) vote any right or interest with respect to any Investment Property, and (x) instruct any Account Debtor to make all payments due to any Loan Party Obligor directly to Agent.
Any and all sums paid, and any and all costs, expenses, liabilities, obligations and reasonable attorneys’ fees (internal and external counsel) of Agent with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Each Loan Party Obligor agrees that Agent’s rights under the foregoing power of attorney and any of Agent’s other rights under this Agreement or the other Loan Documents shall not be construed to indicate that Agent or any Lender is in control of the business, management or properties of any Loan Party Obligor.
6.5. Disputes. Each Loan Party Obligor shall promptly notify Agent of all disputes or claims relating to its Accounts and Chattel Paper. Each Loan Party Obligor agrees that it will not, without Agent’s prior written consent, compromise or settle any of its Accounts or Chattel Paper for less than the full amount thereof, grant any extension of time for payment of any of its Accounts or Chattel Paper, release (in whole or in part) any Account Debtor or other person liable for the payment of any of its Accounts or Chattel Paper or grant any credits, discounts, allowances, deductions, return authorizations or the like with respect to any of its Accounts or Chattel Paper; except (unless otherwise directed by Agent during the existence of a Default or an Event of Default) such Loan Party Obligor may take any of such actions in the Ordinary Course of Business consistent with past practices, provided that Borrower Representative promptly reports the same to Agent.
6.6. Invoices. At Agent’s request, each Loan Party Obligor will cause all invoices and statements that it sends to Account Debtors or other third parties to be marked and authenticated, in a manner reasonably satisfactory to Agent, to reflect Agent’s security interest therein and payment instructions (including, but not limited to, in a manner to meet the requirements of Section 9-404(a)(2) of the UCC).
Reserved.
52
7. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS.
To induce Agent and the Lenders to enter into this Agreement, each Loan Party Obligor represents, warrants and covenants as follows (it being understood and agreed that (a) each such representation and warranty (i) will be made as of the date hereof and be deemed remade as of each date on which any Loan is made (except to the extent any such representation or warranty expressly relates only to any earlier or specified date, in which case such representation or warranty will be made as of such earlier or specified date) and (ii) shall not be affected by any knowledge of, or any investigation by, Agent or any Lender and (b) each such covenant shall continuously apply with respect to all times commencing on the date hereof and continuing until the Termination Date):
7.1. Existence and Authority. Each Loan Party is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization (which jurisdiction is identified in Section 1(a) of the Perfection Certificate) and is qualified to do business in each jurisdiction in which the operation of its business requires that it be qualified (which each such jurisdiction is identified in Section 1(a) of the Perfection Certificate) or, if such Loan Party is not so qualified, such Loan Party may cure any such failure without losing any of its rights, incurring any liens or material penalties, or otherwise affecting Agent’s rights. Each Loan Party has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby. The execution, delivery and performance by each Loan Party Obligor of this Agreement and all of the other Loan Documents to which such Loan Party Obligor is a party have been duly and validly authorized, do not violate such Loan Party Obligor’s Governing Documents or any applicable law or any material agreement or instrument or any court order which is binding upon any Loan Party or its property, do not constitute grounds for acceleration of any Indebtedness or obligation under any material agreement or instrument which is binding upon any Loan Party or its property, and do not require the consent of any Person. No Loan Party is required to obtain any government approval, consent, or authorization from, or to file any declaration or statement with, any Governmental Authority in connection with or as a condition to the execution, delivery or performance of any of the Loan Documents. This Agreement and each of the other Loan Documents have been duly executed and delivered by, and are enforceable against, each of the Loan Party Obligors who have signed them, in accordance with their respective terms. Section 1(f) of the Perfection Certificate sets forth the ownership of each Borrower and its Subsidiaries and, as of the Closing Date, Parent.
7.2. Names; Trade Names and Styles. The name of each Loan Party Obligor set forth on Section 1(b) of the Perfection Certificate is its correct and complete legal name as of the date hereof, and except as stated in Section 1(b) of the Perfection Certificate, and no Loan Party Obligor has used any other name at any time in the past five (5) years, or at any time will use any other name, in any tax filing made in any jurisdiction. Listed in Section 1(b) of the Perfection Certificate are all prior names used by each Loan Party Obligor at any time in the past five (5) years and all of the present and prior trade names used by any Loan Party Obligor at any time in the past five (5) years. Borrower Representative shall give Agent at least thirty (30) days’ prior written notice (and will deliver an updated Section 1(b) of the Perfection Certificate to reflect the same) before it or any other Loan Party Obligor changes its legal name or does business under any other name.
53
7.3. Title to Collateral; Third Party Locations; Permitted Liens. Each Loan Party Obligor has, and at all times will continue to have, good and marketable title to all of the Collateral. The Collateral now is, and at all times will remain, free and clear of any and all Liens, except for Permitted Liens. Agent now has, and will at all times continue to have, a first priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and each Loan Party Obligor will at all times defend Agent and the Collateral against all claims of others. None of the Collateral which is Equipment is, or will at any time, be affixed to any real property in such a manner, or with such intent, as to become a fixture. Except for leases or subleases as to which Borrowers have delivered to Agent a landlord’s waiver in form and substance reasonably satisfactory to Agent (unless waived by Agent in its sole discretion; provided, that such waiver may be conditioned upon Agent establishing a rent or other similar Reserve satisfactory to Agent in its sole discretion), no Loan Party Obligor is or will be a lessee or sublessee under any real property lease or sublease. Except for warehouses as to which Borrowers have delivered to Agent a warehouseman’s waiver in form and substance reasonably satisfactory to Agent (unless waived by Agent in its sole discretion; provided, that such waiver may be conditioned upon Agent establishing a rent or other similar Reserve satisfactory to Agent in its sole discretion), no Loan Party Obligor is or will at any time be a bailor of any Goods at any warehouse or otherwise. Prior to causing or permitting any Collateral to at any time be located upon premises in which any third party (including any landlord, warehouseman, or otherwise) has an interest, Borrower Representative shall notify Agent and the applicable Loan Party Obligor shall cause each such third party to execute and deliver to Agent, in form and substance reasonably acceptable to Agent, such waivers, collateral access agreements, and subordinations as Agent shall specify, so as to, among other things, ensure that Agent’s rights in the Collateral are, and will at all times continue to be, superior to the rights of any such third party and that Agent has access to such Collateral. Each applicable Loan Party Obligor will keep at all times in full force and effect, and will comply at all times with all the terms of, any lease of real property where any of the Collateral now or in the future may be located.
7.4. Accounts and Chattel Paper. As of each date reported by Borrowers, all Accounts which any Borrower has then reported to Agent as then being Eligible Accounts comply in all respects with the criteria for eligibility set forth in the respective definitions of Eligible Billed Accounts and Eligible Unbilled Accounts. All such Accounts, and all Chattel Paper owned by any Loan Party Obligor, are genuine and in all respects what they purport to be, arise out of a completed, bona fide and unconditional and non-contingent sale and delivery of goods or rendition of services by a Borrower in the Ordinary Course of Business and in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto, each Account Debtor thereunder had the capacity to contract at the time any contract or other document giving rise to such Accounts and Chattel Paper were executed, and the transactions giving rise to such Accounts and Chattel Paper comply with all applicable laws and governmental rules and regulations.
7.5. Electronic Chattel Paper. To the extent that any Loan Party Obligor obtains or maintains any Electronic Chattel Paper, such Loan Party Obligor shall at all times create, store and assign the record or records comprising the Electronic Chattel Paper in such a manner that (a) a single authoritative copy of the record or records exists which is unique, identifiable and except as otherwise provided below, unalterable, (b) the authoritative copy identifies Agent as the assignee of the record or records, (c) the authoritative copy is communicated to and maintained by Agent or its designated custodian, (d) copies or revisions that add or change an identified assignee of the authoritative copy can only be made with the participation of Agent, (e) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy and (f) any revision of the authoritative copy is readily identifiable as an authorized or unauthorized revision.
54
7.6. Capitalization; Investment Property.
(a) No Loan Party, directly or indirectly, owns, or shall at any time own, any capital stock or other equity interests of any other Person except as set forth in Sections 1(f) and 1(g) of the Perfection Certificate, which Sections list all Investment Property owned by each Loan Party Obligor.
(b) None of the Pledged Equity has been issued or otherwise transferred in violation of the Securities Act, or other applicable laws of any jurisdiction to which such issuance or transfer may be subject. The Pledged Equity pledged by each Loan Party Obligor hereunder constitutes all of the issued and outstanding equity interests of each Issuer owned by such Loan Party Obligor.
(c) All of the Pledged Equity has been duly and validly issued and is fully paid and non-assessable, and the holders thereof are not entitled to any preemptive, first refusal or other similar rights. There are no outstanding options, warrants or similar agreements, documents, or instruments with respect to any of the Pledged Equity.
(d) Each Loan Party Obligor has caused each Issuer to amend or otherwise modify its Governing Documents, books, records, and related agreements, documents and instruments, as applicable, to reflect the rights and interests of Agent hereunder, and to the extent required to enable and empower Agent to exercise and enforce its rights and remedies hereunder in respect of the Pledged Equity and other Investment Property.
(e) Each Loan Party Obligor will take any and all actions required or requested by Agent, from time to time, to (i) cause Agent to obtain control of any Investment Property in a manner reasonably acceptable to Agent and (ii) obtain from any Issuers and such other Persons as Agent shall specify, for the benefit of Agent, written confirmation of Agent’s control over such Investment Property and take such other actions as Agent may request to perfect Agent’s security interest in any Investment Property. For purposes of this Section 7.6, Agent shall have control of Investment Property if (A) pursuant to Section 5.2, such Investment Property consists of certificated securities and the applicable Loan Party Obligor delivers such certificated securities to Agent (with all appropriate endorsements), (B) such Investment Property consists of uncertificated securities and either (x) the applicable Loan Party Obligor delivers such uncertificated securities to Agent or (y) the Issuer thereof agrees, pursuant to documentation in form and substance reasonably satisfactory to Agent, that it will comply with instructions originated by Agent without further consent by the applicable Loan Party Obligor and (C) such Investment Property consists of security entitlements and either (x) Agent becomes the entitlement holder thereof or (y) the appropriate securities intermediary agrees, pursuant to documentation in form and substance reasonably satisfactory to Agent, that it will comply with entitlement orders originated by Agent without further consent by the applicable Loan Party Obligor. Each Loan Party Obligor that is a limited liability company or a partnership hereby represents and warrants that it has not, and at no time will, elect pursuant to the provisions of Section 8-103 of the UCC to provide that its equity interests are securities governed by Article 8 of the UCC.
55
(f) No Loan Party owns, or has any present intention of acquiring, any “margin security” or any “margin stock” within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System (herein called “margin security” and “margin stock”). None of the proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry, any margin security or margin stock or for any other purpose which might constitute the transactions contemplated hereby a “purpose credit” within the meaning of said Regulations T, U or X, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Exchange Act, or any rules or regulations promulgated under such statutes.
(g) No Loan Party Obligor shall vote to enable, or take any other action to cause or to permit, any Issuer to issue any equity interests of any nature, or to issue any other securities or interests convertible into or granting the right to purchase or exchange for any equity interests of any nature of any Issuer.
(h) No Loan Party Obligor shall take, or fail to take, any action that would in any manner impair the value or the enforceability of Agent’s Lien on any of the Investment Property, or any of Agent’s rights or remedies under this Agreement or any other Loan Document with respect to any of the Investment Property.
(i) In the case of any Loan Party Obligor which is an Issuer, such Issuer agrees that the terms of Section 11.3(g)(iii) shall apply to such Loan Party Obligor with respect to all actions that may be required of it pursuant to such Section 11.3(g)(iii) regarding the Investment Property issued by it.
(j) Each Loan Party Obligor has made all capital contributions heretofore required to be made to the respective Issuer in respect of any Investment Property constituting limited liability company interests and no additional capital contributions are required to be made in respect of the respective limited liability company interests.
7.7. Commercial Tort Claims. No Loan Party Obligor has any Commercial Tort Claims pending other than those listed in Section 2 of the Perfection Certificate, and each Loan Party Obligor shall promptly (but in any case, no later than five (5) Business Days thereafter) notify Agent in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the date hereof against any third party. Such notice shall constitute such Loan Party Obligor’s authorization to amend such Section 2 to add such Commercial Tort Claim and shall automatically be deemed to amend such Section 2 to include such Commercial Tort Claim.
56
7.8. Jurisdiction of Organization; Location of Collateral. Sections 1(c) and 1(d) of the Perfection Certificate set forth (a) each place of business of each Loan Party Obligor (including its chief executive office), (b) all locations where all Inventory, Equipment, and other Collateral owned by each Loan Party Obligor is kept and (c) whether each such Collateral location and place of business (including each Loan Party Obligor’s chief executive office) is owned by a Loan Party or leased (and if leased, specifies the complete name and notice address of each lessor). No Collateral is located outside the United States or in the possession of any lessor, bailee, warehouseman or consignee, except as expressly indicated in Sections 1(c) and 1(d) of the Perfection Certificate. Each Loan Party Obligor will give Agent at least thirty (30) days’ prior written notice before changing its jurisdiction of organization, opening any additional place of business, changing its chief executive office or the location of its books and records, or moving any of the Collateral to a location other than one of the locations set forth in Sections 1(c) and 1(d) of the Perfection Certificate, and will execute and deliver all Financing Statements, landlord waivers, collateral access agreements, mortgages, and all other agreements, instruments and documents which Agent shall require in connection therewith prior to making such change, all in form and substance reasonably satisfactory to Agent. Without the prior written consent of Agent, no Loan Party Obligor will at any time (i) change its jurisdiction of organization or (ii) allow any Collateral to be located outside of the continental United States of America.
7.9. Financial Statements and Reports; Solvency.
(a) All financial statements delivered to Agent and Lenders by or on behalf of any Loan Party have been, and at all times will be, prepared in conformity with GAAP in all material respects (except to the extent that equity expenses are not reflected in interim financial statements) and completely and fairly reflect the financial condition of each Loan Party covered thereby, at the times and for the periods therein stated, in all material respects.
(b) As of the date hereof (after giving effect to the Loans to be made on the date hereof, and the consummation of the transactions contemplated hereby), and as of each other day that any Loan is made (after giving effect thereof), (i) the fair saleable value of all of the assets and properties of each Loan Party, individually, exceeds the aggregate liabilities and Indebtedness of each such Loan Party (including contingent liabilities), (ii) each Loan Party, individually, is solvent and able to pay its debts as they come due, (iii) each Loan Party, individually, has sufficient capital to carry on its business as now conducted and as proposed to be conducted, (iv) no Loan Party is contemplating either the liquidation of all or any substantial portion of its assets or property, or the filing of any petition under any state, federal, or other bankruptcy or insolvency law and (v) no Loan Party has knowledge of any Person contemplating the filing of any such petition against any Loan Party.
57
7.10. Tax Returns and Payments; Pension Contributions. Each Loan Party has timely filed all tax returns and reports required by applicable law, has timely paid all applicable Taxes, assessments, deposits and contributions owing by such Loan Party and will timely pay all such items in the future as they became due and payable. Each Loan Party may, however, defer payment of any contested taxes; provided, that such Loan Party (a) in good faith contests its obligation to pay such Taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Agent in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to keep the contested taxes from becoming a Lien upon any of the Collateral and (d) maintains adequate reserves therefor in conformity with GAAP. No Loan Party is aware of any claims or adjustments proposed for any prior tax years that could result in additional taxes becoming due and payable by any Loan Party. Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable laws. Each Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter or opinion letter from the Internal Revenue Service to the effect that the form of such Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the Internal Revenue Service to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the Internal Revenue Service. To the best knowledge of each Loan Party, nothing has occurred that would prevent or cause the loss of such tax-qualified status. There are no pending or, to the best knowledge of any Loan Party, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to result in liabilities individually or in the aggregate in excess of $100,000 of any Loan Party. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in liabilities individually or in the aggregate of any Loan Party in excess of $100,000. No ERISA Event has occurred, and no Loan Party is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan, in each case that could reasonably be expected to result in liabilities individually or in the aggregate in excess of $100,000. Each Loan Party and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained, in each case except as could not reasonably be expected to result in liabilities individually or in the aggregate to the Loan Parties in excess of $100,000.As of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is sixty percent (60%) or higher and no Loan Party knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below sixty percent (60%) as of the most recent valuation date. No Loan Party or any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid, except as could not reasonably be expected to result in liabilities individually or in the aggregate to the Loan Parties in excess of $100,000. No Loan Party or any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA except as could not reasonably be expected to result in liabilities individually or in the aggregate to the Loan Parties in excess of $100,000. No Pension Plan has been terminated by the plan administrator thereof or by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan, except as could not reasonably be expected to result in liabilities individually or in the aggregate to the Loan Parties in excess of $100,000.
58
7.11. Compliance with Laws; Intellectual Property; Licenses.
(a) Each Loan Party has complied, and will continue at all times to comply, in all material respects with all provisions of all applicable laws and regulations, including those relating to the ownership of real or personal property, the conduct and licensing of each Loan Party’s business, the payment and withholding of Taxes, ERISA and other employee matters, and safety and environmental matters.
(b) No Loan Party has received written notice of default or violation, or is in default or violation, with respect to any judgment, order, writ, injunction, decree, demand or assessment issued by any court or any federal, state, local, municipal or other Governmental Authority relating to any aspect of any Loan Party’s business, affairs, properties or assets. No Loan Party has received written notice of or been charged with, or is, to the knowledge of any Loan Party, under investigation with respect to, any violation in any material respect of any provision of any applicable law.
(c) No Loan Party Obligor owns any Intellectual Property, except as set forth in Section 4 of the Perfection Certificate. Except as set forth in Section 4 of the Perfection Certificate, none of the Intellectual Property owned by any Loan Party Obligor is the subject of any licensing or franchise agreement pursuant to which such Loan Party Obligor is the licensor or franchisor. Each Loan Party Obligor shall promptly (but in any event within thirty (30) days thereafter) notify Agent in writing of any additional Intellectual Property rights acquired or arising after the Closing Date and shall submit to Agent a supplement to Section 4 of the Perfection Certificate to reflect such additional rights; provided, that such Loan Party Obligor’s failure to do so shall not impair Agent’s security interest therein. Each Loan Party Obligor shall execute a separate security agreement granting Agent a security interest in such Intellectual Property (whether owned on the Closing Date or thereafter), in form and substance reasonably acceptable to Agent and suitable for registering such security interest in such Intellectual Property with the United States Patent and Trademark Office and/or United States Copyright Office, as applicable; provided, that such Loan Party Obligor’s failure to do so shall not impair Agent’s security interest therein. Each Loan Party owns or has, and will at all times continue to own or have, the valid right to use all material patents, trademarks, copyrights, software, computer programs, equipment designs, network designs, equipment configurations, technology and other Intellectual Property used, marketed and sold in such Loan Party’s business, and each Loan Party is in compliance, and will continue at all times to comply, in all material respects with all licenses, user agreements and other such agreements regarding the use of Intellectual Property. No Loan Party has any knowledge that, or has received any notice claiming that, any of such Intellectual Property infringes upon or violates the rights of any other Person.
(d) Each Loan Party has and will continue at all times to have, all federal, state, local and other licenses and permits required to be maintained in connection with such Loan Party’s business operations, and all such licenses and permits are valid and in full force and effect. Each Loan Party has, and will continue at all times to have, complied with the requirements of such licenses and permits in all material respects, and has received no written notice of any pending or threatened proceedings for the suspension, termination, revocation or limitation thereof. No Loan Party is aware of any facts or conditions that could reasonably be expected to cause or permit any of such licenses or permits to be voided, revoked or withdrawn.
59
7.12. Litigation. Section 1(e) of the Perfection Certificate discloses all claims, proceedings, litigation or investigations pending or (to the best of each Loan Party Obligor’s knowledge) threatened against any Loan Party as of the Third Amendment Effective Date. There is no claim, suit, litigation, proceeding or investigation pending or (to the best of each Loan Party Obligor’s knowledge) threatened by or against or affecting any Loan Party in any court or before any Governmental Authority (or any basis therefor known to any Loan Party Obligor) which may result, either separately or in the aggregate, in liability in excess of $100,000 for the Loan Parties, in any Material Adverse Effect, or in any material impairment in the ability of any Loan Party to carry on its business in substantially the same manner as it is now being conducted.
7.13. Use of Proceeds. All proceeds of all Loans shall be used by Borrowers solely (a) with respect to Loans made on the Closing Date, to repay in full certain revolving line of credit with Renasant Bank (formerly known as Brand Bank) entered into as of August 31, 2018 in the original principal amount of $15,000,000, (b) to pay the fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents and the transactions contemplated hereby and thereby, (c) for Borrowers’ working capital purposes and (d) for such other purposes as specifically permitted pursuant to the terms of this Agreement. All proceeds of all Loans will be used solely for lawful business purposes.
7.14. Insurance.
(a) Each Loan Party will at all times carry property, liability and other insurance, with insurers reasonably acceptable to Agent, in such form and amounts, and with such deductibles and other provisions, as Agent shall reasonably require, but in any event, in such amounts and against such risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which such Loan Party operates, and each Borrower will provide Agent with evidence reasonably satisfactory to Agent that such insurance is, at all times, in full force and effect. A true and complete listing of such insurance as of the Third Amendment Effective Date, including issuers, coverages and deductibles, is set forth in Section 5 of the Perfection Certificate. Each property insurance policy shall name Agent as lender loss payee and shall contain a lender’s loss payable endorsement, each liability insurance policy shall name Agent as an additional insured, and each business interruption insurance policy shall be collaterally assigned to Agent, all in form and substance reasonably satisfactory to Agent. All policies of insurance shall provide that they may not be cancelled or changed without at least thirty (30) days’ (or, with respect to nonpayment of premiums, ten (10) days’) prior written notice to Agent, and shall otherwise be in form and substance reasonably satisfactory to Agent. Borrower Representative shall advise Agent promptly of any policy cancellation, non-renewal, reduction, or material amendment with respect to any insurance policies maintained by any Loan Party or any receipt by any Loan Party of any notice from any insurance carrier regarding any intended or threatened cancellation, non-renewal, reduction or material amendment of any of such policies, and Borrower Representative shall promptly deliver to Agent copies of all notices and related documentation received by any Loan Party in connection with the same.
60
(b) Borrower Representative shall deliver to Agent no later than fifteen (15) days prior to the expiration of any then current insurance policies, insurance certificates evidencing renewal of all such insurance policies required by this Section 7.14. Borrower Representative shall deliver to Agent, upon Agent’s request, certificates evidencing such insurance coverage in such form as Agent shall specify.
(c) IF ANY LOAN PARTY AT ANY TIME OR TIMES HEREAFTER SHALL FAIL TO OBTAIN OR MAINTAIN ANY OF THE POLICIES OF INSURANCE REQUIRED ABOVE (AND PROVIDE EVIDENCE THEREOF TO AGENT) OR TO PAY ANY PREMIUM RELATING THERETO, THEN AGENT, WITHOUT WAIVING OR RELEASING ANY OBLIGATION OR DEFAULT BY ANY BORROWER HEREUNDER, MAY (BUT SHALL BE UNDER NO OBLIGATION TO) OBTAIN AND MAINTAIN SUCH POLICIES OF INSURANCE AND PAY SUCH PREMIUMS AND TAKE SUCH OTHER ACTIONS WITH RESPECT THERETO AS AGENT DEEMS ADVISABLE UPON NOTICE TO BORROWER REPRESENTATIVE. SUCH INSURANCE, IF OBTAINED BY AGENT, MAY, BUT NEED NOT, PROTECT ANY LOAN PARTY’S INTERESTS OR PAY ANY CLAIM MADE BY OR AGAINST ANY LOAN PARTY WITH RESPECT TO THE COLLATERAL. SUCH INSURANCE MAY BE MORE EXPENSIVE THAN THE COST OF INSURANCE ANY LOAN PARTY MAY BE ABLE TO OBTAIN ON ITS OWN AND MAY BE CANCELLED ONLY UPON THE APPLICABLE LOAN PARTY PROVIDING EVIDENCE THAT IT HAS OBTAINED THE INSURANCE AS REQUIRED ABOVE. ALL SUMS DISBURSED BY AGENT IN CONNECTION WITH ANY SUCH ACTIONS, INCLUDING COURT COSTS, EXPENSES, OTHER CHARGES RELATING THERETO AND REASONABLE INTERNAL AND EXTERNAL ATTORNEY COSTS, SHALL CONSTITUTE LOANS HEREUNDER, SHALL BE PAYABLE ON DEMAND BY BORROWERS TO AGENT AND, UNTIL PAID, SHALL BEAR INTEREST AT THE HIGHEST RATE THEN APPLICABLE TO LOANS HEREUNDER.
7.15. Financial, Collateral and Other Reporting / Notices. Each Loan Party has kept, and will at all times keep, adequate records and books of account with respect to its business activities and the Collateral in which proper entries are made in accordance with GAAP reflecting all its financial transactions (except for the amortization of liquidated damages which is presented in sales and marketing for internal purposes and to the extent that equity expenses are not reflected in interim financial statements). Each Loan Party Obligor will cause to be prepared and furnished to Agent, in each case in a form and in such detail as is acceptable to Agent the following items (the items to be provided under this Section 7.15 shall be delivered to Agent by posting on ABLSoft or, if requested by Agent, by another form of Approved Electronic Communication or in writing):
(a) Annual Financial Statements. Not later than one hundred and eighty (180) days after the close of Fiscal Year 2018 and one hundred twenty (120) days after the close of each subsequent Fiscal Year, unqualified, audited financial statements of each Loan Party as of the end of such Fiscal Year, including balance sheet, income statement, and statement of cash flow for such Fiscal Year, in each case on a consolidated and consolidating basis, certified by a firm of independent certified public accountants of recognized standing selected by Borrowers but acceptable to Agent, together with a copy of any management letter issued in connection therewith. Concurrently with the delivery of such financial statements, Borrower Representative shall deliver to Agent a Compliance Certificate, indicating whether (i) Borrowers are in compliance with each of the covenants specified in Section 9, and setting forth a detailed calculation of such covenants and (ii) any Default or Event of Default is then in existence;
61
(b) Interim Financial Statements. Not later than thirty (30) days after the end of each month hereafter, including the last month of each Fiscal Year, unaudited interim financial statements of each Loan Party as of the end of such month and of the portion of such Fiscal Year then elapsed, including balance sheet, income statement, statement of cash flow, and results of their respective operations during such month and the then-elapsed portion of the Fiscal Year, together with comparative figures for the same periods in the immediately preceding Fiscal Year and the corresponding figures from the budget for the Fiscal Year covered by such financial statements, in each case on a consolidated and consolidating basis, certified by the principal financial officer of Borrower Representative as prepared in accordance with GAAP and fairly presenting the consolidated financial position and results of operations (including management discussion and analysis of such results) of each Loan Party for such month and period subject only to changes from ordinary course year-end audit adjustments and except that such statements need not contain footnotes. Concurrently with the delivery of such financial statements, Borrower Representative shall deliver to Agent a Compliance Certificate, indicating whether (i) Borrowers are in compliance with each of the covenants specified in Section 9, and setting forth a detailed calculation of such covenants, and (ii) any Default or Event of Default is then in existence;
(c) Borrowing Base / Collateral Reports / Insurance Certificates / Perfection Certificates / Other Items. The items described on Annex II hereto by the respective dates set forth therein.
(d) Projections, Etc. Not later than ten (10) days prior to the end of each Fiscal Year, monthly business projections for the following Fiscal Year for the Loan Parties on a consolidated and consolidating basis, which projections shall include for each such period Borrowing Base and Term Borrowing Base projections, profit and loss projections, balance sheet projections, income statement projections and cash flow projections;
(e) Shareholder Reports, Etc. Promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which each Loan Party has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which any Loan Party files with the Securities and Exchange Commission or any Governmental Authority which may be substituted therefor, or any national securities exchange;
(f) ERISA Reports. Copies of any annual report to be filed pursuant to the requirements of ERISA in connection with each Plan subject thereto promptly upon request by Agent and in addition, each Loan Party shall promptly notify Agent upon having knowledge of any ERISA Event; and
(g) Tax Returns. Each federal and state income tax return filed by any Loan Party or Other Obligor promptly (but in no event later than ten (10) days following the filing of such return), together with such supporting documentation as is supplied to the applicable tax authority with such return and proof of payment of any amounts owing with respect to such return.
62
(h) Notification of Certain Changes. Promptly (and in no case later than the earlier of (i) three (3) Business Days after the occurrence of any of the following and (ii) such other date that such information is required to be delivered pursuant to this Agreement or any other Loan Document) notification to Agent in writing of (A) the occurrence of any Default or Event of Default, (B) the occurrence of any event that has had, or may have, a Material Adverse Effect, (C) any change in any Loan Party’s officers or directors, (D) any investigation, action, suit, proceeding or claim (or any material development with respect to any existing investigation, action, suit, proceeding or claim) relating to any Loan Party, any officer or director of a Loan Party (in his or her capacity as an officer or director of a Loan Party), the Collateral or which may result in a Material Adverse Effect, (E) any material loss or damage to the Collateral, (F) any event or the existence of any circumstance that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect, any Default, or any Event of Default, or which would make any representation or warranty previously made by any Loan Party to Agent untrue in any material respect or constitute a material breach if such representation or warranty was then being made, (G) any actual or alleged breaches of any Material Contract or termination or threat to terminate any Material Contract or any material amendment to or modification of a Material Contract, or the execution of any new Material Contract by any Loan Party and (H) any change in any Loan Party’s certified independent accountant. In the event of each such notice under this Section 7.15(h), Borrower Representative shall give notice to Agent of the action or actions that each Loan Party has taken, is taking, or proposes to take with respect to the event or events giving rise to such notice obligation.
(i) Amendments to Term Loan Documents. Promptly following the occurrence of such event, any amendment, waiver, supplement, or other modification of any Term Loan Document (accompanied by a true, correct and complete copy thereof).
(j) Amendments to Third Lien Loan Documents. Promptly following the occurrence of such event, any amendment, waiver, supplement, or other modification of any Third Lien Loan Document (accompanied by a true, correct and complete copy thereof).
(k) Other Information. Promptly upon request, such other data and information (financial and otherwise) as Agent, from time to time, may reasonably request, bearing upon or related to the Collateral or each Loan Party’s and each Other Obligor’s business or financial condition or results of operations; and
(l) Notices Under Material Contracts. Promptly upon any delivery to Loan Party or any of their Subsidiaries of any material notices under any Material Contract (including any notice of default or termination or intent to terminate), a written statement describing such event, with copies of such amendments, notices or new contracts (if applicable), delivered to Agent, and a description of any actions being taken pursuant thereto.
(m) Notice Under Merger Agreement. Promptly upon any delivery to Loan Party or any of their Subsidiaries of any material notices under the Merger Agreement, a written statement describing such event, with copies of such notices or documents (if applicable), delivered to Agent, and a description of any actions being taken pursuant thereto.
63
7.16. Litigation Cooperation. Should any third-party suit, regulatory action, or any other judicial, administrative, or similar proceeding be instituted by or against Agent or any Lender with respect to any Collateral or in any manner relating to any Loan Party, this Agreement, any other Loan Document or the transactions contemplated hereby, each Loan Party Obligor shall, without expense to Agent or any Lender, make available each Loan Party, such Loan Party’s officers, employees and agents, and any Loan Party’s books and records, without charge, but only to the extent that Agent or such Lender may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding, subject in all events to confidentiality obligations owed to third-parties and preservation of the lawyer-client privilege between a Loan Party and its attorneys.
7.17. Maintenance of Collateral, Etc. Each Loan Party Obligor will maintain all of the Collateral in good working condition, ordinary wear and tear excepted, and no Loan Party Obligor will use the Collateral for any unlawful purpose.
7.18. Material Contracts. Except as expressly disclosed in Section 1(h) of the Perfection Certificate as of the Third Amendment Effective Date, no Loan Party is (a) a party to any contract which has had or could reasonably be expected to have a Material Adverse Effect or (b) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (x) any contract to which it is a party or by which any of its assets or properties is bound, which default, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or result in liabilities in excess of $100,000 or (y) any Material Contract. Except for the contracts and other agreements listed in Section 1(h) of the Perfection Certificate, no Loan Party is party, as of the Fourth Amendment Effective Date, to any (i) employment agreements covering the management of any Loan Party, (ii) collective bargaining agreements or other labor agreements covering any employees of any Loan Party, (iii) agreements for managerial, consulting or similar services to which any Loan Party is a party or by which it is bound, (iv) agreements regarding any Loan Party, its assets or operations or any investment therein to which any of its equity holders is a party, (v) patent licenses, trademark licenses, copyright licenses or other lease or license agreements to which any Loan Party is a party, either as lessor or lessee, or as licensor or licensee, (vi) distribution, marketing or supply agreements to which any Loan Party is a party, (vii) customer agreements to which any Loan Party is a party (in each case with respect to any contract of the type described in the preceding clauses (i), (iii), (iv), (v), (vi) and (vii) requiring payments by or to any Loan Party of more than $2,500,000 in the aggregate in any Fiscal Year), (viii) partnership agreements to which any Loan Party is a partner, limited liability company agreements to which any Loan Party is a member or manager, or joint venture agreements to which any Loan Party is a party, (ix) real estate leases, or (x) any Service Contract (as defined in the Intercreditor Agreement) constituting a Material Contract under the Term Loan Agreement or (xi) any other contract to which any Loan Party is a party, in each case with respect to this clause (x) the breach, nonperformance or cancellation of which, could reasonably be expected to have a Material Adverse Effect; (each such contract and agreement, described in the preceding clauses (i) to (x), a “Material Contract”). The Material Contracts listed in the Perfection Certificate are in full force and effect and there are no events of defaults thereunder or any event which with notice or passage of time, or both, would constitute an event of default thereunder.
64
7.19. No Default. No Default or Event of Default has occurred and is continuing.
7.20. No Material Adverse Change. Since December 31, 2017 there has been no material adverse change in the condition (financial or otherwise), business, operations, or properties of any Loan Party or any Other Obligor.
7.21. Full Disclosure. Excluding projections and other forward-looking information, pro forma financial information and information of a general economic or industry nature, no report, notice, certificate, information or other statement delivered or made (including, in electronic form) by or on behalf of any Loan Party, any Other Obligor or any of their respective Affiliates to Agent or Lender in connection with this Agreement or any other Loan Document contains or will at any time contain any untrue statement of a material fact, or omits or will at any time omit to state any material fact necessary to make any statements contained herein or therein not misleading. Except for matters of a general economic or political nature which do not affect any Loan Party or any Other Obligor uniquely, there is no fact presently known to any Loan Party Obligor which has not been disclosed to Agent, which has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Any projections and other forward-looking information and pro forma financial information contained in such materials were prepared in good faith based upon assumptions that were believed by such Loan Party to be reasonable at the time prepared and at the time furnished in light of conditions and facts then known (it being recognized that such projections and other forward-looking information and pro forma financial information are not to be viewed as facts and that actual results during the period or periods covered by any such projections or information may differ from the projected results, and such differences may be material).
7.22. Sensitive Payments. No Loan Party (a) has made or will at any time make any contributions, payments or gifts to or for the private use of any governmental official, employee or agent where either the payment or the purpose of such contribution, payment or gift is illegal under the applicable laws of the United States or the jurisdiction in which made or any other applicable jurisdiction, (b) has established or maintained or will at any time establish or maintain any unrecorded fund or asset for any purpose or made any false or artificial entries on its books, (c) has made or will at any time make any payments to any Person with the intention that any part of such payment was to be used for any purpose other than that described in the documents supporting the payment or (d) has engaged in or will at any time engage in any “trading with the enemy” or other transactions violating any rules or regulations of the Office of Foreign Assets Control or any similar applicable laws, rules or regulations.
7.23. Parent. Parent does not and shall not at any time (a) engage in any business activities other than serving as a passive holding company for each Loan Party, (b) have any material assets other than the outstanding shares of equity interests issued by each Loan Party, (c) have any Subsidiaries other than Loan Parties or (d) have any material liabilities other than the Obligations and, the Term Debt and the Third Lien Obligations.
65
7.24. Subordinated Debt.
(a) Borrower Representative has furnished Agent a true, correct and complete copy of each of the Subordinated Debt Documents. No statement or representation made in any of the Subordinated Debt Documents by any Borrower or any other Loan Party or, to any Borrower Representative’s knowledge, any other Person, contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading in any material respect as of the time that such statement or representation is made. Each of the representations and warranties of the Loan Parties set forth in each of the Subordinated Debt Documents are true and correct in all material respects. No portion of the Subordinated Debt is, or at any time shall be, (i) secured by any assets of any of the Loan Parties or any other Person or any equity issued by any of the Loan Parties or any other Person or (ii) guarantied by any Person(except to the extent expressly permitted by the Subordinated Debt Subordination Agreement).
(b) The provisions of the Subordinated Debt Subordination Agreement are enforceable against each holder of the Subordinated Debt. Each Borrower and each other Loan Party Obligor acknowledges that Agent is entering into this Agreement and extending credit and making the Loans in reliance upon the Subordinated Debt Subordination Agreement and this Section 7.24. All Obligations constitute senior Indebtedness entitled to the benefits of the subordination provisions contained in the Subordinated Debt Documents.
7.25. Access to Collateral, Books and Records. At reasonable times, Agent and its representatives or agents shall have the right to inspect the Collateral and to examine and copy each Loan Party’s books and records. Each Loan Party Obligor agrees to give Agent access to any or all of such Loan Party Obligor’s, and each of its Subsidiaries’, premises to enable Agent to conduct such inspections and examinations. Such inspections and examinations shall be at Borrowers’ expense and the charge therefor shall be $1,150 per person per day (or such higher amount as shall represent Agent’s then current standard charge), plus out-of-pocket expenses. Agent may, at Borrowers’ expense, use each Loan Party’s personnel, computer and other equipment, programs, printed output and computer readable media, supplies and premises for the collection, sale or other disposition of Collateral to the extent Agent, in its sole discretion, deems appropriate. Each Loan Party Obligor hereby irrevocably authorizes all accountants and third parties to disclose and deliver to Agent, at Borrowers’ expense, all financial information, books and records, work papers, management reports and other information in their possession regarding the Loan Parties; provided, however, that in no event shall this constitute or be construed as a waiver of attorney-client privilege.
7.26. Appraisals. Each Loan Party Obligor will permit Agent and each of its representatives or agents to conduct appraisals and valuations of the Collateral at such times and intervals as Agent may designate (including any appraisals that may be required to comply with FIRREA). Such appraisals and valuations shall be at Borrowers’ expense.
7.27. Lender Meetings. Upon the request of any Agent or the Required Lenders (which request, so long as no Event of Default shall have occurred and be continuing, shall not be made more than once during each fiscal quarter), participate in a telephonic meeting with the Agents and the Lenders at such time as may be agreed to by Borrower Representative and such Agent or the Required Lenders.
66
7.28. Interrelated Businesses. Loan Parties make up a related organization of various entities constituting a single economic and business enterprise so that Loan Parties share an identity of interests such that any benefit received by any one of them benefits the others. From time to time each of the Loan Parties may render services to or for the benefit of the other Loan Parties, purchase or sell and supply goods to or from or for the benefit of the others, make loans, advances and provide other financial accommodations to or for the benefit of the other Loan Parties (including inter alia, the payment by such Loan Parties of creditors of the other Loan Parties and guarantees by such Loan Parties of indebtedness of the other Loan Parties and provides administrative, marketing, payroll and management services to or for the benefit of the other Loan Parties). Loan Parties have the same centralized accounting and legal services, certain common officers and directors and generally do not provide stand-alone consolidating financial statements to creditors.
7.29. Post-Closing Matters. Loan Party Obligors shall complete each of the post-closing obligations and/or provide to Agent each of the documents, instruments, agreements and information listed on Schedule 7.29 attached on or before the date set forth for each such item thereon, each of which shall be completed or provided in form and substance reasonably satisfactory to Agent. Loan Party Obligors’ failure to complete and satisfy any of the obligations under this Agreement on or before the dates indicated on Schedule 7.29, or Loan Party Obligors’ failure to deliver any of the above listed items on or before the dates on Schedule 7.29, shall constitute an Event of Default hereunder.
7.30. Term Debt.
(a) Borrowers have furnished Agent a true, correct and complete copy of each of the Term Debt Documents. The Liens securing the Term Debt and the guarantees of the Term Debt shall, in each case, be subject to the terms of the Intercreditor Agreement.
(b) Borrowers and each other Loan Party Obligor acknowledges that Agent is entering into this Agreement and extending credit and making the Loans in reliance upon the Intercreditor Agreement and this Section 7.30.
7.31. Third Lien Obligations.
(a) Borrowers have furnished Agent a true, correct and complete copy of each of the Third Lien Loan Documents. The Third Lien Obligations and the Liens securing the Third Lien Obligations and the guarantees of the Third Lien Obligation shall, in each case, be subject to the terms of the Third Lien Subordination Agreement.
(b) Borrowers and each other Loan Party Obligor acknowledges that Agent and Lenders are entering into this Fourth Amendment and extending credit and making the Loans in reliance upon the Third Lien Subordination Agreement and this Section 7.31.
67
7.32. Initial Issuance Transaction. On or before November 23, 2022, Borrowers shall receive a contribution from Holdings (or any parent entity of Holdings) of at least $4,960,000 from the net proceeds from the issuance of additional equity in the form of membership interests (or warrants therefor) in Holdings (or any parent entity of Holdings) pursuant to a transaction or series of transactions of the type described in the Rodina Capital Financing Commitment Letter or similar commitment letter which has been entered into on or before the Sixth Amendment Effective Date, on such additional terms and documentation as approved by Agent.
7.33. S-1 Registration Statement. Borrower shall provide Agent notice promptly upon the S-1 Filing having become effective under the Securities Act and the rules and regulations promulgated thereunder.
7.34. Follow-on Issuance Transactions. By the S-1 Trigger Date Borrowers shall receive a contribution from Holdings (or any parent entity of Holdings) of at least $25,000,000 from the net proceeds from the issuance of additional equity in the form of membership interests (or warrants therefor) in Holdings (or any parent entity of Holdings) pursuant to a transaction or series of transactions of the type described in the Rodina Capital Financing Commitment Letter or similar commitment letter which has been entered into on or before the Sixth Amendment Effective Date, on such additional terms and documentation as approved by Agent.
7.35. Consultant Engagement. Borrowers shall continue to engage the Berkeley Research Group as a consultant at all times as required by Agent.
8. NEGATIVE COVENANTS. No Loan Party Obligor shall, and no Loan Party Obligor shall permit any other Loan Party to:
(a) Merge with or into another Person, Divide, or consolidate with another Person, form any new Subsidiary including by any Division thereof, or acquire any interest in any Person other than (i) a Permitted Acquisition or (ii) the Permitted SPAC Merger;
(b) acquire all or a material portion of the assets or the business of any Person other than a Permitted Acquisition;
(c) acquire any assets except in the Ordinary Course of Business and as otherwise expressly permitted by this Agreement other than a Permitted Acquisition;
(d) substantially change the nature of the business in which it is presently engaged or enter into any transaction outside the Ordinary Course of Business that is not expressly permitted by this Agreement;
(e) sell, lease, assign, transfer, return, liquidate, or dispose of any Collateral or other assets with an aggregate value in excess of $100,000 in any calendar month, except that each Loan Party may (i) sell finished goods Inventory in the Ordinary Course of Business and (ii) dispose of worn-out or surplus Equipment to the extent that such Equipment is exchanged for credit against the purchase price of similar replacement Equipment or the proceeds of such disposition are promptly applied to the purchase price of such replacement Equipment;
68
(f) make any loans to, or investments in, any Affiliate or other Person in the form of money or other assets; provided, that (i) Borrowers may make loans to and investments in its wholly-owned domestic Subsidiaries that are Loan Party Obligors and (ii) Parent may make investments in Borrowers;
(g) incur any Indebtedness other than the Obligations and Permitted Indebtedness;
(h) create, incur, assume or suffer to exist any Lien or other encumbrance of any nature whatsoever or authorize under the UCC of any jurisdiction a Financing Statement naming the Loan Party as debtor, or execute any security agreement authorizing any secured party thereunder to file such Financing Statement, other than in favor of Agent to secure the Obligations, on any of its assets whether now or hereafter owned, other than Permitted Liens;
(i) authorize, enter into, or execute any agreement giving a Secured Party control of a Deposit Account as contemplated by Section 9-104 of the UCC other than in favor of Agent to secure the Obligations and Term Agent to secure the Term Debt, subject to the terms of the Intercreditor Agreement;
(j) enter into any covenant or other agreement that restricts or is intended to restrict it from pledging or granting a security interest in, mortgaging, assigning, encumbering or otherwise creating a Lien on any of its property, whether, real or personal, tangible or intangible, existing or hereafter acquired, in favor of Agent;
(k) guaranty or otherwise become liable with respect to the obligations (other than the (i) Obligations (ii) the Term Debt, subject to the terms of the Intercreditor Agreement, and (iii) the Third Lien Obligations, subject to the terms of the Third Lien Subordination Agreement) of another party or entity;
(l) pay or distribute any dividends or other distributions on any Loan Party’s stock or other equity interest (except for dividends payable solely in capital stock or other equity interests of such Loan Party and dividends and distributions to Borrowers from a Loan Party Obligor); provided, that notwithstanding the foregoing, Borrowers may declare and accrue any distribution or dividend for members or shareholders; provided further that so long as no Default or Event of Default exists or would result therefrom, to the extent Parent is treated as a flow-through entity for federal income tax purposes, the Loan Parties and their Subsidiaries may make Permitted Tax Distributions.
(m) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Loan Party’s capital stock or other equity interests, except for redemptions of (i) “Incentive Units” (as defined in Parent’s Governing Documents) in an aggregate amount, for all such redemptions after the Closing Date, not to exceed $250,000, or (ii) any other “Units” (as defined in Parent’s Governing Documents) so long as no Default or Event of Default exists or would result therefrom and solely to the extent such redemptions are financed with the proceeds of equity interests of Parent or Subordinated Debt permitted under clause (e) of the definition of Permitted Indebtedness;
69
(n) refinance any Term Debt or agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of any Term Loan Documents, except to the extent permitted under the Intercreditor Agreement;
(o) dissolve or elect to dissolve;
(p) engage, directly or indirectly, in a business other than the business which is being conducted on the date hereof, wind up its business operations or cease substantially all, or any material portion, of its normal business operations, or suffer any material disruption, interruption or discontinuance of a material portion of its normal business operations;
(q) pay any principal or other amount on any Indebtedness that is contractually subordinated to Agent in violation of the applicable subordination or intercreditor agreement;
(r) enter into any transaction with an Affiliate other than on arms-length terms disclosed to Agent in writing;
(s) change its jurisdiction of organization or enter into any transaction which has the effect of changing its jurisdiction of organization except as provided for in Section 7.8;
(t) agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of any Loan Party’s Governing Documents, except for such amendments or other modifications required by applicable law or that are not materially adverse to Agent and Lenders, and then, only to the extent such amendments or other modifications are fully disclosed in writing to Agent no less than five (5) Business Days prior to being effectuated;
(u) enter into or assume any agreement prohibiting the creation or assumption of any Lien to secure the Obligations or any Lien upon its properties or assets, whether now owned or hereafter acquired, except (i) pursuant to the Term Loan Documents (as amended from time to time in accordance with the Intercreditor Agreement) or (ii) in connection with any document or instrument governing Liens permitted pursuant to clause (a) of the definition of Permitted Liens provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien;
(v) create or otherwise cause or suffer to exist or become effective any encumbrance or restriction (other than any Loan Documents, the Term Loan Documents (as amended from time to time in accordance with the Intercreditor Agreement) or the Third Lien Documents (as amended from time to time in accordance with the Third Lien Subordination Agreement)) of any kind on the ability of any such Person to pay or make any dividends or distributions to any Borrower (other than any Loan Documents, the Term Loan Documents (as amended from time to time in accordance with the Intercreditor Agreement) or the Third Lien Documents (as amended from time to time in accordance with the Third Lien Subordination Agreement)), to pay any of the Obligations, to make loans or advances or to transfer any of its property or assets to any Borrower (other than any Loan Documents, the Term Loan Documents (as amended from time to time in accordance with the Intercreditor Agreement) or the Third Lien Documents (as amended from time to time in accordance with the Third Lien Subordination Agreement));
70
(w) agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of (i) any Subordinated Debt Document in violation of the Subordinated Debt Subordination Agreement, (ii) any Term Loan Document in violation of the Intercreditor Agreement or (iii) any Third Lien Loan Document in violation of the Third Lien Subordination Agreement;
(x) agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of (i) any Third Lien Loan Document in violation of the Third Lien Subordination Agreement or (ii) refinance or replace any Third Lien Obligations, except as permitted under the Third Lien Subordination Agreement, which refinancing or replacement of the Third Lien Obligations shall be subject to the Third Lien Subordination Agreement or another subordination agreement in form and substance acceptable to Agent;
(y) make (i) any voluntary prepayment of the Term Debt or (ii) any mandatory prepayment of the Term Debt in connection any “Prepayment Event” described in clause (e) of such term in the Term Loan Agreement as in effect on the Sixth Amendment Effective Date, unless, in each case, immediately prior to and after giving pro forma effect to any such prepayment (1) Excess Availability is not less than $15,000,000 and (2) no Event of Default has occurred and is continuing. Notwithstanding the foregoing, on February 7, 2023, Borrower may make a voluntary principal payment of the Term Debt in the amount of $10,000,000, provided that, immediately prior to and after giving pro forma effect to any such payment Excess Availability is not less than $15,000,000.
9. FINANCIAL COVENANTS. Each Loan Party Obligor shall at all times comply with the following Financial Covenants:
9.1. Capital Expenditure Limitation. The Loan Parties shall not make any Capital Expenditures if, after giving effect to such Capital Expenditures, the aggregate cost of all Capital Expenditures of the Loan Parties would exceed $15,000,000 during any Fiscal Year.
9.2. Minimum Excess Availability. The Loan Parties shall not permit Excess Availability at any time to be less than the greater of (a) $4,000,000 and (b) 7.5% of the Borrowing Base (calculated using $0 for the Term Loan Push-Down Reserve regardless of its actual value at the time of determination).
10. RELEASE, LIMITATION OF LIABILITY AND INDEMNITY.
10.1. Release. Each Borrower and each other Loan Party Obligor on behalf of itself and its successors, assigns, heirs and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender and any and all Participants and Affiliates, and their respective successors and assigns, and their respective directors, members, managers, officers, employees, attorneys and agents, including without limitation each Agent-Related Person, and any other Person affiliated with or representing Agent or any Lender (collectively, the “Released Parties”) of and from any and all liability, including all actual or potential claims, demands or causes of action of any kind, nature or description whatsoever, whether arising in law or equity or under contract or tort or under any state or federal law or otherwise, which any Borrower or any Loan Party or any of their successors, assigns or other legal representatives has had, now has or has made claim to have against any of the Released Parties for or by reason of any act, omission, matter, cause or thing whatsoever, including any liability arising from acts or omissions pertaining to the transactions contemplated by this Agreement and the other Loan Documents, whether based on errors of judgment or mistake of law or fact, from the beginning of time to and including the Closing Date, whether such claims, demands and causes of action are matured or known or unknown. Notwithstanding any provision in this Agreement to the contrary, this Section 10.1 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans. Such release is made on the date hereof and remade upon each request for a Loan by any Borrower.
71
10.2. Limitation of Liability. In no circumstance will any of the Released Parties be liable for lost profits or other special, punitive, or consequential damages. Notwithstanding any provision in this Agreement to the contrary, this Section 10.2 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
10.3. Indemnity.
(a) Each Loan Party Obligor hereby agrees to indemnify the Released Parties and hold them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, costs and expenses (including internal and external attorneys’ fees), of every nature, character and description, which the Released Parties may sustain or incur based upon or arising out of any of the transactions contemplated by this Agreement or any other Loan Documents or any of the Obligations, any Collateral relating thereto, any drafts thereunder and any errors or omissions relating thereto, or any other matter, cause or thing whatsoever occurred, done, omitted or suffered to be done by Agent or any Lender relating to any Loan Party or the Obligations (except any such amounts sustained or incurred solely as the result of the gross negligence or willful misconduct of such Released Parties, as finally determined by a court of competent jurisdiction). Notwithstanding any provision in this Agreement to the contrary, this Section 10.3 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
(b) To the extent that any Loan Party Obligor fails to pay any amount required to be paid by it to Agent (or any Released Party of Agent) under paragraph (a) above, each Lender severally agrees to pay to Agent (or such Released Party), such Lender’s Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (it being understood that any such payment by the Lenders shall not relieve any Loan Party of any default in the payment thereof); provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against Agent in its capacity as such.
72
11. EVENTS OF DEFAULT AND REMEDIES.
11.1. Events of Default. The occurrence of any of the following events shall constitute an “Event of Default”:
(a) Payment. If any Loan Party Obligor or any Other Obligor fails to pay to Agent, when due, any principal or interest payment or any other monetary Obligation required under this Agreement or any other Loan Document;
(b) Breaches of Representations and Warranties. If any warranty, representation, statement, report or certificate made or delivered to Agent or any Lender by or on behalf of any Loan Party or any Other Obligor is untrue or misleading in any material respect (except where such warranty or representation is already qualified by Material Adverse Effect, materiality, dollar thresholds or similar qualifications, in which case such warranty or representation shall be accurate in all respects);
(c) Breaches of Covenants.
(i) If any Loan Party or any Other Obligor defaults in the due observance or performance of any covenant, condition or agreement contained in Section 5.2, 6.1, 6.6, 6.7, 7.2 (limited to the last sentence of Section 7.2), 7.3, 7.7, 7.8, 7.11(c), 7.13, 7.14, 7.15, 7.24, 7.25, 7.29, 7.32, 7.34, 7.35, 8 or 9; or
(ii) If any Loan Party or any Other Obligor defaults in the due observance or performance of any covenant, condition or agreement contained in any provision of this Agreement or any other Loan Document and not addressed in clauses Sections 11.1(a), (b) or (c)(i), and the continuance of such default unremedied for a period of ten (10) Business Days; provided, that such ten (10) Business Day grace period shall not be available for any default that is not reasonably capable of being cured within such period or for any intentional default;
(d) Judgment. If one or more judgments aggregating in excess of $100,000 is obtained against any Loan Party or any Other Obligor which remains unstayed for more than thirty (30) days or is enforced;
(e) Cross-Default. If any default occurs with respect to the Term Debt, Third Lien Obligations or any other Indebtedness (other than the Obligations or the Subordinated Debt) of any Loan Party or any Other Obligor if (i) such default shall consist of the failure to pay such Indebtedness when due, whether by acceleration or otherwise or (ii) the effect of such default is to permit the holder, with or without notice or lapse of time or both, to accelerate the maturity of any such Indebtedness or to cause such Indebtedness to become due prior to the stated maturity thereof (without regard to the existence of any subordination or intercreditor agreements);
(f) Death or Dissolution. The dissolution, death, termination of existence, insolvency or business failure or suspension or cessation of business as usual of any Loan Party or any Other Obligor (or of any general partner of any Loan Party or any Other Obligor if it is a partnership);
73
(g) Voluntary Bankruptcy or Similar Proceedings. If any Loan Party or any Other Obligor shall apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, admit in writing its inability to pay its debts as they mature, make a general assignment for the benefit of creditors, be adjudicated a bankrupt or insolvent or be the subject of an order for relief under the Bankruptcy Code or under any bankruptcy or insolvency law of a foreign jurisdiction, or file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing;
(h) Involuntary Bankruptcy or Similar Proceedings. The commencement of an involuntary case or other proceeding against any Loan Party or any Other Obligor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar applicable law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or if an order for relief is entered against any Loan Party or any Other Obligor under any bankruptcy, insolvency or other similar applicable law as now or hereafter in effect; provided, that if such commencement of proceedings is involuntary, such action shall not constitute an Event of Default unless such proceedings are not dismissed within forty-five (45) days after the commencement of such proceedings, though Agent and Lenders shall have no obligation to make Loans during such forty-five (45) day period or, if earlier, until such proceedings are dismissed;
(i) Revocation or Termination of Guaranty or Security Documents. The actual or attempted revocation or termination of, or limitation or denial of liability under, any guaranty of any of the Obligations, or any security document securing any of the Obligations, by any Loan Party or Other Obligor;
(j) Subordinated Debt.
(i) A Default or Event of Default (as such terms are defined in the Subordinated Debt Documents or Third Lien Loan Agreement, as applicable) with respect to any Subordinated Debt or the Third Lien Obligations, as applicable or the occurrence of any condition or event that results in the Subordinated Debt or Third Lien Obligations, as applicable, becoming due prior to its scheduled maturity as of the Closing Date (or in the case of the Third Lien Obligations, the Third Lien Debt Incurrence Date) or permits any holder or holders of the Subordinated Debt or the Third Loan Obligations, as applicable, or any trustee or agent on its or their behalf to cause the Subordinated Debt or the Third Lien Obligations, as applicable, to become due, or require the prepayment, repurchase, redemption of defeasance thereof, prior to its scheduled maturity as of the Closing Date (or, in the case of the Third Lien Obligations, the Third Lien Debt Incurrence Date); or
74
(ii) If any Loan Party or Other Obligor makes any payment on account of any Indebtedness or obligation (including the Third Lien Obligations), the payment of which has been contractually subordinated to the Obligations other than payments which are not prohibited by the applicable subordination provisions pertaining thereto (or, in the case of the Third Lien Obligations, the Third Lien Subordination Agreement), or if any Person who has subordinated such Indebtedness or obligations attempts to limit or terminate any applicable subordination provisions pertaining thereto (or, in the case of the Third Lien Obligations, the Third Lien Subordination Agreement);
(k) Criminal Indictment or Proceedings. If there is any indictment of any Loan Party, any Loan Party’s officers, any Other Obligor or any Other Obligor’s officers under any criminal statute or commencement of criminal proceedings against any such Person;
(l)
Change of Control. If (i) current equity owners as of the Closing Date collectively cease to, directly
or indirectly, own and control at least 51% of the aggregate Voting Power represented by the issued and outstanding equity interests
of Parent on a fully diluted basis, (ii) such current equity owners as of the Closing Date collectively cease to possess the right to
elect (through contract, ownership of voting securities or otherwise) at all times a majority of the board of directors (or similar governing
body) of Parent and to direct the management policies and decisions of Parent, (iii) Parent ceases to directly own and control one hundred
percent (100%) of each class of the outstanding equity interests of Rubicon, CleanCo or, Charter or International or
(iv) Charter ceases to directly own and control one hundred percent (100%) of each class of the outstanding
equity interests of RiverRoad;
(m) Change of Management. If (i) Nate MorrisPhil Rodoni ceases to be employed as, and actively perform the duties of, the chief executive officer of Holdings, or (ii) Christopher Spooner ceases to be employed as, and actively perform the duties of, the vice president of finance of Holdings, in each case unless a successor is appointed within ninety (90) days after the termination of such individual’s employment and such successor is reasonably satisfactory to Agent;
(n) Invalid Liens. If any Lien purported to be created by any Loan Document shall cease to be a valid perfected first priority Lien (subject only to any priority accorded by law to Permitted Liens) on any material portion of the Collateral, or any Loan Party or any Other Obligor shall assert in writing that any Lien purported to be created by any Loan Document is not a valid perfected first priority Lien (subject only to any priority accorded by law to Permitted Liens) on the assets or properties purported to be covered thereby; except to the extent arising from or related to a failure to file continuation statements in connection with any UCC Financing Statement;
(o) Termination of Loan Documents. If any of the Loan Documents shall cease to be in full force and effect (other than as a result of the discharge thereof in accordance with the terms thereof or by written agreement of all parties thereto);
(p) Liquidation Sales. The determination by any Loan Party to employ an agent or other third party or otherwise engage any Person or solicit proposals for the engagement of any Person (i) in connection with the proposed liquidation all or a material portion of its assets, or (ii) to conduct any so-called liquidation or “Going-Out-Of-Business” sales;
75
(q) Loss of Collateral. The (i) uninsured loss, theft, damage or destruction of any of the Collateral, (ii) the insured loss, theft, damage or destruction of any of the Collateral in an amount in excess of $100,000 in the aggregate for all such events during any Fiscal Year, or (iii) except as permitted hereby, the sale, lease or furnishing under a contract of service of, any of the Collateral.
(r) Plans. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party or any Subsidiary under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $100,000, (ii) the existence of any Lien under Section 430(k) or Section 6321 of the Code or Section 303(k) or Section 4068 of ERISA on any assets of a Loan Party, or (iii) a Loan Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $100,000.
(s) Intercreditor Agreement. The lien subordination provisions of the Intercreditor Agreement shall for any reason (other than as a result of any act or omission of Agent or any Lender) be revoked or invalidated, or otherwise cease to be in full force and effect, or any Person, other than Agent or any Lender, shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations or Liens of Agent, for any reason shall not have the priority contemplated by this Agreement or the Intercreditor Agreement.
(t) Third Lien Subordination Agreement. The lien or payment subordination provisions of the Third Lien Subordination Agreement shall for any reason (other than as a result of any act or omission of Agent or any Lender) be revoked or invalidated, or otherwise cease to be in full force and effect, or any Person, other than Agent or Lender, shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations or Liens of Agent, for any reason shall not have the priority contemplated by this Agreement or the Third Lien Subordination Agreement
11.2. Remedies with Respect to Lending Commitments/Acceleration, Etc. Upon the occurrence and during the continuation of an Event of Default, Agent may (in its sole discretion), or at the direction of Required Lenders, shall, (a) terminate all or any portion of its commitment to lend to or extend credit to Borrowers under this Agreement and/or any other Loan Document, without prior notice to any Loan Party and/or (b) demand payment in full of all or any portion of the Obligations (whether or not payable on demand prior to such Event of Default), together with the Early Payment/Termination Premium in the amount specified in Section 3.2(e) and/or (c) take any and all other and further actions and avail itself of any and all rights and remedies available to Agent under this Agreement, any other Loan Document, under law or in equity. Notwithstanding the foregoing sentence, upon the occurrence of any Event of Default described in Section 11.1(g) or Section 11.1(h), without notice, demand or other action by Agent all of the Obligations (including the Early Payment/Termination Premium in the amount specified in Section 3.2(e)) shall immediately become due and payable whether or not payable on demand prior to such Event of Default.
76
11.3. Remedies with Respect to Collateral. Without limiting any rights or remedies Agent or any Lender may have pursuant to this Agreement, the other Loan Documents, under applicable law or otherwise, upon the occurrence and during the continuation of an Event of Default:
(a) Any and All Remedies. Agent may take any and all actions and avail itself of any and all rights and remedies available to Agent under this Agreement, any other Loan Document, under law or in equity, and the rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by applicable law or otherwise.
(b) Collections; Modifications of Terms. Agent may, but shall be under no obligation to: (i) notify all appropriate parties that the Collateral, or any part thereof, has been assigned to, or is subject to a security interest in favor of, Agent; (ii) demand, sue for, collect and give receipts for and take all necessary or desirable steps to collect any Collateral or Proceeds in its or any Loan Party Obligor’s name, and apply any such collections against the Obligations as Agent may elect; (iii) take control of any Collateral and any cash and non-cash Proceeds of any Collateral; (iv) enforce, compromise, extend, renew settle or discharge any rights or benefits of each Loan Party Obligor with respect to or in and to any Collateral, or deal with the Collateral as Agent may deem advisable; and (v) make any compromises, exchanges, substitutions or surrenders of Collateral Agent deems necessary or proper in its reasonable discretion, including extending the time of payment, permitting payment in installments, or otherwise modifying the terms or rights relating to any of the Collateral, all of which may be effected without notice to, consent of, or any other action of any Loan Party and without otherwise discharging or affecting the Obligations, the Collateral or the security interests granted to Agent under this Agreement or any other Loan Document.
(c) Insurance. Agent may file proofs of loss and claim with respect to any of the Collateral with the appropriate insurer, and may endorse in its own and each Loan Party Obligor’s name any checks or drafts constituting Proceeds of insurance. Any Proceeds of insurance received by Agent may be applied by Agent against payment of all or any portion of the Obligations as Agent may elect in its reasonable discretion.
(d) Possession and Assembly of Collateral. Agent may take possession of the Collateral and/or, without removal, render each Loan Party Obligor’s Equipment unusable. Upon Agent’s request, each Loan Party Obligor shall assemble the Collateral and make it available to Agent at one or more places designated by Agent.
(e) Set-off. Agent may and, without any notice to, consent of or any other action by any Loan Party (such notice, consent or other action being expressly waived), set-off or apply (i) any and all deposits (general or special, time or demand, provisional or final) at any time held by or for the account of Agent or any Affiliate of Agent and (ii) any Indebtedness at any time owing by Agent or any Affiliate of Agent or any Participant in the Loans to or for the credit or the account of any Loan Party Obligor to the repayment of the Obligations, irrespective of whether any demand for payment of the Obligations has been made.
77
(f) Disposition of Collateral.
(i) Sale, Lease, etc. of Collateral. Agent may, without demand, advertising or notice, all of which each Loan Party Obligor hereby waives (except as the same may be required by the UCC or other applicable law and is not waivable under the UCC or such other applicable law), at any time or times in one or more public or private sales or other dispositions, for cash, on credit or otherwise, at such prices and upon such terms as determined by Agent (provided such price and terms are commercially reasonable within the meaning of the UCC to the extent such sale or other disposition is subject to the UCC requirements that such sale or other disposition must be commercially reasonable), (A) sell, lease, license or otherwise dispose of any and all Collateral and/or (B) deliver and grant options to a third party to purchase, lease, license or otherwise dispose of any and all Collateral. Agent may sell, lease, license or otherwise dispose of any Collateral in its then-present condition or following any preparation or processing deemed necessary by Agent in its reasonable discretion. Agent may be the purchaser at any such public or private sale or other disposition of Collateral, and in such case Agent may make payment of all or any portion of the purchase price therefor by the application of all or any portion of the Obligations due to Agent to the purchase price payable in connection with such sale or disposition. Agent may, if it deems it reasonable, postpone or adjourn any sale or other disposition of any Collateral from time to time by an announcement at the time and place of the sale or disposition to be so postponed or adjourned without being required to give a new notice of sale or disposition; provided, that Agent shall provide the applicable Loan Party Obligor with written notice of the time and place of such postponed or adjourned sale or disposition. Each Loan Party Obligor hereby acknowledges and agrees that Agent’s compliance with any requirements of applicable law in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any sale, lease, license or other disposition of such Collateral.
(ii) Deficiency. Each Loan Party Obligor shall remain liable for all amounts of the Obligations remaining unpaid as a result of any deficiency of the Proceeds of the sale, lease, license or other disposition of Collateral after such Proceeds are applied to the Obligations as provided in this Agreement.
(iii) Warranties; Sales on Credit. Agent may sell, lease, license or otherwise dispose of the Collateral without giving any warranties and may specifically disclaim any and all warranties, including but not limited to warranties of title, possession, merchantability and fitness. Each Loan Party Obligor hereby acknowledges and agrees that Agent’s disclaimer of any and all warranties in connection with a sale, lease, license or other disposition of Collateral will not be considered to adversely affect the commercial reasonableness of any such disposition of the Collateral. If Agent sells, leases, licenses or otherwise disposes of any of the Collateral on credit, Borrowers will be credited only with payments actually made in cash by the recipient of such Collateral and received by Agent and applied to the Obligations. If any Person fails to pay for Collateral acquired pursuant this Section 11.3(f) on credit, Agent may re-offer the Collateral for sale, lease, license or other disposition.
78
(g) Investment Property; Voting and Other Rights; Irrevocable Proxy.
(i) All rights of each Loan Party Obligor to exercise any of the voting and other consensual rights which it would otherwise be entitled to exercise in accordance with the terms hereof with respect to any Investment Property, and to receive any dividends, payments, and other distributions which it would otherwise be authorized to receive and retain in accordance with the terms hereof with respect to any Investment Property, shall immediately, at the election of Agent (without requiring any notice) cease, and all such rights shall thereupon become vested solely in Agent, and Agent (personally or through an agent) shall thereupon be solely authorized and empowered, without notice, to (A) transfer and register in its name, or in the name of its nominee, the whole or any part of the Investment Property, it being acknowledged by each Loan Party Obligor that any such transfer and registration may be effected by Agent through its irrevocable appointment as attorney-in-fact pursuant to Section 11.3(g)(ii) and Section 6.4, (B) exchange certificates or instruments representing or evidencing Investment Property for certificates or instruments of smaller or larger denominations, (C) exercise the voting and all other rights as a holder with respect to all or any portion of the Investment Property (including all economic rights, all control rights, authority and powers, and all status rights of each Loan Party Obligor as a member or as a shareholder (as applicable) of the Issuer), (D) collect and receive all dividends and other payments and distributions made thereon, (E) notify the parties obligated on any Investment Property to make payment to Agent of any amounts due or to become due thereunder, (F) endorse instruments in the name of each Loan Party Obligor to allow collection of any Investment Property, (G) enforce collection of any of the Investment Property 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 liabilities of any nature of any Person with respect thereto, (H) consummate any sales of Investment Property or exercise any other rights as set forth in Section 11.3(f), (I) otherwise act with respect to the Investment Property as though Agent was the outright owner thereof and (J) exercise any other rights or remedies Agent may have under the UCC, other applicable law or otherwise.
(ii) EACH LOAN PARTY OBLIGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS AGENT AS ITS PROXY AND ATTORNEY-IN-FACT FOR SUCH LOAN PARTY OBLIGOR WITH RESPECT TO ALL OF EACH SUCH LOAN PARTY OBLIGOR’S INVESTMENT PROPERTY WITH THE RIGHT, DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, WITHOUT NOTICE, TO TAKE ANY OF THE FOLLOWING ACTIONS: (A) TRANSFER AND REGISTER IN AGENT’S NAME, OR IN THE NAME OF ITS NOMINEE, THE WHOLE OR ANY PART OF THE INVESTMENT PROPERTY, (B) VOTE THE PLEDGED EQUITY, WITH FULL POWER OF SUBSTITUTION TO DO SO, (C) RECEIVE AND COLLECT ANY DIVIDEND OR ANY OTHER PAYMENT OR DISTRIBUTION IN RESPECT OF, OR IN EXCHANGE FOR, THE INVESTMENT PROPERTY OR ANY PORTION THEREOF, TO GIVE FULL DISCHARGE FOR THE SAME AND TO INDORSE ANY INSTRUMENT MADE PAYABLE TO ANY LOAN PARTY OBLIGOR FOR THE SAME, (D) EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES, AND REMEDIES (INCLUDING ALL ECONOMIC RIGHTS, ALL CONTROL RIGHTS, AUTHORITY AND POWERS, AND ALL STATUS RIGHTS OF EACH LOAN PARTY OBLIGOR AS A MEMBER OR AS A SHAREHOLDER (AS APPLICABLE) OF THE ISSUER) TO WHICH A HOLDER OF THE PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING, WITH RESPECT TO THE PLEDGED EQUITY, GIVING OR WITHHOLDING WRITTEN CONSENTS OF MEMBERS OR SHAREHOLDERS, CALLING SPECIAL MEETINGS OF MEMBERS OR SHAREHOLDERS, AND VOTING AT SUCH MEETINGS), AND (E) TAKE ANY ACTION AND TO EXECUTE ANY INSTRUMENT WHICH AGENT MAY DEEM NECESSARY OR ADVISABLE TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT. THE APPOINTMENT OF AGENT AS PROXY AND ATTORNEY-IN-FACT IS COUPLED WITH AN INTEREST AND SHALL BE VALID AND IRREVOCABLE UNTIL (x) ALL OF THE OBLIGATIONS HAVE BEEN INDEFEASIBLY PAID IN FULL IN CASH IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, (y) AGENT AND LENDERS HAVE NO FURTHER OBLIGATIONS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND (z) THE COMMITMENTS UNDER THIS AGREEMENT HAVE EXPIRED OR HAVE BEEN TERMINATED (IT BEING UNDERSTOOD AND AGREED THAT SUCH OBLIGATIONS WILL BE AUTOMATICALLY REINSTATED IF AT ANY TIME PAYMENT, IN WHOLE OR IN PART, OF ANY OF THE OBLIGATIONS IS RESCINDED OR MUST OTHERWISE BE RESTORED OR RETURNED BY AGENT OR ANY LENDER FOR ANY REASON WHATSOEVER, INCLUDING AS A PREFERENCE, FRAUDULENT CONVEYANCE, OR OTHERWISE UNDER ANY BANKRUPTCY, INSOLVENCY, OR SIMILAR LAW, ALL AS THOUGH SUCH PAYMENT HAD NOT BEEN MADE; IT BEING FURTHER UNDERSTOOD THAT IN THE EVENT PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS IS RESCINDED OR MUST BE RESTORED OR RETURNED, ALL REASONABLE OUT-OF-POCKET COSTS AND EXPENSES (INCLUDING ALL REASONABLE INTERNAL AND EXTERNAL ATTORNEYS’ FEES AND DISBURSEMENTS) INCURRED BY AGENT AND LENDERS IN DEFENDING AND ENFORCING SUCH REINSTATEMENT SHALL HEREBY BE DEEMED TO BE INCLUDED AS A PART OF THE OBLIGATIONS). SUCH APPOINTMENT OF AGENT AS PROXY AND AS ATTORNEY-IN-FACT SHALL BE VALID AND IRREVOCABLE AS PROVIDED HEREIN NOTWITHSTANDING ANY LIMITATIONS TO THE CONTRARY SET FORTH IN ANY GOVERNING DOCUMENTS OF ANY LOAN PARTY OBLIGOR, ANY ISSUER, OR OTHERWISE.
79
(iii) In order to further effect the foregoing transfer of rights in favor of Agent, during the continuance of an Event of Default, each Loan Party Obligor hereby authorizes and instructs each Issuer of Investment Property pledged by such Loan Party Obligor to comply with any instruction received by such Issuer from Agent without any other or further instruction from such Loan Party Obligor, and each Loan Party Obligor acknowledges and agrees that each Issuer shall be fully protected in so complying, and to pay any dividends, distributions, or other payments with respect to any of the Investment Property directly to Agent.
(iv) Upon exercise of the proxy set forth herein, all prior proxies given by any Loan Party Obligor with respect to any of the Pledged Equity or other Investment Property, other than to Agent, are hereby revoked, and no subsequent proxies, other than to Agent will be given with respect to any of the Pledged Equity or any of the other Investment Property unless Agent otherwise subsequently agrees in writing. Agent, as proxy, will be empowered and may exercise the irrevocable proxy to vote the Pledged Equity and the other Investment Property at any and all times during the existence of an Event of Default, including, at any meeting of shareholders or members, as the case may be, however called, and at any adjournment thereof, or in any action by written consent, and may waive any notice otherwise required in connection therewith. To the fullest extent permitted by applicable law, Agent shall have no agency, fiduciary or other implied duties to any Loan Party Obligor, any Issuer, any Loan Party or any other Person when acting in its capacity as such proxy or attorney-in-fact. Each Loan Party Obligor hereby waives and releases any claims that it may otherwise have against Agent with respect to any breach, or alleged breach, of any such agency, fiduciary or other duty.
(v) Any transfer to Agent or its nominee, or registration in the name of Agent or its nominee, of the whole or any part of the Investment Property shall be made solely for purposes of effectuating voting or other consensual rights with respect to the Investment Property in accordance with the terms of this Agreement and is not intended to effectuate any transfer of ownership of any of the Investment Property. Notwithstanding the delivery by Agent of any instruction to any Issuer or any exercise by Agent of an irrevocable proxy or otherwise, Agent shall not be deemed the owner of, or assume any obligations or any liabilities whatsoever of the owner or holder of, any Investment Property unless and until Agent expressly accepts such obligations in a duly authorized and executed writing and agrees in writing to become bound by the applicable Governing Documents or otherwise becomes the owner thereof under applicable law (including through a sale as described in Section 11.3(f)). The execution and delivery of this Agreement shall not subject Agent to, or transfer or pass to Agent, or in any way affect or modify, the liability of any Loan Party Obligor under the Governing Documents of any Issuer or any related agreements, documents, or instruments or otherwise. In no event shall the execution and delivery of this Agreement by Agent, or the exercise by Agent of any rights hereunder or assigned hereby, constitute an assumption of any liability or obligation whatsoever of any Loan Party Obligor to, under, or in connection with any of the Governing Documents of any Issuer or any related agreements, documents, or instruments or otherwise.
80
(vi) Compliance with the Securities Act as now in effect or as hereafter amended, or any similar statute hereafter adopted with similar purpose or effect, as well as any applicable “Blue Sky” or other state securities laws, if applicable to the Collateral or the portion thereof being sold, may require strict limitations as to the manner in which the Agent or any subsequent transferee may dispose of the Collateral. With respect to any disposition as to which the Securities Act or analogous state securities laws is applicable, each Loan Party Obligor hereby waives any objection to sale in a compliant manner, and agrees that the Agent has no obligation to obtain the maximum possible price for the Collateral so long as the Agent proceeds in a commercially reasonable manner. Without limiting the generality of the foregoing, each Loan Party Obligor agrees that in conducting a disposition of the Collateral as to which the Securities Act or analogous state securities laws applies, Agent may seek to sell the Collateral by private placement, and may restrict bidders and prospective purchasers to those who are willing to represent that they are purchasing for investment only and not for distribution and who otherwise satisfy qualifications designed to ensure compliance with the Securities Act and analogous state securities laws and those that may be established in the Issuer’s Governing Documents. Each Loan Party Obligor acknowledges that in order to protect Agent’s interest, it may be necessary to sell the Collateral at a price less than the maximum price attainable if a sale were delayed or were made in another manner, including, without limitation, a public offering under the Securities Act. In order to address these potential compliance requirements, Agent may solicit offers to purchase the Collateral from a limited number of bidders reasonably believed by Agent to be institutional investors or accredited investors. If Agent solicits offers in a commercially reasonable manner, then acceptance by Agent of one or more of the offers shall be deemed to be a commercially reasonable method of disposition of the Collateral and Agent will not be responsible or liable for selling all or any portion of the Collateral at a price that Agent deems in good faith to be reasonable. Agent is under no obligation to delay a disposition of any portion of the Collateral that are securities under the Securities Act or applicable “Blue Sky” or other state securities law for the period of time necessary to permit any Loan Party Obligor or the Issuer to register the securities for public sale under the Securities Act or under applicable “Blue Sky” or other state securities laws, even if a Loan Party Obligor or the Issuer agrees to do so. In addition, to the extent not prohibited by applicable law, each Loan Party Obligor waives any right to prior notice (except to the extent expressly provided in this Agreement) or judicial hearing in connection with the taking possession or the disposition of any of the Collateral, including any right which Loan Party Obligor otherwise would have.
(vii) To the extent permitted under applicable law, Agent is not required to conduct any foreclosure sale of the Investment Property or any portion thereof.
(viii) Agent, at its option, may obtain the appointment of a receiver to take possession of the Investment Property and, at the option of Agent, a receiver may be empowered (i) to collect, receive and enforce all distributions, (ii) to exercise the rights of Agent as provided in this Agreement, (iii) to collect all other amounts owed to any Loan Party Obligor in respect of the Investment Property as and when due to any Loan Party Obligor, (iv) to otherwise collect, sell or dispose of the Investment Property, (v) to exercise all rights in and under the Investment Property; and (vi) to turn over all net proceeds to Agent. Each Loan Party Obligor irrevocably and unconditionally agrees that a receiver may be appointed by a court to take the actions listed above without regard to the adequacy of the security for the Obligations, and the actions of the receiver may be taken in the name of the receiver, any Loan Party Obligor or Agent.
81
(ix) Agent may elect to conduct a sale of an economic interest in any Investment Property constituting limited liability company interests that does not result in the purchaser being admitted as a substitute limited liability company member in the Issuer, and that any sale or dispositions made in good faith will be considered commercially reasonable, notwithstanding the possibility that a substantially higher price might be realized if the purchaser were able to be admitted as a substitute limited liability company member rather than the holder of only an economic interest in the Issuer.
(x) Agent may disclose to prospective purchasers all of the information relating to the Investment Property (and the applicable Issuer) that is in the Agent’s possession or otherwise available to the Agent.
(xi) Each Loan Party Obligor hereby authorizes and instructs their respective Issuer to comply with any instruction received by it from Agent in writing that (i) states that an Event of Default has occurred and is continuing and (ii) is otherwise in accordance with the terms of the provisions of this Agreement as to Investment Property, without any other or further instructions from the respective Loan Party Obligor, and such Loan Party Obligor agrees that Issuer be fully protected in so complying.
(h) Election of Remedies. Agent shall have the right in Agent’s sole discretion to determine which rights, security, Liens or remedies Agent may at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way impairing, modifying or affecting any of Agent’s other rights, security, Liens or remedies with respect to any Collateral or any of Agent’s rights or remedies under this Agreement or any other Loan Document.
(i) Agent’s Obligations. Each Loan Party Obligor agrees that Agent shall not have any obligation to preserve rights to any Collateral against prior parties or to marshal any Collateral of any kind for the benefit of any other creditor of any Loan Party Obligor or any other Person. Agent shall not be responsible to any Loan Party Obligor or any other Person for loss or damage resulting from Agent’s failure to enforce its Liens or collect any Collateral or Proceeds or any monies due or to become due under the Obligations or any other liability or obligation of any Loan Party Obligor to Agent.
(j) Waiver of Rights by Loan Party Obligors. Except as otherwise expressly provided for in this Agreement or by non-waivable applicable law, each Loan Party waives (i) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent on which any Loan Party Obligor may in any way be liable, and hereby ratifies and confirms whatever Agent may do in this regard, (ii) all rights to notice and a hearing prior to Agent’s taking possession or control of, or to Agent’s replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Agent to exercise any of its remedies and (iii) the benefit of all valuation, appraisal, marshaling and exemption laws. If any notice of a proposed sale or other disposition of any part of the Collateral is required under applicable law, each Loan Party Obligor agrees that ten (10) calendar days prior notice of the time and place of any public sale and of the time after which any private sale or other disposition is to be made is commercially reasonable.
82
12. LOAN GUARANTY.
12.1. Guaranty. Each Loan Party Obligor hereby agrees that it is jointly and severally liable for, and absolutely and unconditionally guaranties to Agent, for the ratable benefit of the Lenders, the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, all of the Obligations and all reasonable costs and expenses, including all court costs and reasonable attorneys’ and paralegals’ fees (including internal and external counsel and paralegals) and expenses of Agent or any Lender in endeavoring to collect all or any part of the Obligations from, or in prosecuting any action against, any Borrower, any Loan Party Obligor or any Other Obligor of all or any part of the Obligations (and such costs and expenses paid or incurred shall be deemed to be included in the Obligations). Each Loan Party Obligor further agrees that the Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guaranty notwithstanding any such extension or renewal. All terms of this Loan Guaranty apply to and may be enforced by or on behalf of any branch or Affiliate of Agent that extended any portion of the Obligations.
12.2. Guaranty of Payment. This Loan Guaranty is a guaranty of payment and not of collection. Each Loan Party Obligor waives any right to require Agent to sue or otherwise take action against any Borrower, any other Loan Party Obligor, any Other Obligor, or any other Person obligated for all or any part of the Obligations, or otherwise to enforce its payment against any Collateral securing all or any part of the Obligations.
12.3. No Discharge or Diminishment of Loan Guaranty.
(a) Except as otherwise expressly provided for herein, the obligations of each Loan Party Obligor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of all of the Obligations), including: (i) any claim of waiver, release, extension, renewal, settlement, surrender, alteration, or compromise of any of the Obligations, by operation of law or otherwise; (ii) any change in the corporate existence, structure or ownership of any Borrower or any Obligor; (iii) any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Borrower or any Obligor or their respective assets or any resulting release or discharge of any obligation of any Borrower or any Obligor; or (iv) the existence of any claim, setoff or other rights which any Loan Party Obligor may have at any time against any Borrower, any Obligor, Agent, or any other Person, whether in connection herewith or in any unrelated transactions.
(b) The obligations of each Loan Party Obligor hereunder are not subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Obligations or otherwise, or any provision of applicable law or regulation purporting to prohibit payment by any Borrower or any Obligor of the Obligations or any part thereof.
83
(c) Further, the obligations of any Loan Party Obligor hereunder shall not be discharged or impaired or otherwise affected by: (i) the failure of Agent to assert any claim or demand or to enforce any remedy with respect to all or any part of the Obligations; (ii) any waiver or modification of or supplement to any provision of any agreement relating to the Obligations; (iii) any release, non-perfection or invalidity of any indirect or direct security for all or any part of the Obligations or all or any part of any obligations of any Obligor; (iv) any action or failure to act by Agent with respect to any Collateral; or (v) any default, failure or delay, willful or otherwise, in the payment or performance of any of the Obligations, or any other circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Loan Party Obligor or that would otherwise operate as a discharge of any Loan Party Obligor as a matter of law or equity (other than the indefeasible payment in full in cash of all of the Obligations).
12.4. Defenses Waived. To the fullest extent permitted by applicable law, each Loan Party Obligor hereby waives any defense based on or arising out of any defense of any Loan Party Obligor or the unenforceability of all or any part of the Obligations from any cause, or the cessation from any cause of the liability of any Loan Party Obligor, other than the indefeasible payment in full in cash of all of the Obligations. Without limiting the generality of the foregoing, each Loan Party Obligor irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Borrower, any Obligor, or any other Person. Each Loan Party Obligor confirms that it is not a surety under any state law and shall not raise any such law as a defense to its obligations hereunder. Agent may, at its election, foreclose on any Collateral held by it by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any Collateral, compromise or adjust any part of the Obligations, make any other accommodation with any Borrower or any Obligor or exercise any other right or remedy available to it against any Borrower or any Obligor, without affecting or impairing in any way the liability of any Loan Party Obligor under this Loan Guaranty except to the extent the Obligations have been fully and indefeasibly paid in cash. To the fullest extent permitted by applicable law, each Loan Party Obligor waives any defense arising out of any such election even though that election may operate, pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Loan Party Obligor against any Borrower or any Obligor or any security.
12.5. Rights of Subrogation. No Loan Party Obligor will assert any right, claim or cause of action, including a claim of subrogation, contribution or indemnification that it has against any Borrower or any Obligor, or any Collateral, until the Termination Date.
12.6. Reinstatement; Stay of Acceleration. If at any time any payment of any portion of the Obligations is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or any other Person, or otherwise, each Loan Party Obligor’s obligations under this Loan Guaranty with respect to that payment shall be reinstated at such time as though the payment had not been made and whether or not Agent is in possession of this Loan Guaranty. If acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of any Borrower, all such amounts otherwise subject to acceleration under the terms of any agreement relating to the Obligations shall nonetheless be payable by the Loan Party Obligors forthwith on demand by Agent. This Section 12.6 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
84
12.7. Information. Each Loan Party Obligor assumes all responsibility for being and keeping itself informed of each Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that each Loan Party Obligor assumes and incurs under this Loan Guaranty, and agrees that Agent shall not have any duty to advise any Loan Party Obligor of information known to it regarding those circumstances or risks.
12.8. Termination. To the maximum extent permitted by law, each Loan Party Obligor hereby waives any right to revoke this Loan Guaranty as to future Obligations. If such a revocation is effective notwithstanding the foregoing waiver, each Loan Party Obligor acknowledges and agrees that (a) no such revocation shall be effective until written notice thereof has been received by Agent, (b) no such revocation shall apply to any Obligations in existence on the date of receipt by Agent of such written notice (including any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms or other terms and conditions thereof), (c) no such revocation shall apply to any Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Agent, (d) no payment by any Borrower, any other Loan Party Obligor, or from any other source, prior to the date of Agent’s receipt of written notice of such revocation shall reduce the maximum obligation of any Loan Party Obligor hereunder and (e) any payment, by any Borrower or from any source other than a Loan Party Obligor which has made such a revocation, made subsequent to the date of such revocation, shall first be applied to that portion of the Obligations as to which the revocation is effective and which are not, therefore, guarantied hereunder, and to the extent so applied shall not reduce the maximum obligation of any Loan Party Obligor hereunder.
12.9. Maximum Liability. The provisions of this Loan Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Loan Party Obligor under this Loan Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Loan Party Obligor’s liability under this Loan Guaranty, then, notwithstanding any other provision of this Loan Guaranty to the contrary, the amount of such liability shall, without any further action by the Loan Party Obligors, Agent or any Lender, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Loan Party Obligor’s “Maximum Liability”). This Section 12.9 with respect to the Maximum Liability of each Loan Party Obligor is intended solely to preserve the rights of Agent and the Lenders to the maximum extent not subject to avoidance under applicable law, and no Loan Party Obligor or any other Person shall have any right or claim under this Section with respect to such Maximum Liability, except to the extent necessary so that the obligations of any Loan Party Obligor hereunder shall not be rendered voidable under applicable law. Each Loan Party Obligor agrees that the Obligations may at any time and from time to time exceed the Maximum Liability of each Loan Party Obligor without impairing this Loan Guaranty or affecting the rights and remedies of Agent hereunder; provided, that nothing in this sentence shall be construed to increase any Loan Party Obligor’s obligations hereunder beyond its Maximum Liability.
85
12.10. Contribution. In the event any Loan Party Obligor shall make any payment or payments under this Loan Guaranty or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty (such Loan Party Obligor a “Paying Guarantor”), each other Loan Party Obligor (each a “Non-Paying Guarantor”) shall contribute to such Paying Guarantor an amount equal to such Non-Paying Guarantor’s “Applicable Payment Percentage” of such payment or payments made, or losses suffered, by such Paying Guarantor. For purposes of this Section 12.10, each Non-Paying Guarantor’s “Applicable Payment Percentage” with respect to any such payment or loss by a Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (x) such Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Non-Paying Guarantor’s Maximum Liability has not been determined, the aggregate amount of all monies received by such Non-Paying Guarantor from any Borrower after the date hereof (whether by loan, capital infusion or by other means) to (y) the aggregate Maximum Liability of all Loan Party Obligors hereunder (including such Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Loan Party Obligor, the aggregate amount of all monies received by such Loan Party Obligors from any Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any Loan Party Obligor’s several liability for the entire amount of the Obligations (up to such Loan Party Obligor’s Maximum Liability). Each of the Loan Party Obligors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a Non-Paying Guarantor shall be subordinate and junior in right of payment to the payment in full in cash of all of the Obligations. This provision is for the benefit of Agent and the Lenders and the Loan Party Obligors and may be enforced by any one, or more, or all of them, in accordance with the terms hereof.
12.11. Liability Cumulative. The liability of each Loan Party Obligor under this Section 12 is in addition to and shall be cumulative with all liabilities of each Loan Party Obligor to Agent and the Lenders under this Agreement and the other Loan Documents to which such Loan Party Obligor is a party or in respect of any obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.
13. PAYMENTS FREE OF TAXES; OBLIGATION TO WITHHOLD; PAYMENTS ON ACCOUNT OF TAXES.
(a) Any and all payments by or on account of any obligation of the Loan Party Obligors hereunder or under any other Loan Document shall to the extent permitted by applicable laws be made free and clear of and without reduction or withholding for any Taxes. If, however, applicable laws require the Loan Party Obligors to withhold or deduct any Tax, such Tax shall be withheld or deducted in accordance with such laws as the case may be, upon the basis of the information and documentation to be delivered pursuant to subsection (e) below.
86
(b) If any Loan Party Obligor shall be required by applicable law to withhold or deduct any Taxes from any payment, then (i) such Loan Party Obligor shall withhold or make such deductions as are required based upon the information and documentation it has received pursuant to subsection (e) below, (ii) such Loan Party Obligor shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with the applicable law and (iii) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the Loan Party Obligors shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section) the Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made. Upon request by Agent or other Recipient, Borrower Representative shall deliver to Agent or such other Recipient, as the case may be, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment of Indemnified Taxes, a copy of any return required by applicable law to report such payment or other evidence of such payment reasonably satisfactory to Agent or such other Recipient, as the case may be.
(c) Without limiting the provisions of subsections (a) and (b) above, the Loan Party Obligors shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(d) Without limiting the provisions of subsections (a) through (c) above, each Loan Party Obligor shall, and does hereby, on a joint and several basis, indemnify Agent, each Lender and each other Recipient (and their respective directors, officers, employees, affiliates and agents) and shall make payment in respect thereof within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes and Other Taxes (including Indemnified Taxes and Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid or incurred by Agent, any Lender or any other Recipient on account of, or in connection with any Loan Document or a breach by a Loan Party Obligor thereof, and any penalties, interest and related expenses and losses arising therefrom or with respect thereto (including the fees, charges and disbursements of any internal or external counsel or other tax advisor for Agent, any Lender or any other Recipient (or their respective directors, officers, employees, affiliates, and agents)), whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of any such payment or liability delivered to Borrower Representative shall be conclusive absent manifest error. Notwithstanding any provision in this Agreement to the contrary, this Section 13 shall remain operative even after the Termination Date and shall survive the payment in full of all of the Loans.
(e) Each Lender shall deliver to Borrower Representative and each Lender and each Participant shall deliver to Agent, at the time or times prescribed by applicable laws, such properly completed and executed documentation prescribed by applicable laws or by the taxing authorities of any jurisdiction and such other reasonably requested information as will permit Borrower Representative or Agent, as the case may be, to determine (x) whether or not payments made hereunder or under any other Loan Document are subject to Taxes, (y) if applicable, the required rate of withholding or deduction and (z) such Lender’s or Participant’s entitlement to any available exemption from, or reduction of, applicable Taxes in respect of all payments to be made to such Recipient by the Loan Party Obligors pursuant to this Agreement or otherwise to establish such Recipient’s status for withholding tax purposes in the applicable jurisdiction; provided, that each Recipient shall only be required to deliver such documentation as it may legally provide. Without limiting the generality of the foregoing, if a Borrower is resident for tax purposes in the United States:
87
(i) each Lender (or Participant) that is a “United States person” within the meaning of Section 7701(a)(30) of the Code shall deliver to Borrower Representative and Agent (or any Lender granting a participation as applicable) an executed original of Internal Revenue Service Form W-9 or such other documentation or information prescribed by applicable law or reasonably requested by Borrower Representative or Agent (or Lender granting a participation) as will enable Borrower Representative or Agent (or Lender granting a participation) as the case may be, to determine whether or not such Lender (or Participant) is subject to backup withholding or information reporting requirements under the Code;
(ii) each Lender (or Participant) that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code (a “Non-U.S. Recipient”) shall deliver to Borrower Representative and Agent (or any Lender granting a participation in case the Non-U.S. Recipient is a Participant) on or prior to the date on which such Non-U.S. Person becomes a party to this Agreement or a Participant (and from time to time thereafter upon the reasonable request of Borrower Representative or Agent but only if such Non-U.S. Recipient is legally entitled to do so), whichever of the following is applicable: (A) executed originals of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party; (B) executed originals of Internal Revenue Service Form W-8ECI; (C) executed originals of Internal Revenue Service Form W-8IMY and all required supporting documentation; (D) each Non-U.S. Recipient claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, shall provide (x) a certificate to the effect that such Non-U.S. Recipient is not (1) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (2) a “10 percent shareholder” of Borrowers within the meaning of section 881(c)(3)(B) of the Code, or (3) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) executed originals of Internal Revenue Service Form W-8BEN; and/or (E) executed originals of any other form prescribed by applicable law (including FATCA) as a basis for claiming exemption from or a reduction in United States Federal withholding tax together with such supplementary documentation as may be prescribed by applicable law to permit Borrower Representative or Agent to determine the withholding or deduction required to be made. Each Non-U.S. Recipient shall promptly notify Borrower Representative and Agent (or any Lender granting a participation if the Non-U.S. Recipient is a Participant) of any change in circumstances which would modify or render invalid any claimed exemption or reduction.
(f) If a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to Borrower Representative and Agent at the time or times prescribed by applicable laws and at such time or times reasonably requested by Borrower Representative or Agent such documentation prescribed by applicable laws (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Borrower Representative or Agent as may be necessary for Borrower Representative and 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 this subsection (f), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
88
14. AGENT
14.1. Appointment. Each of the Lenders hereby irrevocably appoints Agent as its agent and authorizes Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Without limiting the generality of the foregoing, Agent shall have the sole and exclusive authority to (a) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection with the Loan Documents; (b) execute and deliver as Agent, each Loan Document, including any intercreditor or subordination agreement, and accept delivery of each Loan Document; (c) make Loans, for itself or on behalf of Lenders, as provided in the Loan Documents, (d) act as collateral agent for Lenders for purposes of perfecting and administering Liens under the Loan Documents, and for all other purposes stated therein and execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents; (e) manage, supervise or otherwise deal with Collateral; (f) exclusively receive, apply, and distribute payments and proceeds of the Collateral as provided in the Loan Documents, (g) open and maintain such bank accounts and cash management arrangements as Agent deems necessary and appropriate in accordance with the Loan Documents, (h) take any Enforcement Action or otherwise exercise any rights or remedies with respect to any Collateral or under any Loan Documents, applicable law or otherwise, including the determination of eligibility of Accounts, the necessity and amount of Reserves and all other determinations and decisions relating to ordinary course administration of the credit facilities contemplated hereunder; and (i) incur and pay such expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents, whether or not any Loan Party is obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Documents or otherwise. The provisions of this Article are solely for the benefit of Agent and the Lenders, and the Loan Parties shall not have rights as a third-party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” as used herein or in any other Loan Documents (or any similar term) with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.
14.2. Rights as a Lender. The Person serving as Agent hereunder, if it is a Lender, shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Loan Party or any Subsidiary or any Affiliate thereof as if it were not Agent hereunder without notice to or consent of the other Lenders.
89
14.3. Duties and Obligations. Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that Agent is required to exercise as directed in writing by the Required Lenders, and, (c) except as expressly set forth in the Loan Documents, Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any Subsidiary that is communicated to or obtained by the Person serving as Agent or any of its Affiliates in any capacity. Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence or willful misconduct as determined by a final nonappealable judgment of a court of competent jurisdiction. Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to Agent by a Borrower or a Lender, and Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to Agent. Agent shall be under no obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the books and records or properties of any Loan Party.
14.4. Reliance. Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. Agent may consult with and employ Agent Professionals, and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any advice given by an Agent Professional (who may be counsel for any Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document, unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.
90
14.5. Actions through Sub-Agents. Agent may perform any and all of its duties and exercise its rights and powers by or through any one or more sub-agents appointed by Agent. Agent may also perform its duties through employees and other Agent-Related Persons. Agent shall not be responsible for the negligence or misconduct of any sub-agent, employee or Agent Professional that it selects as long as such selection was made without gross negligence or willful misconduct. Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Affiliates and other related parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the related parties of Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent.
14.6. Resignation. Subject to the appointment and acceptance of a successor Agent as provided in this paragraph, Agent may resign at any time by notifying the Lenders and Borrower Representative. Upon any such resignation, the Required Lenders shall have the right, in consultation with Borrower Representative, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of its appointment as Agent hereunder by its successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. The fees payable by Borrowers to a successor Agent shall be the same as those payable to its predecessor, unless otherwise agreed by Borrower Representative and such successor. Notwithstanding the foregoing, in the event no successor Agent shall have been so appointed and shall have accepted such appointment within thirty (30) days after the retiring Agent gives notice of its intent to resign, the retiring Agent may give notice of the effectiveness of its resignation to the Lenders and Borrower Representative, whereupon, on the date of effectiveness of such resignation stated in such notice, (a) the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents, provided that, solely for purposes of maintaining any security interest granted to the Agent under any Loan Document for the benefit of the Lenders, the retiring Agent shall continue to be vested with such security interest as collateral agent for the benefit of the Lenders and, in the case of any Collateral in the possession of Agent, shall continue to hold such Collateral, in each case until such time as a successor Agent is appointed and accepts such appointment in accordance with this paragraph (it being understood and agreed that the retiring Agent shall have no duly or obligation to take any further action under any Loan Document, including any action required to maintain the perfection of any such security interest), and (b) the Required Lenders shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, provided that (i) all payments required to be made hereunder or under any other Loan Document to the Agent for the account of any Person other than Agent shall be made directly to such Person and (ii) all notices and other communications required or contemplated to be given or made to Agent shall also directly be given or made to each Lender. Following the effectiveness of the Agent’s resignation from its capacity as such, the provisions of this Article, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective related parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent and in respect of the matters referred to in the proviso under clause (a) above.
91
14.7. Non-Reliance.
(a) Each Lender acknowledges and agrees that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrowers and their respective Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender further acknowledges the extensions of credit made hereunder are commercial loans and not investments in a business enterprise or securities. Each Lender further represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently and without reliance upon any Agent-Related Person, any arranger of this credit facility or any amendment thereto or any other Lender and based on such due diligence, documents and information as it has deemed appropriate, made its own appraisal of, and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of any Borrower or any other Person party to a Loan Document, and all applicable laws relating to the transactions contemplated hereby, and made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender shall, independently and without reliance upon any Agent-Related Person, any arranger of this credit facility or any amendment thereto or any other Lender and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning any Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its own credit analysis and decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of any Borrower or any other Person party to a Loan Document and in deciding whether or to the extent to which it will continue as a Lender or assign or otherwise transfer its rights, interests and obligations hereunder. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Borrower or any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. Each Lender acknowledges that Agent does not have any duty or responsibility, either initially or on a continuing to provide such Lender with any credit or other information with respect to any Borrower, its Affiliates or any of their respective business, legal, financial or other affairs, and irrespective of whether such information came into Agent’s or its Affiliates’ or representatives’ possession before or after the date on which such Lender became a party to this Agreement.
92
(b) Each Lender hereby agrees that (i) it has requested a copy of each appraisal, audit or field examination report prepared by or on behalf of Agent; (ii) Agent (A) makes no representation or warranty, express or implied, as to the completeness or accuracy of any such report or any of the information contained therein or any inaccuracy or omission contained in or relating to any such report and (B) shall not be liable for any information contained in any such report; (iii) such reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties’ books and records, as well as on representations of the Loan Parties’ officer certificates and Loan Documents provided hereunder and that Agent undertakes no obligation to update, correct or supplement such reports; (iv) it will keep all such reports confidential and strictly for its internal use, not share any such report with any Loan Party or any other Person except as otherwise permitted pursuant to this Agreement; and (v) without limiting the generality of any other indemnification provision contained in this Agreement, (A) it will hold Agent and any such other Person preparing any such report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any such report in connection with any extension of credit that the indemnifying Lender has made or may make to any Borrower, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a Loan or Loans; and (B) it will pay and protect, and indemnify, defend, and hold Agent and any such other Person preparing any such report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorneys’ fees of both internal and external counsel) of Agent or any such other Person as the direct or indirect result of any third parties who might obtain all or part of any such report through the indemnifying Lender.
14.8. Not Partners or Co-Venturers; Agent as Representative of the Secured Parties.
(a) The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of Agent) authorized to act for, any other Lender. Agent shall have the exclusive right on behalf of the Lenders to enforce the payment of the principal of and interest on any Loan after the date such principal or interest has become due and payable pursuant to the terms of this Agreement.
(b) In its capacity, Agent is a “representative” of the Lenders within the meaning of the term “secured party” as defined in the UCC. Each Lender authorizes Agent to enter into each of the Loan Documents to which it is a party and to take all action contemplated by such documents. Each Lender agrees that no Lender (other than Agent) shall have the right individually to seek to realize upon the security granted by any Loan Document, it being understood and agreed that such rights and remedies may be exercised solely by Agent for the benefit of the Lenders upon the terms of the Loan Documents. In the event that any Collateral is hereafter pledged by any Person as collateral security for the Obligations, Agent is hereby authorized, and hereby granted a power of attorney, to execute and deliver on behalf of the Lenders any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of Agent on behalf of the Lenders.
93
(c) Agent hereby appoints each other Lender as its agent (and each Lender hereby accepts such appointment) for the purpose of perfecting Agent’s Liens in assets which, in accordance with Article 8 or Article 9, as applicable, of the UCC can be perfected by possession or control. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent’s request therefor shall deliver possession or control of such Collateral to Agent or in accordance with Agent’s instructions. Agent shall have no obligation whatsoever to any of the Lenders (i) to verify or assure that the Collateral exists or is owned by any Borrower or its Subsidiaries or is cared for, protected, or insured or has been encumbered, (ii) to verify or assure that Agent’s Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, (iii) to verify or assure that any particular items of Collateral meet the eligibility criteria applicable in respect thereof, (iv) to impose, maintain, increase, reduce, implement or eliminate any particular reserve hereunder or to determine whether the amount of any reserve is appropriate or not, or (v) 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 pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein,
14.9. Credit Bidding. The Loan Parties and the Lenders hereby irrevocably authorize Agent, during the continuance of an Event of Default and in exercise of remedies permitted under Section 12 of this Agreement or applicable law, based upon the instruction of the Required Lenders, to Credit Bid and purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (and the Loan Parties shall approve Agent as a qualified bidder and such Credit Bid as qualified bid) at any sale thereof conducted by Agent, based upon the instruction of the Required Lenders, under any provisions of the UCC, as part of any sale or investor solicitation process conducted by any Loan Party, any interim receiver, receiver, receiver and manager, administrative receiver, trustee, agent or other Person pursuant or under any insolvency laws; provided, however, that (i) the Required Lenders may not direct Agent in any manner that does not treat each of the Lenders equally, without preference or discrimination, in respect of consideration received as a result of the Credit Bid, (ii) the acquisition documents shall be commercially reasonable and contain customary protections for minority holders such as among other things, anti-dilution and tag-along rights, (iii) the exchanged debt or equity securities must be freely transferable, without restriction (subject to applicable securities laws) and (iv) reasonable efforts shall be made to structure the acquisition in a manner that causes the governance documents pertaining thereto to not impose any obligations or liabilities upon the Lenders individually (such as indemnification obligations). Agent, based upon the instruction of the Required Lenders, may accept non-cash consideration, including debt and equity securities issued by any entities used to consummate such Credit Bid or purchase and in connection therewith Agent may reduce the Obligations owed to the Lenders (ratably based upon the proportion of their Obligations credit bid in relation to the aggregate amount of Obligations so credit bid) based upon the value of such non-cash consideration. For purposes of the preceding sentence, the term “Credit Bid” shall mean, an offer submitted by Agent (on behalf of the Lender group), based upon the instruction of the Required Lenders, to acquire the property of any Loan Party or any portion thereof in exchange for and in full and final satisfaction of all or a portion (as determined by Agent, based upon the instruction of the Required Lenders) of the claims and Obligations under this Agreement and other Loan Documents.
94
14.10. Certain Collateral Matters. The Lenders irrevocably authorize Agent, at its option and in its discretion, (a) to release any Lien granted to or held by Agent under any Loan Document (i) upon termination of the Commitments and payment in full of all Loans and all other obligations of Borrowers hereunder; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder (including the release of any guarantor); (iii) subject to Section 15.5 if approved, authorized or ratified in writing by the Required Lenders; or (iv) to the extent required under the terms of the Intercreditor Agreement, (b) to subordinate its interest in any Collateral to any holder of a Lien on such Collateral which is permitted by clause (a) of the definition of Permitted Liens (it being understood that Agent may conclusively rely on a certificate from Borrower Representative in determining whether the Indebtedness secured by any such Lien is permitted hereunder) and (c) enter into and perform, or take any other actions in connection with, the Intercreditor Agreement, Third Lien Subordination and any Subordinated Debt Subordination Agreement. Each Lender hereby agrees, solely for the benefit of Agent, that it will be bound by and will take no actions contrary to the provisions of the Intercreditor Agreement, Third Lien Subordination Agreement or any Subordinated Debt Subordination Agreement. Upon request by Agent at any time, the Lenders will confirm in writing Agent’s authority to release, or subordinate its interest in, particular types or items of Collateral pursuant to this Section 14.10. Agent may, and at the direction of Required Lenders shall, give blockage notices in connection with any Subordinated Debt and each Lender hereby authorizes Agent to give such notices. Each Lender further agrees that it will not act unilaterally to deliver such notices.
14.11. Restriction on Actions by Lenders. Each Lender agrees that it shall not, without the express written consent of Agent, and shall, upon the written request of Agent (to the extent it is lawfully entitled to do so), set off against the Obligations, any amounts owing by such Lender to a Loan Party or any deposit accounts of any Loan Party now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so in writing by Agent, take or cause to be taken, any action, including the commencement of any legal or equitable proceedings to foreclose any loan or otherwise enforce any security interest in any of the Collateral or to enforce all or any part of this Agreement or the other Loan Documents. All Enforcement Actions under this Agreement and the other Loan Documents against the Loan Parties or any third party with respect to the Obligations or the Collateral may only be taken by Agent (at the direction of the Required Lenders or as otherwise permitted in this Agreement) or by its agents at the direction of Agent.
14.12. Expenses. Agent is authorized and directed to deduct and retain sufficient amounts from payments or proceeds of the Collateral received by Agent to reimburse Agent for such reasonable out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses by a Loan Party, each Lender hereby agrees that it is and shall be obligated to pay to Agent such Lender’s ratable share thereof. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender’s ratable share of any such costs or out of pocket expenses (including reasonable Agent Professional fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent.
95
14.13. Notice of Default or Event of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders and, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a “notice of default.” Agent will promptly notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with this Agreement; provided, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable.
14.14. Liability of Agent. None of the Agent-Related Persons shall (a) be liable to any Lender for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Borrower or any of their respective Subsidiaries or Affiliates, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Borrower, or any of their respective Subsidiaries or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lenders to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the books and records or properties of any Borrower or their respective Subsidiaries.
96
15. GENERAL PROVISIONS.
15.1. Notices.
(a) Notice by Approved Electronic Communications. Agent and each of its Affiliates is authorized to transmit, post or otherwise make or communicate, in its sole discretion (but shall not be required to do so), by Approved Electronic Communications in connection with this Agreement or any other Loan Document and the transactions contemplated therein. Agent is hereby authorized to establish procedures to provide access to and to make available or deliver, or to accept, notices, documents and similar items by posting to ABLSoft. All uses of ABLSoft and other Approved Electronic Communications shall be governed by and subject to, in addition to the terms of this Agreement, the separate terms, conditions and privacy policy posted or referenced in such system (or such terms, conditions and privacy policy as may be updated from time to time, including on such system) and any related contractual obligations executed by Agent and Loan Parties in connection with the use of such system. Each of the Loan Parties, the Lenders and Agent hereby acknowledges and agrees that the use of ABLSoft and other Approved Electronic Communications is not necessarily secure and that there are risks associated with such use, including risks of interception, disclosure and abuse and each indicates it assumes and accepts such risks by hereby authorizing Agent and each of its Affiliates to transmit Approved Electronic Communications. ABLSoft and all Approved Electronic Communications shall be provided “as is” and “as available”. None of Agent or any of its Affiliates or related persons warrants the accuracy, adequacy or completeness of ABLSoft or any other electronic platform or electronic transmission and disclaims all liability for errors or omissions therein. No warranty of any kind is made by Agent or any of its Affiliates or related persons in connection with ABLSoft or any other electronic platform or electronic transmission, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects. Each Borrower and each other Loan Party executing this Agreement agrees that Agent has no responsibility for maintaining or providing any equipment, software, services or any testing required in connection with ABLSoft, any Approved Electronic Communication or otherwise required for ABLSoft or any Approved Electronic Communication. Prior to the Closing Date, Borrower Representative shall deliver to Agent a complete and executed Client User Form regarding Borrowers’ use of ABLSoft in the form of Exhibit C annexed hereto. No Approved Electronic Communications shall be denied legal effect merely because it is made electronically. Approved Electronic Communications that are not readily capable of bearing either a signature or a reproduction of a signature may be signed, and shall be deemed signed, by attaching to, or logically associating with such Approved Electronic Communication, an E-Signature, upon which Agent and the Loan Parties may rely and assume the authenticity thereof. Each Approved Electronic Communication containing a signature, a reproduction of a signature or an E-Signature shall, for all intents and purposes, have the same effect and weight as a signed paper original. Each E-Signature shall be deemed sufficient to satisfy any requirement for a “signature” and each Approved Electronic Communication shall be deemed sufficient to satisfy any requirement for a “writing”, in each case including pursuant to this Agreement, any other Loan Document, the UCC, the Uniform Electronic Transactions Act, the Electronic Signatures in Global and National Commerce Act and any substantive or procedural law governing such subject matter. Each party or beneficiary hereto agrees not to contest the validity or enforceability of an Approved Electronic Communication or E-Signature under the provisions of any applicable law requiring certain documents to be in writing or signed; provided, that nothing herein shall limit such party’s or beneficiary’s right to contest whether an Approved Electronic Communication or E-Signature has been altered after transmission.
(b) All Other Notices. All notices, requests, demands and other communications under or in respect of this Agreement or any transactions hereunder, other than those approved for or required to be delivered by Approved Electronic Communications (including via ABLSoft or otherwise pursuant to Section 15.1(a)), shall be in writing and shall be personally delivered or mailed (by prepaid registered or certified mail, return receipt requested), sent by prepaid recognized overnight courier service, or by email to the applicable party at its address or email address indicated below,
97
If to Agent:
Eclipse BUSINESS Capital LLC,
as Agent
123 N333 W Wacker Suite 2400950
Chicago, IL 60606
Attention: Tracy Salyers
Email: tsalyers@eclipsebuscap.com
If to Borrower Representative, any Borrower or any other Loan Party:
Rubicon Global, LLC
950 East Paces Ferry Rd NE
Suite 1900
Atlanta, Georgia 30326100 West Main Street
Suite 610
Lexington, Kentucky 40507
Attention: Chris Waters
Email: chris.waters@rubiconglobal.com
with a mandatory copy to:
Chamberlain Hrdlicka White Williams & Aughtry, P.C.
191 Peachtree Street, NE
46th Floor
Atlanta, Georgia 30303
Attention: Scott A. Augustine
Email: scott.augustine@chamberlainlaw.com
or, as to each party, at such other address as shall be designated by such party in a written notice to the other party delivered as aforesaid. All such notices, requests, demands and other communications shall be deemed given (i) when personally delivered, (ii) three (3) Business Days after being deposited in the mails with postage prepaid (by registered or certified mail, return receipt requested), (iii) one (1) Business Day after being delivered to the overnight courier service, if prepaid and sent overnight delivery, addressed as aforesaid and with all charges prepaid or billed to the account of the sender or (iv) when sent by email transmission to an email address designated by such addressee and the sender receives a confirmation of transmission.
15.2. Severability. If any provision of this Agreement or any other Loan Document is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given circumstances, or excised from this Agreement or such other Loan Document, as the situation may require, and this Agreement and the other Loan Documents shall be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein or therein, as the case may be.
98
15.3. Integration. This Agreement and the other Loan Documents represent the final, entire and complete agreement between each Loan Party party hereto and thereto and Agent and supersede all prior and contemporaneous negotiations, oral representations and agreements, all of which are merged and integrated into this Agreement. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES THAT ARE NOT SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
15.4. Waivers. The failure of Agent and the Lenders at any time or times to require any Loan Party to strictly comply with any of the provisions of this Agreement or any other Loan Documents shall not waive or diminish any right of Agent later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other Loan Document shall be deemed to have been waived by any act or knowledge of Agent or its agents or employees, but only by a specific written waiver signed by an authorized officer of Agent and any necessary Lenders and delivered to Borrowers. Once an Event of Default shall have occurred, it shall be deemed to continue to exist and not be cured or waived unless specifically waived in writing by an authorized officer of Agent and Required Lenders and delivered to Borrowers. Each Loan Party Obligor waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, Instrument, Account, General Intangible, Document, Chattel Paper, Investment Property or guaranty at any time held by Agent on which such Loan Party Obligor is or may in any way be liable, and notice of any action taken by Agent, unless expressly required by this Agreement, and notice of acceptance hereof.
15.5. Amendments.
(a) No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents shall in any event be effective unless the same shall be in writing and acknowledged by the Required Lenders, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that, except to the extent set forth in Section 14.9 hereof, no amendment, modification, waiver or consent shall (i) extend or increase the Commitment of any Lender without the written consent of such Lender, (ii) extend the date scheduled for payment of any principal (excluding mandatory prepayments) of or interest on the Loans or any fees payable hereunder without the written consent of each Lender directly affected thereby, (iii) reduce the principal amount of any Loan, the rate of interest thereon or any fees payable hereunder, without the consent of each Lender directly affected thereby; (iv) amend or modify the definitions of Borrowing Base, Eligible Accounts, Eligible Billed Accounts or Eligible Unbilled Accounts, or any components thereof (including, without limitation, any Advance Rates), without the written consent of each Lender; or (v) release any guarantor from its obligations under any Guaranty, other than as part of or in connection with any disposition permitted hereunder, or release or subordinate its liens on all or any substantial part of the Collateral granted under any of the other Loan Documents (except as permitted by Section 14.10), change the definition of Required Lenders, any provision of Section 6.2, any provision of this Section 15.4, the provisions of Section 14.9 or reduce the aggregate Pro Rata Share required to effect an amendment, modification, waiver or consent, without, in each case set forth in this clause (v), the written consent of all Lenders. No provision of Section 14 or other provision of this Agreement affecting Agent in its capacity as such shall be amended, modified or waived without the consent of Agent. No provision of this Agreement affecting any Loan Party shall be amended or modified without the prior written consent of Borrower Representative. Any amendment contemplated by Section 3.6(d) of this Agreement in connection with a Benchmark Transition event or an Early Opt-in Election shall be effective as contemplated by such section 3.6(d).
99
(b) If, in connection with any proposed amendment, modification, waiver or termination requiring the consent of all Lenders, the consent of the Required Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained being referred to as a “Non-Consenting Lender”), then, so long as Agent is not a Non-Consenting Lender, Agent and/or a Person or Persons reasonably acceptable to Agent shall have the right to purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree that they shall, upon Agent’s request, sell and assign to Agent and/or such Person or Persons, all of the Loans and Commitments of such Non-Consenting Lenders for an amount equal to the principal balance of all such Loans and Commitments held by such Non-Consenting Lenders and all accrued interest, fees, expenses and other amounts then due with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment and Assumption.
15.6. Time of Essence. Time is of the essence in the performance by each Loan Party Obligor of each and every obligation under this Agreement and the other Loan Documents.
15.7. Expenses, Fee and Costs Reimbursement. Each Borrower hereby agrees to promptly pay (a) all reasonable out of pocket costs and expenses of Agent (including the out of pocket fees, costs and expenses of internal and external legal counsel to, and appraisers, accountants, consultants and other professionals and advisors retained by or on behalf of, Agent) in connection with (i) all loan proposals and commitments pertaining to the transactions contemplated hereby (whether or not such transactions are consummated), (ii) the examination, review, due diligence investigation, documentation, negotiation, and closing of the transactions contemplated by the Loan Documents (whether or not such transactions are consummated), (iii) the creation, perfection and maintenance of Liens pursuant to the Loan Documents, (iv) the performance or enforcement by Agent of its rights and remedies under the Loan Documents (or determining whether or how to perform or enforce such rights and remedies), (v) the administration of the Loans (including usual and customary fees for wire transfers and other transfers or payments received by Agent on account of any of the Obligations) and Loan Documents, (vi) any amendments, modifications, consents and waivers to and/or under any and all Loan Documents (whether or not such amendments, modifications, consents or waivers are consummated), (vii) any periodic public record searches conducted by or at the request of Agent (including, title investigations and public records searches), pending litigation and tax lien searches and searches of applicable corporate, limited liability company, partnership and related records concerning the continued existence, organization and good standing of certain Persons), (viii) protecting, storing, insuring, handling, maintaining, auditing, examining, valuing or selling any Collateral, (ix) any litigation, dispute, suit or proceeding relating to any Loan Document and (x) any workout, collection, bankruptcy, insolvency and other enforcement proceedings under any and all of the Loan Documents (it being agreed that (A) such costs and expenses may include the costs and expenses of workout consultants, investment bankers, financial consultants, appraisers, valuation firms and other professionals and advisors retained by or on behalf of Agent (B) each Lender shall also be entitled to reimbursement for all reasonable out of pocket costs and expense of the type described in this clause (x), provided that, to the extent of an actual or reasonably perceived conflict of interest, such reimbursement shall be limited to one additional counsel for the Lenders as a whole), and (b) without limiting the preceding clause (a), all reasonable out of pocket costs and expenses of Agent in connection with Agent’s reservation of funds in anticipation of the funding of the initial Loans to be made hereunder. Any fees, costs and expenses owing by any Borrower or other Loan Party Obligor hereunder shall be due and payable within three (3) days after written demand therefor.
100
15.8. Benefit of Agreement; Assignability. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of each Borrower, each other Loan Party Obligor party hereto, Agent and each Lender; provided, that neither each Borrower nor any other Loan Party Obligor may assign or transfer any of its rights under this Agreement without the prior written consent of Agent and each Lender, and any prohibited assignment shall be void. No consent by Agent or any Lender to any assignment shall release any Loan Party Obligor from its liability for any of the Obligations. Each Lender shall have the right to assign all or any of its rights and obligations under the Loan Documents to one or more other Persons in accordance with Section 15.9. Notwithstanding any provision of this Agreement or any other Loan Document to the contrary, a Lender may at any time pledge or grant a security interest in all or any portion of its rights under this Agreement and the other Loan Documents to secure any obligations of such Lender, including any pledge or grant to secure obligations to a Federal Reserve Bank.
15.9. Assignments.
(a) Any Lender may at any time assign to one or more Persons (any such Person, an “Assignee”) all or any portion of such Lender’s Loans and Commitments, with the prior written consent of Agent and, so long as no Event of Default exists, Borrower Representative (which consents shall not be unreasonably withheld or delayed and shall not be required for an assignment by a Lender to a Lender (other than a Defaulting Lender) or an Affiliate of a Lender (other than an Affiliate of a Defaulting Lender) or an Approved Fund (other than an Approved Fund of a Defaulting Lender)). Except as Agent may otherwise agree, any such assignment shall be in a minimum aggregate amount equal to $1,000,000 or, if less, the remaining Commitment and Loans held by the assigning Lender (provided, that an assignment to a Lender, an Affiliate of a Lender or an Approved Fund shall not be subject to the foregoing minimum assignment limitations). The Loan Parties and Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned to an Assignee until Agent shall have received and accepted an effective Assignment and Assumption executed, delivered and fully completed by the applicable parties thereto and a processing fee of $3,500. Notwithstanding anything herein to the contrary, no assignment may be made to any equity holder of a Loan Party, any Affiliate of any equity holder of a Loan Party, any Loan Party, any holder of Subordinated Debt of a Loan Party, any holder of any Debt that is secured by liens or security interests that have been contractually subordinated to the liens and security interests securing the Obligations, or any Affiliate of any of the foregoing Persons without the prior written consent of Agent, which consent may be withheld in Agent’s sole discretion and, in any event, if granted, may be conditioned on such terms and conditions as Agent shall require in its sole discretion, including, without limitation, a limitation on the aggregate amount of Loans and Commitments which may be held by such Person and/or its Affiliates and/or limitations on such Person’s and/or its Affiliates’ voting and consent rights and/or rights to attend Lender meetings or obtain information provided to other Lenders. Any attempted assignment not made in accordance with this Section 15.9 shall be null and void. Each Borrower shall be deemed to have granted its consent to any assignment requiring its consent hereunder unless Borrower Representative has expressly objected to such assignment within five (5) Business Days after receipt of written notice thereof.
101
(b) From and after the date on which the conditions described in Section 15.9(a) above have been met, (i) such Assignee shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned to such Assignee pursuant to the applicable Assignment and Assumption, shall have the rights and obligations of a Lender hereunder and (ii) the assigning Lender, to the extent that rights and obligations hereunder have been assigned by it pursuant to the applicable Assignment and Assumption, shall be released from its rights (other than its indemnification rights) and obligations hereunder. Upon the request of the Assignee (and, as applicable, the assigning Lender) pursuant to an effective Assignment and Assumption, Borrowers shall execute and deliver to Agent for delivery to the Assignee (and, as applicable, the assigning Lender) a promissory note in the principal amount of the Assignee’s Pro Rata Share of the aggregate Revolving Loan Commitment (and, as applicable, a promissory note in the principal amount of the Pro Rata Share of the aggregate Revolving Loan Commitment retained by the assigning Lender). Upon receipt by Agent of such promissory note(s), the assigning Lender shall return to Borrowers any prior promissory note held by it.
(c) Agent shall, as a non-fiduciary agent of Borrowers, maintain a copy of each Assignment and Assumption delivered and accepted by it and register (the “Register”) for the recordation of names and addresses of the Lenders and the Commitment of each Lender and principal and stated interest of each Loan owing to each Lender from time to time and whether such Lender is the original Lender or the Assignee. No assignment shall be effective unless and until the Assignment and Assumption is accepted and registered in the Register. All records of transfer of a Lender’s interest in the Register shall be conclusive, absent manifest error, as to the ownership of the interests in the Loans. Agent shall not incur any liability of any kind with respect to any Lender with respect to the maintenance of the Register. Each Lender granting a participation shall, as a non-fiduciary agent of the Borrowers, maintain a register containing information similar to that of the Register in a manner such that the loans hereunder are in “registered form” for the purposes of the Code. This Section shall be construed so that the Loans are at all times maintained in “registered form” for the purpose of the Code and any related regulations (and any successor provisions).
102
15.10. Participations. Anything in this Agreement or any other Loan Document to the contrary notwithstanding, any Lender may, at any time and from time to time, without in any manner affecting or impairing the validity of any Obligations, sell to one or more Persons participating interests in its Loans, commitments or other interests hereunder or under any other Loan Document (any such Person, a “Participant”). In the event of a sale by a Lender of a participating interest to a Participant, (a) such Lender’s obligations hereunder and under the other Loan Documents shall remain unchanged for all purposes, (b) Borrowers and such Lender shall continue to deal solely and directly with each other in connection with such Lender’s rights and obligations hereunder and under the other Loan Documents and (c) all amounts payable by Borrowers shall be determined as if such Lender had not sold such participation and shall be paid directly to such Lender; provided, that a Participant shall be entitled to the benefits of Section 13 as if it were a Lender if Borrower Representative is notified of the Participation and the Participant complies with Section 13. Each Borrower agrees that if amounts outstanding under this Agreement or any other Loan Document are due and payable (as a result of acceleration or otherwise), each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and the other Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement; provided, that such right of set-off shall not be exercised without the prior written consent of such Lender and shall be subject to the obligation of each Participant to share with such Lender its share thereof. Each Borrower also agrees that each Participant shall be entitled to the benefits of Section 15.9 as if it were a Lender. Notwithstanding the granting of any such participating interests, (i) Borrowers shall look solely to the applicable Lender for all purposes of this Agreement, the Loan Documents and the transactions contemplated hereby, (ii) Borrowers shall at all times have the right to rely upon any amendments, waivers or consents signed by the applicable Lender as being binding upon all of the Participants and (iii) all communications in respect of this Agreement and such transactions shall remain solely between Borrowers and the applicable Lender (exclusive of Participants) hereunder. If a Lender grants a participation hereunder, such Lender shall maintain, as a non-fiduciary agent of Borrowers, a register as to the participations granted and transferred under this Section containing the same information specified in Section 15.9 on the Register as if each Participant were a Lender to the extent required to cause the Loans to be in registered form for the purposes of Sections 163(F), 165(J), 871, 881, and 4701 of the Code.
15.11. Headings; Construction. Section and subsection headings are used in this Agreement only for convenience and do not affect the meanings of the provisions that they precede.
15.12. USA PATRIOT Act Notification. Agent hereby notifies the Loan Parties that pursuant to the requirements of the USA PATRIOT Act, it may be required to obtain, verify and record certain information and documentation that identifies such Person, which information may include the name and address of each such Person and such other information that will allow Agent to identify such Persons in accordance with the USA PATRIOT Act.
15.13. Counterparts; Fax/Email Signatures. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same agreement. This Agreement may be executed by signatures delivered by facsimile or electronic mail, each of which shall be fully binding on the signing party.
103
15.14. GOVERNING LAW. THIS AGREEMENT, ALONG WITH ALL OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED OTHERWISE IN SUCH OTHER LOAN DOCUMENT) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. FURTHER, THE LAW OF THE STATE OF NEW YORK SHALL APPLY TO ALL DISPUTES OR CONTROVERSIES ARISING OUT OF OR CONNECTED TO OR WITH THIS AGREEMENT AND ALL SUCH OTHER LOAN DOCUMENTS WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
15.15. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL; CONSENT TO SERVICE OF PROCESS. ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS IN THE COUNTY OF COOK OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR IN ANY OTHER COURT (IN ANY JURISDICTION) SELECTED BY THE AGENT IN ITS SOLE DISCRETION, AND EACH BORROWER AND EACH OTHER LOAN PARTY OBLIGOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFOREMENTIONED COURTS. EACH BORROWER AND EACH OTHER LOAN PARTY OBLIGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, OR BASED ON 28 U.S.C. § 1404, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING AND ADJUDICATION OF ANY SUCH ACTION, SUIT OR PROCEEDING IN ANY OF THE AFOREMENTIONED COURTS AND AMENDMENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND EACH OTHER LOAN PARTY OBLIGOR HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR UNDER ANY AMENDMENT, WAIVER, AMENDMENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH BORROWER AND EACH OTHER LOAN PARTY OBLIGOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON ANY BORROWER OR ANY OTHER LOAN PARTY OBLIGOR AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO BORROWER’S’ NOTICE ADDRESS (ON BEHALF OF BORROWERS OR SUCH LOAN PARTY OBLIGOR) SET FORTH IN SECTION 15.1 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE MAIL, OR, AT THE AGENT’S OPTION, BY SERVICE UPON ANY BORROWER OR ANY OTHER LOAN PARTY OBLIGOR IN ANY OTHER MANNER PROVIDED UNDER THE RULES OF ANY SUCH COURTS.
104
15.16. Publication. Each Borrower and each other Loan Party Obligor consents to the publication by Agent of a tombstone, press releases or similar advertising material relating to the financing transactions contemplated by this Agreement, and Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.
15.17. Confidentiality. Agent and each Lender agree to use commercially reasonable efforts not to disclose Confidential Information to any Person without the prior consent of Borrower Representative; provided, that nothing herein contained shall limit any disclosure of the tax structure of the transactions contemplated hereby, or the disclosure of any information (a) to the extent required by applicable law, statute, rule, regulation or judicial process or in connection with the exercise of any right or remedy under any Loan Document, or as may be required in connection with the examination, audit or similar investigation of Agent or any of its Affiliates, (b) to examiners, auditors, accountants or any regulatory authority, (c) to the officers, partners, managers, directors, employees, agents and advisors (including independent auditors, lawyers and counsel) of Agent and each Lender or any of their respective Affiliates, (d) in connection with any litigation or dispute which relates to this Agreement or any other Loan Document to which Agent or any Lender is a party or is otherwise subject, (e) to a subsidiary or Affiliate of Agent or any Lender, (f) to any Assignee or Participant (or prospective Assignee or Participant) which agrees to be bound by this Section 15.17 and (g) to any lender or other funding source of Agent or any Lender (each reference to Agent and Lender in the foregoing clauses shall be deemed to include (i) the actual and prospective Assignees and Participants referred to in clause (f) and the lenders and other funding sources referred to in clause (g), as applicable for purposes of this Section 15.17), and further provided, that in no event shall Agent or any Lender be obligated or required to return any materials furnished by or on behalf of any Borrower or any other Loan Party or Obligor. The obligations of Agent and Lenders under this Section 15.17 shall supersede and replace the obligations of Agent and Lenders under any confidentiality letter or provision in respect of this financing or any other financing previously signed and delivered by Agent or any Lender to any Borrower or any of its Affiliates.
[Signature page follows]
105
IN WITNESS WHEREOF, each Borrower, each other Loan Party Obligor party hereto, Agent and each Lender have signed this Agreement as of the date first set forth above.
Signature Page to Loan and Security Agreement
106
Signature Page to Loan and Security Agreement
107
Perfection Certificate
[Attached]
Signature Page to Loan and Security Agreement
108
Annex I
Description of Certain Terms
1. | Loan Limits for Revolving Loans | |||||||||
(a) | Maximum Revolving Facility Amount | $ |
||||||||
(b) | Advance Rates | |||||||||
(i) | Billed Accounts Advance Rate | Eighty five percent (85%); provided, that if Dilution exceeds five percent (5%), Lender may, at its option, (A) reduce such advance rate by the number of full or partial percentage points comprising such excess or (B) establish a Reserve on account of such excess (the “Dilution Reserve”). | ||||||||
(ii) | Unbilled Accounts Advance Rate) | Eighty percent (80%); provided, that if Dilution exceeds five percent (5%), Lender may, at its option, (A) reduce such advance rate by the number of full or partial percentage points comprising such excess or (B) establish a Dilution Reserve on account of such excess. | ||||||||
(c) | Reserved: | |||||||||
(d) | Reserved | |||||||||
(e) | Reserved | |||||||||
(f) | Reserved | |||||||||
2. | Reserved | |||||||||
(a) | Reserved | |||||||||
(b) | Reserved | |||||||||
3. | Interest Rates | |||||||||
(a) | Revolving Loans | Level | Fixed
Charge Coverage Ratio* |
Trailing Twelve Month Average Excess Availability | SOFR Loans | Base Rate Loans | ||||
I | ≥ 1.25 | And > $10,000,000 | 3.75% | 4.75% | ||||||
II | > 1.00 and < 1.25 | And >$10,000,000 | 4.25% | 5.25% | ||||||
III | < 1.00 | And < $10,000,000 | 4.75% | 5.75% |
Annex I - Page 1
* | The Fixed Charge Coverage Ratio referred to in the pricing grid above shall be determined based on the trailing twelve-month period on the most-recently ended fiscal quarter, commencing on March 31, 2023, for which Agent has received financial statements and a Compliance Certificate in accordance with the terms hereof. The calculation of Fixed Charge Coverage Ratio shall be to Agent’s satisfaction from such financial statements and Compliance Certificate. Notwithstanding the foregoing, (a) if Borrowers fail to deliver the financial statements and the related Compliance Certificate for any period by the respective date required under this Agreement, from and after such due date the interest rate shall be determined using the rate corresponding to the pricing set forth in “Level III” of the pricing grid above until such financial statements and Compliance Certificate are delivered, and (b) no reduction to the interest rate shall become effective at any time when an Event of Default has occurred and is continuing. |
Annex I - Page 2
If, as a result of any restatement of or other adjustment to the financial statements of the Loan Parties or for any other reason, Agent determines that (a) the Fixed Charge Coverage Ratio as calculated by Borrowers as of any applicable date was inaccurate and (b) a proper calculation of the Fixed Charge Coverage Ratio would have resulted in different pricing for any period, then (i) if the proper calculation of the Fixed Charge Coverage Ratio would have resulted in higher pricing for such period, Borrowers shall automatically and retroactively be obligated to pay to Agent, promptly on demand by Agent, an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period; and (ii) if the proper calculation of the Fixed Charge Coverage Ratio would have resulted in lower pricing for such period, Agent shall have no obligation to repay any interest or fees to Borrowers; provided that if, as a result of any restatement or other event a proper calculation of the Fixed Charge Coverage Ratio would have resulted in higher pricing for one or more periods and lower pricing for one or more other periods (due to the shifting of income or expenses from one period to another period or any similar reason), then the amount payable by Borrowers pursuant to clause (i) above shall be based upon the excess, if any, of the amount of interest and fees that should have been paid for all applicable periods over the amount of interest and fees paid for all such periods. Additionally, from and after February 7, 2023, until the due date for the financial statement and Compliance Certificate due with respect to the period ending March 31, 2023, pricing shall be determined using the rate corresponding to the pricing set forth in “Level III” of the pricing grid above.
Annex I - Page 3
Annex II Agent and Lenders shall be provided with each of the documents set forth below at the following times, in form satisfactory to Agent: (a) A summary and a detailed aging, by total, of each Borrower’s Accounts, together with an Account roll-forward with supporting details supplied from sales journals, collection journals, credit registers and any other records, with respect to each Borrower’s Accounts (delivered electronically in an acceptable format). (b) Notice of all claims, offsets, or disputes asserted by Account Debtors with respect to each Borrower’s Accounts. (c) A detailed calculation of the Accounts of each Borrower that are not eligible for the Borrowing Base (delivered electronically in an acceptable format). (d) A summary and a detailed of each Borrower’s Unbilled Accounts, together with an Unbilled Account roll-forward with supporting details. (e) Reserved. (f) A summary and a detailed aging, by total, of each Borrower’s Accounts, together with reconciliation to the Borrowing Base submitted closest to such date and to the loan statement provided to Borrowers by Agent for such month and support documentation for any reconciling items noted (delivered electronically in an acceptable format). (g) A summary aging, by vendor, of each Loan Party’s accounts payable and a listing by vendor, of any held and/or outstanding checks (delivered electronically in an acceptable format). (h) A monthly Account roll-forward with respect to each Borrower’s Accounts, in a format acceptable to Agent in its discretion, tied to the beginning and ending Account balances of each Borrower’s month-end accounts receivables agings (delivered electronically in an acceptable format). (i) A reconciliation of Accounts summary aging and trade accounts payable summary aging to each of (i) Borrowers’ general ledger, and (ii) its monthly financial statements including any book reserves related to each category and (iii) in the case of the Accounts summary aging, the Borrowing Base submitted closest to such date, together with support documentation for any reconciling items noted (delivered electronically in an acceptable format). (j) A list of each existing Service Contract (as defined in the Intercreditor Agreement) indicating the current stated expiration date of such Service Contract.
Bi-Monthly (no later than the 3rd Business Day of each applicable week), or more frequently if Agent requests
Monthly (no later than the 20th day of each month)
Annex II - Page 1
(k) A reconciliation of the loan statement provided to Borrower Representative by Agent for such month to each of (i) Borrowers’ general ledger, (ii) its monthly financial statements and (iii) the Borrowing Base submitted closest to such date, together with support documentation for any reconciling items noted (delivered electronically in an acceptable format).
(l) A detailed calculation of the Borrowing Base (delivered electronically in an acceptable format) based upon the reports provided in (f) through (k) above, for such month and reflecting the outstanding principal balance of the Loans as of the last day of such month. | |
Promptly upon the request of Agent | (m) Copies of invoices together with corresponding shipping and delivery documents, and credit memos together with corresponding supporting documentation, with respect to invoices and credit memos in excess of an amount determined in the sole discretion of Agent, from time to time. |
Quarterly | (n) A report regarding each Loan Party’s accrued, but unpaid, ad valorem taxes. |
Bi-Annually (in January and in July of each calendar year) |
(o) A detailed list of each Loan Party’s customers, with address and contact information.
(p) A detailed list of each Loan Party’s vendors, with address and contact information.
(q) An updated Perfection Certificate, true and correct in all material respects as of the date of delivery, accompanied by a certificate executed by an officer of Borrower Representative and substantially in the form of Exhibit F hereto (it being understood and agreed that no such update shall serve to cure any existing Event of Default, including any Event of Default resulting from any failure to provide any such disclosure to Agent on an earlier date or any breach of any earlier made representation and/or warranty). |
Promptly upon (but in no event later than two Business Days after) delivery or receipt, as applicable, thereof | (r) Copies of any and all written notices (including notices of default or acceleration), reports and other deliveries received by or on behalf of any Loan Party from or sent by or on behalf of any Loan Party to, any holder, agent or trustee with respect to any or all of the Subordinated Debt (in such holder’s, agent’s or trustee’s capacity as such). |
Annex II - Page 2
Annex III
Revolving Loan Commitments
Eclipse Business Capital SPV, LLC | $ |
100% | |
Total | $ |
Annex III - Page 1
Exhibit A
Form of NOTICE OF BORROWING
[letterhead of Borrower Representative]
ECLIPSE BUSINESS CAPITAL LLC,
as Agent
____________
____________
Attention: [______________]
Ladies and Gentlemen:
Please refer to the Loan and Security Agreement dated as of [__________] (as amended, restated or otherwise modified from time to time, the “Loan Agreement”) among the undersigned, as Borrower Representative, the Borrowers (as defined therein) the Loan Party Obligors (as defined therein) party thereto, the Lenders party thereto and ECLIPSE BUSINESS CAPITAL LLC, as Agent for the Lenders. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement. This notice is given pursuant to Section 2.3 of the Loan Agreement and constitutes a representation by Borrower Representative, for itself and on behalf of each Borrower, that the conditions specified in Section 4 of the Loan Agreement have been satisfied. Without limiting the foregoing, (i) each of the representations and warranties set forth in the Loan Agreement and in the other Loan Documents is true and correct in material all respects (except where such warranty or representation is already qualified by Material Adverse Effect, materiality, dollar thresholds or similar qualifications, in which case such warranty or representation shall be accurate in all respects) as of the date hereof (or to the extent any representations or warranties are expressly made solely as of an earlier date, such representations and warranties shall be true and correct as of such earlier date), both before and after giving effect to the Loans requested hereby, and (ii) no Default or Event of Default is in existence, both before and after giving effect to the Loans requested hereby.
Borrower Representative hereby requests a borrowing, on behalf of each Borrower, under the Loan Agreement as follows:
The aggregate amount of the proposed borrowing is $[______________]. The requested borrowing date for the proposed borrowing (which is a Business Day) is [______________], [____].
Borrower Representative has caused this Notice of Borrowing to be executed and delivered by its officer thereunto duly authorized on [_____________].
RUBICON GLOBAL, LLC, as Borrower Representative | ||
By: | ||
Title: |
Exhibit A - Page 1
Exhibit B
closing checklist
[Attached]
Exhibit B - Page 1
Exhibit C
CLIENT USER FORM
ECLIPSE BUSINESS CAPITAL LLC
ABLSoft – Client User Form
Borrowers Names: [Borrowers]
Borrower Number: ________
Loan and Security Agreement Date: _______ __, 20__
I, being an authorized signer of the above borrower, as Borrower Representative (the “Borrower”), refer to the above Loan and Security Agreement (as amended, restated or otherwise modified from time to time, the “Loan Agreement”) between the Borrowers named above, the Lenders party thereto and ECLIPSE BUSINESS CAPITAL LLC, as Agent. This is the Client User Form, used to determined client access to ABLSoft. Terms defined in the Loan Agreement have the same meaning when used in this Client User Form.
Being duly authorized by Borrower Representative, on behalf of Borrowers, I confirm that the following individuals have been authorized by Borrower to have access to ABLSoft:
First Name | Last Name | Email Address | Phone Number |
RUBICON GLOBAL, LLC,
as Borrower Representative
By | ||
Name: | ||
Title: | ||
Date: |
Exhibit C - Page 1
Exhibit D
AUTHORIZED ACCOUNTS FORM
ECLIPSE BUSINESS CAPITAL LLC
Authorized Accounts Form
Borrowers Names: [Borrowers]
Borrower Number: ________
Loan and Security Agreement Date: _______ __, 20__
I, being an authorized signer of Rubicon Global, LLC, as Borrower Representative, refer to the above Loan and Security Agreement (as amended, restated or otherwise modified from time to time, the “Loan Agreement”) between the Borrower named above, the Lenders party thereto and ECLIPSE BUSINESS CAPITAL LLC, as agent (“Agent”). This is the Authorized Accounts Form, referring to authorized operating bank accounts of Borrower. Terms defined in the Loan Agreement have the same meaning when used in this Authorized Accounts Form.
Being duly authorized by Borrower Representative, I confirm that the following operating bank accounts of Borrowers are the accounts into which the proceeds of any Loan may be paid:
Bank | Routing Number | Account number | Account name |
RUBICON GLOBAL, LLC, as Borrower Representative |
||
By: | ||
Authorized Signer | ||
Name: | ||
Title: | ||
Date: |
Exhibit D - Page 1
Exhibit E
FORM OF ACCOUNT DEBTOR NOTIFICATION
[Date]
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
[Account Debtor]
[Address]
Re: | Loan Transaction with ECLIPSE BUSINESS CAPITAL LLC |
Ladies and Gentlemen:
Please be advised that we have entered into certain financing arrangements (along with any other financing agreements that we may enter into with Agent in the future, the “Financing Arrangements”) with ECLIPSE BUSINESS CAPITAL LLC (“Agent”), as Agent for certain Lenders, pursuant to which we have granted to Agent a security interest in, among other things, any and all Accounts and Chattel Paper (as those terms are defined in the Uniform Commercial Code) owing by you to us, whether now existing or hereafter arising.
You are authorized and directed to respond to any inquiries that Agent may direct to you from time to time pertaining to the validity, amount and other matters relating to such Accounts and Chattel Paper. In the event that Agent requests that payment for any Accounts and/or Chattel Paper be made directly to Agent, you are hereby authorized and directed to comply with such instructions, without further authorization or instruction from us.
This authorization and directive shall be continuing and irrevocable until Agent advises you, in writing, that this authorization is no longer in force.
Very truly yours, | ||
[BORROWER] | ||
By: | ||
Name: | ||
Its: |
cc: | ECLIPSE BUSINESS CAPITAL LLC as Agent | ||
Attention: |
Exhibit E - Page 1
Exhibit F
FORM OF COMPLIANCE CERTIFICATE
[letterhead of Borrower Representative]
To: | ECLIPSE BUSINESS CAPITAL LLC, as Agent |
___________
___________
Attention: _________
Re: | Compliance Certificate dated _______________ |
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement dated as of December __, 2018 (as amended, restated or otherwise modified from time to time, the “Loan Agreement”) by and among ECLIPSE BUSINESS CAPITAL LLC (“Agent”), the Lenders party thereto, RUBICON GLOBAL, LLC, a Delaware limited liability company, and RIVERROAD WASTE SOLUTIONS, INC., a New Jersey corporation (each a “Borrower” and collectively, the “Borrowers”) and each of the Loan Party Obligors (as defined therein) party thereto. Capitalized terms used in this Compliance Certificate have the meanings set forth in the Loan Agreement unless specifically defined herein.
Pursuant to Section 7.15 of the Loan Agreement, the undersigned Chief Financial Officer of Borrower Representative hereby certifies on behalf of each Borrower (solely in his capacity as an officer or Borrower Representative and not in his individual capacity) that:
1. The financial statements of Borrowers for the ___ -month period ending _____________ attached hereto have been prepared in accordance with GAAP and fairly present the financial condition of Borrowers for the periods and as of the dates specified therein.
2. As of the date hereof, there does not exist any Default or Event of Default.
3. Borrowers are in compliance with the applicable financial covenants contained in Section 9 of the Loan Agreement for the periods covered by this Compliance Certificate. Attached hereto are statements of all relevant facts and computations in reasonable detail sufficient to evidence Borrowers’ compliance with such financial covenants, which computations were made in accordance with GAAP.
IN WITNESS WHEREOF, this Compliance Certificate is executed by the undersigned this __ day of _______________, ______.
RUBICON GLOBAL, LLC], as Borrower Representative | ||
By: | ||
Name: | ||
Title: | Chief Financial Officer |
Exhibit F - Page 1
Exhibit G
FORM OF ASSIGNMENT AND ASSUMPTION
Dated [___________ ___, 20120_]
Reference is made to the Loan and Security Agreement dated as of [___________], 20120[_] among Rubicon Global, LLC, a Delaware limited liability company, and RiverRoad Waste Solutions, Inc., a New Jersey corporation (each a “Borrower” and collectively the “Borrowers”), the other Loan Party Obligors party thereto, the lenders party thereto as “Lenders” and Eclipse Business Capital LLC, as agent (“Agent”) for the Lenders (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). Terms defined in the Loan Agreement are used herein as therein defined.
[____________], solely in its capacity as a Lender under the Loan Agreement (the “Assignor”), and [__________] (the “Assignee”) agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, without recourse, representation or warranty (except as expressly set forth elsewhere herein), and the Assignee hereby purchases and assumes from the Assignor, on the Effective Date (as defined below), an interest as set forth in Exhibit A attached hereto (the “Assigned Interest”) in and to (i) all of the Assignor’s right, title and interest with respect to the Loans set forth in Exhibit A, (ii) all of the Assignor’s right, title and interest with respect to the [Revolving Loan Commitment] of Assignor as set forth in Exhibit A and (iii) to the extent related thereto, all of the Assignor’s rights and obligations, solely as a Lender, under the Loan Agreement and any other Loan Document (including, without limitation, (A) the outstanding principal amount of the Loans made by the Assignor and assigned to Assignee hereunder, and (B) the Assignor’s pro rata share of the obligations owing by each Loan Party under the Loan Agreement and the Loan Documents). The Assigned Interest (expressed as a percentage) in the Loans and the [Revolving Loan Commitment] is set forth in Exhibit A.
2. The Assignor (i) represents and warrants as of the date hereof that [its Revolving Loan Commitment, or if its Revolving Loan Commitment shall have been terminated, the outstanding principal amount of its Revolving Loans], is set forth in Exhibit A (without giving effect to assignments thereof which have not yet become effective); (ii) represents and warrants that it is the legal and beneficial owner of the interest it is assigning hereunder; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made by or in connection with the Loan Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement or any other Loan Document, or any other instrument or document furnished pursuant thereto; and (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under the Loan Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto.
Exhibit G - Page 1
3. The Assignee represents and warrants that it has become a party hereto solely in reliance upon its own independent investigation of the financial and other circumstances surrounding the Loan Parties, the Collateral, the Loans, the Revolving Loan Commitments and all aspects of the transactions evidenced by or referred to in the Loan Documents, or has otherwise satisfied itself thereto, and that it is not relying upon any representation, warranty or statement (except any such representation, warranty or statement expressly set forth in this Assignment and Assumption) of the Assignor in connection with the assignment made under this Assignment and Assumption. The Assignee further acknowledges that the Assignee will, independently and without reliance upon Agent, the Assignor or any other Lender and based upon the Assignee’s review of such documents and information as the Assignee deems appropriate at the time, make and continue to make its own credit decisions in entering into this Assignment and Assumption and taking or not taking action under the Loan Documents. The Assignor shall have no duty or responsibility either initially or on a continuing basis to make any such investigation or any such appraisal on behalf of the Assignee or to provide the Assignee with any credit or other information with respect thereto, whether coming into its possession before the making of the initial extension of credit under the Loan Agreement or at any time or times thereafter.
4. The Assignee represents and warrants to the Assignor that it has experience and expertise in the making of loans such as the Loans or with respect to the other types of credit which may be extended under the Loan Agreement; that it has acquired its Assigned Interest for its own account and not with any intention of selling all or any portion of such interest; and that it has received, reviewed and approved copies of all Loan Documents.
5. The Assignor shall not be responsible to the Assignee for the execution, effectiveness, accuracy, completeness, legal effect, genuineness, validity, enforceability, collectability or sufficiency of any of the Loan Documents or for any representations, warranties, recitals or statements made therein or in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents made or furnished or made available by the Assignor to the Assignee or by or on behalf of the Loan Parties to the Assignor or the Assignee in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of the Loan Parties or any other Person liable for the payment of any Loans or payment of amounts owed in connection with other extensions of credit under the Loan Agreement or the value of the Collateral or any other matter. The Assignor shall not be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or other extensions of credit under the Loan Agreement or as to the existence or possible existence of any Event of Default.
6. Each party to this Assignment and Assumption represents and warrants to the other party to this Assignment and Assumption that it has full power and authority to enter into this Assignment and Assumption and to perform its obligations under this Assignment and Assumption in accordance with the provisions set forth herein, that this Assignment and Assumption has been duly authorized, executed and delivered by such party and that this Assignment and Assumption constitutes a legal, valid and binding obligation of such party, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, moratorium or other similar laws affecting creditors’ rights generally and by general equitable principles.
Exhibit G - Page 2
7. Each party to this Assignment and Assumption represents and warrants that the making and performance by it of this Assignment and Assumption do not and will not violate any law or regulation of the jurisdiction of its organization or any other law or regulation applicable to it.
8. Each party to this Assignment and Assumption represents and warrants that all consents, licenses, approvals, authorizations, exemptions, registrations, filings, opinions and declarations from or with any agency, department, administrative authority, statutory corporation or judicial entity necessary for the validity or enforceability of its obligations under this Assignment and Assumption have been obtained, and no governmental authorizations other than any already obtained are required in connection with its execution, delivery and performance of this Assignment and Assumption.
9. The Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned and that such interest is free and clear of any lien, security interest or other encumbrance.
10. The Assignor makes no representation or warranty and assumes no responsibility with respect to the operations, condition (financial or otherwise), business or assets of the Loan Parties or the performance or observance by the Loan Parties of any of their obligations under the Loan Agreement or any other Loan Document.
11. The Assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to Agent by the terms thereof, together with such powers as are reasonably incidental thereto.
12. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Agreement and the other Loan Documents are required to be performed by it as a Lender.
13. The Assignee confirms that it has received all documents and information it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption.
14. The Assignee specifies as its address for notices the office set forth beneath its name on the signature pages hereof.
15. The effective date for this Assignment and Assumption (the “Effective Date”) shall be the date that is the latest of (a) the execution of this Assignment and Assumption, (b) the delivery of this Assignment and Assumption to Agent for acceptance, and (c) the date on which the Assignor has received the payment, in immediately available funds, by the Assignee of $[_____________], which amount represents the purchase price for the Assigned Interest.
16. Upon acceptance of this Assignment and Assumption by Agent, as of the Effective Date (i) the Assignee shall, in addition to the rights and obligations under the Loan Agreement and the other Loan Documents held by it immediately prior to the Effective Date, have the rights and obligations under the Loan Agreement and the other Loan Documents that have been assigned to it pursuant to this Assignment and Assumption, and (ii) the Assignor shall, to the extent provided in this Assignment and Assumption, relinquish its rights and be released from its obligations under the Loan Agreement and the other Loan Documents that have been assigned by the Assignor to the Assignee pursuant to this Assignment and Assumption.
Exhibit G - Page 3
17. Upon acceptance of this Assignment and Assumption by Agent, from and after the Effective Date, Agent shall make all payments under the Loan Agreement in respect of the rights assigned hereby (including, without limitation, all payments of principal, interest and fees with respect thereto) to the Assignee. If the Assignor receives or collects any payment of interest or fees attributable to the interests assigned to Assignee by this Assignment and Assumption which has accrued after the Effective Date, the Assignor shall distribute to the Assignee such payment. If the Assignee receives or collects any payment of interest or fees which is not attributable to the interests assigned to the Assignee by this Assignment and Assumption or which has accrued on or prior to the Effective Date, the Assignee shall distribute to the Assignor such payment.
18. This Assignment and Assumption shall be delivered and accepted in and shall be deemed to be a contract made under and governed by the internal laws of the State of [Illinois] (but giving effect to federal laws applicable to national banks) applicable to contracts made and to be performed entirely within such state, without regard to conflict of laws principles.
[rest of page intentionally left blank; signature page follows]
Exhibit G - Page 4
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute this Assignment and Assumption as of the Effective Date.
[ASSIGNOR] | ||
By | ||
Name | ||
Title | ||
NOTICE ADDRESS AND PAYMENT | ||
INSTRUCTIONS FOR ASSIGNOR | ||
Telephone No. | (___) ___-____ | |
Telecopy No. | (___) ___-____ | |
[ASSIGNEE] | ||
By | ||
Name | ||
Title | ||
NOTICE ADDRESS AND PAYMENT | ||
INSTRUCTIONS FOR ASSIGNEE | ||
Telephone No. | (___) ___-____ | |
Telecopy No. | (___) ___-____ |
Exhibit G - Page 5
ACCEPTED
this _____ day of ___________, |
||
ECLIPSE BUSINESS CAPITAL LLC, | ||
as Agent | ||
By: | ||
Name: | ||
Title: | ] | |
Consented to this ___ day of __________, 20__ | ||
RUBICON GLOBAL, LLC | ||
By: | ||
Name: | ||
Title: | ||
Consented to this ___ day of __________, 20__ | ||
RIVERROAD WASTE SOLUTIONS, INC. | ||
By: | ||
Name: | ||
Title: |
Exhibit G - Page 6
EXHIBIT A
Borrowers: | Rubicon Global, LLC RiverRoad Waste Solutions, Inc [______________] |
Description of Loan Agreement: Loan and Security Agreement, dated as of [___________], 201202[_] among Borrowers, the other Loan Party Obligors party thereto, the lenders party thereto as “Lenders” and Eclipse Business Capital LLC as agent (“Agent”) for the Lenders (as amended, restated, supplemented or otherwise modified from time to time).
Assigned Interests:
Assignor’s Interest Prior to Assignment | Assigned Interests | Assignor’s Remaining Interest After Assignment | Assignee’s Pro Rata Shares |
Revolving Loans and Revolving Loan Commitments |
Exhibit G - Page 7
EXHIBIT 10.53
UNSECURED PROMISSORY note
THIS UNSECURED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, AND MAY NOT BE OFFERED, SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS, OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
Principal Amount: $3,000,000.00
Interest Rate: 16.0%
Issuance Date: February 2, 2023
FOR VALUE RECEIVED, Rubicon Technologies, Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order of CHPAF Holdings SAPI de CV, or its registered assigns (the “Holder”) the principal sum of THREE MILLION $3,000,000.00 (the “Principal”) pursuant to the terms of this Unsecured Promissory Note (this “Note”). Capitalized terms used, but not defined herein, have the meaning set forth in Schedule I hereto.
1. Principal Payment. The Company shall pay to the Holder, in cash, the full outstanding Principal amount of the Note, and, in kind, all unpaid interest accrued thereon, on July 1, 2024, (the “Maturity Date”) without offset, in immediately available funds in lawful money of the United States of America, without counterclaim or setoff and free and clear of, and without any deduction or withholding for, any taxes or other payments).
2. Payment of Interest. Interest shall accrue on the outstanding Principal balance hereof at an annual rate equal to 16.0% (“Interest Rate”). Accrued and unpaid Interest shall be due and payable in arrears on the last Business Day of each calendar quarter. Interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed, to the extent permitted by applicable law. The aggregate Interest accrued in respect of the Principal will be paid in kind by capitalizing the amount of such Interest accrued, and adding such accrued amounts to the Principal on each such applicable interest payment date (the aggregate amount of the Principal arising as a result of the capitalization of Interest pursuant to this Section 2, if any, being referred to herein as “PIK Principal”). Any reference in this Note to the Principal or the outstanding balance of the Principal, shall include all PIK Principal. For the avoidance of doubt, PIK Principal shall be pari passu with and shall constitute a portion of the Principal for all purposes hereunder, and the outstanding principal balance of the PIK Principal (if any) shall be due and payable on the Maturity Date.
3. Increased Cost and Reduced Return. If at any time after the date hereof, Holder reasonably determines that the adoption or modification of any Applicable Law regarding taxation, Holder’s required levels of reserves, deposits, insurance, or capital (including any allocation of capital requirements or conditions), or similar requirements under Applicable Laws, or compliance by Holder with any of such requirements, has or would have the effect of (a) increasing Holder’s costs related to the Note, or (b) reducing the yield or rate of return of Holder on the Note, to a level below that which Holder could have achieved but for the adoption or modification of any such requirements, Company shall, within fifteen (15) days of any request by Holder, pay to Holder, in kind only, such additional amounts as (in Holder’s sole judgment, after good faith and reasonable computation) will compensate Holder for such increase in costs or reduction in yield or rate of return of Holder. No failure by Holder to immediately demand payment of any additional amounts payable hereunder, which amounts shall be paid in kind only, shall constitute a waiver of Holder’s right to demand payment of any such amounts at any subsequent time. Nothing herein contained shall be construed or shall so operate as to require Company to pay any interest, fees, costs, or charges greater than is permitted by Applicable Law.
4. Illegality. If, in any applicable jurisdiction, Holder determines that any Applicable Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for Holder to (i) perform any of its obligations under this Note, (ii) to fund or maintain the Note or (iii) issue, make, maintain, fund or charge interest or fees with respect to the Note, Holder shall promptly notify the Company, then, upon Holder notifying the Company, and until such notice is revoked, any obligation of Holder to issue, make, maintain, fund or charge interest or fees with respect to the Note shall be suspended, and to the extent required by Applicable Law, cancelled. Upon receipt of such notice, the Company shall, (A) repay the Note on the date specified by the Company in the notice delivered to Holder (being no earlier than the last day of any applicable grace period permitted by Applicable Law) and (B) take all reasonable actions requested by such Person to mitigate or avoid such illegality.
5. Maximum Lawful Rate. If any payment of interest hereunder in excess of that amount of interest permitted by Applicable Law is received by Holder, the amount of such excess payment shall be deemed to have been made in error and automatically shall be applied to reduce the principal amount outstanding hereunder in the order of maturity.
6. Place of Payment; Prepayment. Principal on this Note shall be payable in lawful money of the United States of America to Holder. All payments made by the Company to the Holder hereunder shall be made to the Holder at Bosque de Alisos 47A Piso 3 Bosques de las Lomas, Ciudad de Mexico, Mexico 01520, Attention: Jose Miguel Enrich (or to such accounts or addresses as the Holder shall direct in writing to the Company at least five (5) Business Days prior to the date of such payment). This Note may, at the option of the Company, be prepaid in whole or in part, at any time, and from time to time without premium or penalty. In the event that the Company refinances its existing term loan, issued pursuant to the Term Loan Agreement (as amended) originally dated as of March 29, 2019 by and between the Company and the parties thereto, with a new term loan of at least $125 million where at least $15 million of liquidity will remain in the business post repayment of this Note, this Note may also, at the option of the Holder, be required to be prepaid in whole or in part, without premium or penalty. Each prepayment of Principal shall be made together with Interest accrued thereon to the date of prepayment. All payments and prepayments hereunder shall be applied first to the Interest and then to the unpaid Principal balance outstanding.
7. Unsecured; Full Recourse. The Company’s obligations under this Note are not secured by any security interest on any assets of the Company. This Note is fully recourse to the Company and the Company is liable for all amounts owing under this Note.
2
8. Defaults. The Company shall be deemed in default hereunder upon the occurrence of any of the following (a “Default”):
a. | The failure of the Company to make any payment of (i) Principal when due hereunder or (ii) any Interest within five Business Days of the due date therefor; |
b. | The Company shall have entered against it by a court having jurisdiction thereof a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official shall be appointed for the Company or for any substantial part of the Company’s property; or the winding up or liquidation of the Company’s affairs shall have been ordered or a petition or application for an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect shall have been instituted and shall not be dismissed within ninety (90) days; or |
c. | The Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or consent to the entry of an order for such relief in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for the Company or for any substantial part of the Company’s property; or make any general assignment for the benefit of creditors. |
d. | Any covenant, agreement, or condition in this Note is not fully and timely performed, observed, or kept, subject to any applicable grace or cure periods set forth in this Note. |
9. Consequence of Default. (a) upon the occurrence of a Default set forth in clause (a) of Section 8, the entire then unpaid Principal balance hereof and all Interest then accrued and unpaid thereon and all other sums payable hereunder shall, at the option of the Holder, and (b) upon the occurrence of a Default set forth in clause (b) or (c) of Section 8, the entire then unpaid Principal balance hereof and all Interest then accrued and unpaid thereon and all other sums payable hereunder shall automatically, in either case, become immediately due and payable and the Holder shall be entitled to exercise any remedy available to it at equity or law.
10. No Waiver. No delay or omission on the part of the Holder in exercising any right hereunder shall operate as a waiver of any other right under this Note.
11. Amendment. No amendment, modification, termination or waiver of any provision of this Note shall be effective unless the same shall be in writing and signed by the Company and the Holder.
12. Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
3
13. Assignment. The Company may not assign this Note or any of its obligations hereunder without the prior written consent of the Holder. This Note is negotiable and may be sold, assigned or transferred (by operation of law or otherwise) or pledged by the Holder without the consent of Payor.
14. Payments. If any payment on this Note shall become due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day.
15. Taxes. The Company shall be entitled to deduct and withhold from the amounts payable pursuant to this Note such amounts as it is required to deduct or withhold with respect to the making of such payment under the U.S. Internal Revenue Code, or any provision of U.S. state or local or foreign tax law. To the extent that amounts are so withheld or paid over to or deposited with the relevant governmental entity by the Company, such amounts shall not be treated for all purposes of this Note as having been paid to the Holder (or its permitted assignee) in respect of which such deduction and withholding was made by the Company.
16. Costs. The Company shall pay the fees, costs and expenses (including reasonable attorneys’ fees and costs) incurred by the Holder in connection with the collection or attempted collection of all sums due hereunder that are not timely paid to the Holder.
17. Time is of the Essence; No Waiver. Time is of the essence of all payment and performance obligations under this Note. No delay on the part of the Holder in exercising any right or remedy under this Note or failure to exercise the same or forbearance in exercising the same shall operate as a waiver in whole or in part of any such right or remedy or be construed as an election of remedies. Without limiting the generality of the foregoing, the acceptance by the Holder from time to time of any payment under this Note that is past due or that is less than the payment in full of all amounts due and payable at the time of such payment, shall not (i) constitute a waiver of or impair or extinguish the right of the Holder to accelerate the maturity of this Note or to exercise any other right or remedy at the time or at any subsequent time, or nullify any prior exercise of any such right or remedy, (ii) constitute a waiver of the requirement of punctual payment and performance, or (iii) constitute a novation in any respect. No notice to or demand on the Company shall be deemed to be a waiver of the obligation of the Holder or of the right of the Holder to take further action without further notice or demand as provided in this Note.
18. Final Agreement. This Note represents the entire agreement between the parties hereto with respect to the matters specified herein, and is intended to be the full, complete and exclusive contract governing those matters, superseding all other discussions, promises, representations, warranties, agreements and understandings between the parties with respect thereto. There are no oral agreements among the parties hereto that are inconsistent with the terms of this Note.
19. Set-Off. The Holder and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all obligations at any time owing by the Holder or such Affiliate to or for the credit or the account of the Company against any of and all the amounts owing by the Company under this Note, irrespective of whether or not the Holder shall have made any demand under this Note and although such obligations may be unmatured.
4
20. Third Party Beneficiaries. No third party shall be a beneficiary of this Note.
[signature page follows]
5
IN WITNESS WHEREOF, the parties hereto have caused this Note to be executed as of the date first written above.
Rubicon Technologies, Inc. | ||
Name: | ||
CHPAF Holdings SAPI de CV, as Holder | ||
By: | ||
Name: | ||
Title: |
[Signature Page to Unsecured Promissory Note]
6
Schedule I
Defined Terms
As used in this Note, the following defined terms shall have the meanings ascribed thereto below:
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
“Applicable Law” means all applicable provisions of constitutions, laws, statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals, interpretations and orders of Governmental Authorities and all orders and decrees of all courts and arbitrators.
“Business Day” means any Saturday or Sunday or any other day in which commercial banks in New York are authorized, or required, to close.
“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
Schedule I
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated March 28, 2022, with respect to the financial statements of Founder SPAC contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts”.
/s/ Grant Thornton LLP | |
Dallas, Texas | |
February 8, 2023 |
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the inclusion in this Registration Statement and Prospectus of Rubicon Technologies, Inc., of our report dated April 8, 2022, with respect to our audits of the consolidated financial statements of Rubicon Technologies, LLC and Subsidiaries as of December 31, 2021 and 2020 and for each of the years in the two-year period ended December 31, 2021. We also consent to the reference to us under the heading “Experts” in such Registration Statement and Prospectus.
/s/ Cherry Bekaert LLP |
Atlanta, Georgia
February 8, 2023
Exhibit 107
Calculation of Filing Fee Tables
Form S-1
(Form Type)
Rubicon Technologies, Inc.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered and Carry Forward Securities
Security Type | Security Class Title | Fee
Calculation or Carry Forward Rule | Amount Registered[(1)] | Proposed Maximum Offering Price Per Unit (3) |
Maximum
Aggregate Offering Price | Fee Rate | Amount
of Registration Fee | |||||||||||||||||||||
Fees to be Paid | Equity | Common Stock, $0.01 par value | 457 | (c) | 44,884,579 | (2) | $ | 1.52 | (3) | $ | 68,224,560.08 | $ | 0.00011020 | $ | 4,946.28 | |||||||||||||
Total Offering Amounts | $ | 68,224,560.08 | $ | 4,946.28 | ||||||||||||||||||||||||
Net Fee Due | $ | 4,946.28 |
(1) | Pursuant to Rule 416(a) under the Securities Act of 1933, as amended (the “Securities Act”), this registration statement shall be deemed to cover any additional securities to be offered or issued from stock splits, stock dividends or similar transactions with respect to the shares being registered. |
(2) | Consists of 44,884,579 shares of Class A Common Stock registered for resale by the Selling Securityholders Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act. The price shown is the average of the high and low selling price of the common stock on February 7, 2023, as reported on the New York Stock Exchange. |
(3) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act. The price shown is the average of the high and low selling price of the common stock on February 7, 2023, as reported on the New York Stock Exchange. |